-----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, P/d+z2MB6itjtIAKPAKmybSYz4X+3JcmxnTP0+F8VNPLFX3Bdtd8ffMBObhv5Led rT+J6wvS2rdeNg680L90vA== 0001190903-05-000629.txt : 20050506 0001190903-05-000629.hdr.sgml : 20050506 20050506145221 ACCESSION NUMBER: 0001190903-05-000629 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20050506 DATE AS OF CHANGE: 20050506 EFFECTIVENESS DATE: 20050506 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: 05807414 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 nlaicfpvulprospectus.txt 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, 2005 - -------------------------------------------------------------------------------- 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 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 43215-2220 Material incorporated by reference to this prospectus can be found on the SEC website at: WWW.SEC.GOV 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. 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. 1 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 a Policy Premium Payments Pricing POLICY CHARGES...............................................9 Sales Load Tax Load Surrender Charges Reductions to Surrender Charges Short-Term Trading Fees 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............................12 Surrender (Redemption) Income Tax Withholding VARIATION IN CASH VALUE.....................................13 Error in Age or Sex POLICY PROVISIONS...........................................13 Policy Owner Beneficiary Changes in Existing Insurance Coverage OPERATION OF THE POLICY.....................................14 Allocation of Net Premium and Cash Value How the Investment Experience is Determined Net Investment Factor Determining the Cash Value Transfers RIGHT TO REVOKE.............................................16 POLICY LOANS................................................16 Taking a Policy Loan Effect on Investment Performance Interest Effect on Death Benefit and Cash Value Repayment ASSIGNMENT..................................................17 POLICY OWNER SERVICES.......................................17 Dollar Cost Averaging DEATH BENEFIT INFORMATION...................................18 Calculation of the Death Benefit Changes in the Death Benefit Option Proceeds Payable on Death Incontestability Suicide Maturity Proceeds RIGHT OF CONVERSION.........................................19 GRACE PERIOD................................................19 Reinstatement TAX MATTERS.................................................20 Policy Proceeds Withholding Estate and Generation-Skipping Transfers Taxes Non-Resident Aliens Taxation of Nationwide Tax Changes LEGAL CONSIDERATIONS........................................23 STATE REGULATION............................................23 REPORTS TO POLICY OWNERS....................................23 ADVERTISING.................................................23 LEGAL PROCEEDINGS...........................................23 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM...............25 REGISTRATION STATEMENT......................................26 DISTRIBUTION OF THE POLICIES................................26 NATIONWIDE INVESTMENT SERVICES CORPORATION DIRECTORS AND OFFICERS.................................26 ADDITIONAL INFORMATION ABOUT NATIONWIDE.....................26 COMPANY MANAGEMENT..........................................27 APPENDIX A: SUB-ACCOUNT PORTFOLIOS..........................31 APPENDIX B: ILLUSTRATIONS OF SURRENDER CHARGES..............32 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 2.5% of each premium payment. Currently, the sales load is reduced to 0.5% 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"). Some of the underlying mutual funds held by the sub-accounts assess (or reserve the right to assess) a short-term trading fee. A short-term trading fee will be assessed upon transfer of sub-account value out of a sub-account that occurs within 60 days after allocation to that sub-account. The fee will equal 1% of the amount transferred. The fee is only assessed in connection with sub-accounts that correspond to an underlying mutual fund that assess a short-term trading fee (see "Short-Term Trading Fees"). 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 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. 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 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. 6 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 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. 7 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. 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 8 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 2.5% of each premium payment. Currently, the sales load is reduced to 0.5% 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 - --------------------------------------------------------- Male Female Issue Non-Tobacco Non-Tobacco Male Female Age 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 - -------------------------------------------------------- Male Female Issue Non-Tobacco Non-Tobacco Male Female Age 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. 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 9 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). SHORT-TERM TRADING FEES Some mutual funds may assess (or reserve the right to assess) a short-term trading fee in connection with transfers from a sub-account that occur within 60 days after the date of allocation to the sub-account. Short-term trading fees are intended to compensate the mutual fund (and policy owners with interests allocated in the mutual fund) for the negative impact on fund performance that may result from frequent, short-term trading strategies. Short-term trading fees are not intended to affect the large majority of policy owners not engaged in such strategies. Any short-term trading fee assessed by any mutual fund available in conjunction with the policies described in this prospectus will equal 1% of the amount determined to be engaged in short-term trading. Short-term trading fees will only apply to those sub-accounts corresponding to mutual funds that charge such fees. Please refer to the prospectus for each sub-account portfolio for more detailed information. Policy owners are responsible for monitoring the length of time allocations are held in any particular sub-account. We will not provide advance notice of the assessment of any applicable short-term trading fee. Currently, none of the underlying mutual funds offered as investment options under the policies assess a short-term trading fee. If a short-term trading fee is assessed, the mutual fund will charge the separate account 1% of the amount determined to be engaged in short-term trading. The separate account will then pass the short-term trading fee on to the specific policy owner that engaged in short-term trading by deducting an amount equal to the fee from that policy owner's sub-account value. All such fees will be remitted to the mutual fund; none of the fee proceeds will be retained by Nationwide or the separate account. Transfers will be considered to be made on a first in/first out (FIFO) basis for purposes of determining short-term trading fees. In other words, units held the longest time will be treated as being transferred first, and units held for the shortest time will be treated as being transferred last. Some transactions are not subject to short-term trading fees. Transactions that are not subject to short-term trading fees include: o scheduled and systematic transfers, such as Dollar Cost Averaging; o policy loans or surrenders; or o payment of the death benefit proceeds upon the insured's death. New share classes of currently available mutual funds may be added as investment options under the policy. These new share classes may require the assessment of short-term trading fees. When these new share classes are added, new premium payments and exchange reallocations to the mutual funds in question may be limited to the new share class. 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 10 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. 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 11 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 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. 12 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, 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. 13 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. 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. 14 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. To make a transfer, send a written request to our Home Office via first class U.S. mail. We will process a transfer request at the end of a current Valuation Period. We may also permit other modes of communication subject to limitations. Nationwide's contact information is on the cover page of this prospectus. Neither the policies nor the underlying mutual funds are designed to support active trading strategies that require frequent movement between or among sub-accounts (sometimes referred to as "market-timing" or "short-term trading"). Policy owners who intend to use an active trading strategy should consult with their registered representative and request information on other policies that offer sub-accounts designed specifically to support active trading strategies. Nationwide discourages (and will take action to deter) short-term trading in this policy because the frequent movement between or among sub-accounts may negatively impact other investors in the contract. Short-term trading can result in: o the dilution of the value of the investors' interests in the sub-account; o underlying mutual fund managers taking actions that negatively impact performance (keeping a larger portion of the underlying mutual fund assets in cash or liquidating investments prematurely in order to support redemption requests); and/or o increased administrative costs due to frequent purchases and redemptions. To protect investors in this policy from the negative impact of these practices, Nationwide has implemented, or reserves the right to implement, several processes and/or restrictions aimed at eliminating the negative impact of active trading strategies. Redemption Fees. Some mutual funds assess a short-term trading fee in connection with transfers from a sub-account that occur within 60 days after the date of the allocation to the sub-account. The fee is assessed against the amount transferred and is paid to the mutual fund. Redemption fees compensate the mutual fund for any negative impact on fund performance resulting from short-term trading. U.S. Mail Restrictions. Nationwide monitors transfer activity in order to identify those who may be engaged in harmful trading practices. Transaction reports are produced and examined. Generally, a policy may appear on these reports if the policy owner (or a third party acting on their behalf) engages in a certain number of "transfer events" in a given period. A "transfer event" is any transfer, or combination of transfers, occurring in a given Valuation period. For example, if a policy owner executes multiple transfers involving 10 sub-accounts in 1 day, this counts as 1 transfer event. A single transfer occurring in a given Valuation period that involves only 2 sub-accounts (or one sub-account if the transfer is made to or from a fixed investment option) will also count as 1 transfer event. As a result of this monitoring process, Nationwide may restrict the form in which transfer requests will be accepted. 15 In general, we will adhere to the following guidelines: - ---------------------------- ------------------------------------- Trading Behavior Nationwide's Response - ---------------------------- ------------------------------------- 6 or more transfer events Nationwide will mail a letter to in one calendar quarter the policy owner notifying them that: (1) they have been identified as engaging in harmful trading practices; and (2) if their transfer events exceed 11 in 2 consecutive calendar quarters or 20 in one calendar year, the policy owner will be limited to submitting transfer requests via U.S. mail. - ---------------------------- ------------------------------------- More than 11 transfer Nationwide will automatically limit events in 2 consecutive the policy owner to submitting calendar quarters transfer requests via U.S. mail. OR More than 20 transfer events in one calendar year - ---------------------------- ------------------------------------- Each January 1st, the monitoring process will start anew, so that each policy starts with 0 transfer events each January 1. See, however, the "Other Restrictions" provision below. Managers of Multiple Contracts. Some investment advisers/representatives manage the assets of multiple Nationwide contracts pursuant to trading authority granted or conveyed by multiple policy owners. These multi-contract advisers will be required by Nationwide to submit all transfer requests via U.S. mail. Other Restrictions. Nationwide reserves the right to refuse or limit transfer requests, or take any other action necessary, in order to protect policy owners and beneficiaries from the negative investment results that may result from short-term trading or other harmful investment practices employed by some policy owners (or third parties acting on their behalf). In particular, trading strategies designed to avoid or take advantage of Nationwide's monitoring procedures (and other measures aimed at curbing harmful trading practices) that are nevertheless determined to constitute harmful trading practices, may be restricted. Any restrictions that are implemented will be applied consistently and uniformly. 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, 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 within 60 days of the date of allocation to the sub-account. The separate account will collect the short-term trading fees at the time of the transfer by reducing the amount transferred. All such fees will be remitted 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. 16 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. 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 17 the following underlying mutual fund options: GVIT Gartmore GVIT Government Bond Fund: Class I and GVIT Gartmore GVIT Money Market Fund: 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 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% 95 101% - --------------------------------------------------------------------------------------------- 56 146% 76 105% - --------------------------------------------------------------------------------------------- 57 142% 77 105% - --------------------------------------------------------------------------------------------- 58 138% 78 105% - --------------------------------------------------------------------------------------------- 59 134% 79 105% - ---------------------------------------------------------------------------------------------
18 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. 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: 19 (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 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 20 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 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 47%), 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 21 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. 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. 22 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. IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS When multiple copies of the same disclosure document(s), such as prospectuses, supplements, proxy statements and semi-annual and annual reports are required to be mailed to your household, we will mail only one copy of each document, unless notified otherwise by you. Household delivery will continue for the life of the contracts. Please call 1-866-223-0303 to resume regular delivery. Please allow 30 days for regular delivery to resume. 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 in the ordinary course of its business. It is not possible to determine the ultimate outcome of the pending investigations and legal proceedings or to provide reasonable ranges of potential losses. Some of the matters referred to below are in very preliminary stages, and Nationwide does not have sufficient information to make an assessment of plaintiffs' claims for liability or damages. In some of the cases seeking to be certified as class actions, the court has not yet decided whether a class will be certified or (in the event of certification) the size of the class and class period. In many of the cases, plaintiffs are seeking undefined amounts of damages or other relief, including punitive damages and equitable remedies, that are difficult to quantify and cannot be defined based on the information currently available. Nationwide does not believe, based on information currently known by Nationwide's management, that the outcomes of such pending 23 investigations and legal proceedings are likely to have a material adverse effect on Nationwide's consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could have a material adverse effect on Nationwide's consolidated financial results in a particular quarterly or annual period. 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. The financial services industry, including mutual fund, variable annuity, life insurance and distribution companies, has also been the subject of increasing scrutiny by regulators, legislators and the media over the past two years. Numerous regulatory agencies, including the SEC, the NASD and the New York State 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 and life insurance companies on those issues. Nationwide has been contacted by the SEC and the New York State Attorney General, who are investigating market timing in certain mutual funds offered in insurance products sponsored by Nationwide. Nationwide is cooperating with this investigation and is responding to information requests. In addition, state and federal regulators have commenced investigations or other proceedings relating to compensation and bidding arrangements and possible anti-competitive activities between insurance producers and brokers and issuers of insurance products, and unsuitable sales by producers on behalf of either the issuer or the purchaser. Also under investigation are compensation arrangements between the issuers of variable insurance contracts and mutual funds or their affiliates. Related investigations and proceedings may be commenced in the future. Nationwide has been contacted by regulatory agencies and state attorneys general for information relating to these investigations into compensation and bidding arrangements, anti-competitive activities and unsuitable sales practices. Nationwide is cooperating with regulators in connection with these inquiries. Nationwide Mutual Insurance Company ("NMIC"), Nationwide's ultimate parent, has been contacted by certain regulators for information on these issues with respect to its operations and the operations of its subsidiaries, including Nationwide. Nationwide will cooperate with NMIC in responding to these inquiries to the extent that any inquiries encompass its operations. These proceedings are expected to continue in the future, and could result in legal precedents and new industry-wide legislation, rules and regulations that could significantly affect the financial services industry, including life insurance and annuity companies. These proceedings could also affect the outcome of one or more of Nationwide's litigation matters. On April 13, 2004, Nationwide was named in a class action lawsuit filed in Circuit Court, Third Judicial Circuit, Madison County, Illinois, entitled Woodbury v. Nationwide Life Insurance Company. The plaintiff purports to represent a class of persons in the United States who, through their ownership of a Nationwide annuity or insurance product, held units of any Nationwide sub-account invested in mutual funds which included foreign securities in their portfolios and which allegedly experienced market timing trading activity. The complaint contains allegations of negligence, reckless indifference and breach of fiduciary duty. The plaintiff seeks to recover compensatory and punitive damages in an amount not to exceed $75,000 per plaintiff or class member. Nationwide removed this case to the United States District Court for the Southern District of Illinois on June 1, 2004. The plaintiffs moved to remand on June 28, 2004. On July 12, 2004, Nationwide filed a memorandum opposing remand and requesting a stay pending the resolution of an unrelated case covering similar issues, which is an appeal from a decision of the same District Court remanding a removed market timing case to an Illinois state court. On July 30, 2004, the U.S. District Court granted Nationwide's request for a stay pending a decision by the Seventh Circuit on the unrelated case mentioned above. On December 27, 2004, the case was transferred to the United States District Court for the District of Maryland and included in the multi-district proceeding there entitled In Re Mutual Funds Investment Litigation. This lawsuit is in a preliminary stage, and Nationwide intends to defend it vigorously. On January 21, 2004, Nationwide was named in a lawsuit filed in the United States District Court for the Northern District of Mississippi entitled 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, plaintiff United Investors alleges that Nationwide and/or its affiliated life insurance companies caused the replacement of variable insurance policies and other financial products issued by United Investors with policies issued by the Nationwide defendants. The plaintiff raises claims for (1) violations of the Federal Lanham Act, and common law unfair 24 competition and defamation, (2) tortious interference with the plaintiff's contractual relationship with Waddell & Reed, Inc. and/or its affiliates, Waddell & Reed Financial, Inc., Waddell & Reed Financial Services, Inc. and W&R Insurance Agency, Inc., or with the plaintiff's contractual relationships with its variable policyholders, (3) civil conspiracy, and (4) breach of fiduciary duty. The complaint seeks compensatory damages, punitive damages, pre- and post-judgment interest, a full accounting, a constructive trust, and costs and disbursements, including attorneys' fees. Nationwide filed a motion to dismiss the complaint on June 1, 2004. On February 8, 2005 the court denied the motion to dismiss. Nationwide intends to defend this lawsuit vigorously. On October 31, 2003, Nationwide was named in a lawsuit seeking class action status filed in the United States District Court for the District of Arizona entitled Robert Helman et al v. Nationwide Life Insurance Company et al. The suit challenges the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans. On April 8, 2004, the plaintiff filed an amended class action complaint on behalf of all persons who purchased an individual variable deferred annuity contract or a certificate to a group variable annuity contract issued by Nationwide or Nationwide Life and Annuity Insurance Company which were allegedly used to fund certain tax-deferred retirement plans. The amended class action complaint seeks unspecified compensatory damages. Nationwide filed a motion to dismiss the complaint on May 24, 2004. On July 27, 2004, the court granted Nationwide's motion to dismiss. The plaintiff has appealed that dismissal to the United States Court of Appeals for the Ninth Circuit. Nationwide intends to defend this lawsuit vigorously. On May 1, 2003, Nationwide was named in a class action lawsuit filed in the United States District Court for the Eastern District of Louisiana entitled 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. The 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 Nationwide's expense charges under the contracts were fixed. The 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. The 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 District Court on October 28, 2003. The plaintiff appealed that dismissal to the United States Court of Appeals for the Fifth Circuit. On November 22, 2004, the Fifth Circuit Court of Appeals affirmed the judgment of the District Court dismissing the complaint. The time for further appeal by the plaintiff has expired. On August 15, 2001, Nationwide was named in a lawsuit filed in the United States District Court for the District of Connecticut entitled 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 5, 2001 to include class action allegations and have subsequently amended their complaint three times. As amended, in the current complaint the plaintiffs seek to represent a class of ERISA qualified retirement plans that purchased variable annuities from Nationwide. The plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts and that Nationwide breached ERISA fiduciary duties by allegedly accepting service payments from certain mutual funds. The complaint seeks disgorgement of some or all of the payments allegedly received by Nationwide, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys' fees. On December 13, 2001, the plaintiffs filed a motion for class certification. The plaintiffs filed a supplement to that motion on September 19, 2003. Nationwide opposed that motion on December 24, 2003. On July 6, 2004, Nationwide filed a Revised Memorandum in Support of Summary Judgment. The plaintiffs have opposed that motion. Nationwide intends to defend this lawsuit vigorously. The general distributor, NISC, is not engaged in any litigation of any material nature. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements of Nationwide VLI Separate Account-2 and the consolidated financial statements for Nationwide Life Insurance Company and subsidiaries for the periods indicated have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, 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, 2004 consolidated financial statements of Nationwide Life Insurance Company and 25 subsidiaries contains an explanatory paragraph that states that Nationwide Life Insurance Company and subsidiaries adopted the American Institute of Certified Public Accountants' Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts in 2004. KPMG LLP is located at 191 West Nationwide Blvd., Columbus, Ohio 43215. 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 VLI Separate Account-7; 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; o Nationwide VL Separate Account-D; and o Nationwide VL Separate Account-G. 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 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. Mark D. Phelan, Chairman of the Board Rhodes B. Baker, Director and President William G. Goslee, Jr., Senior Vice President M. Eileen Kennedy, Director and Senior Vice President and Treasurer Thomas E. Barnes, Vice President and Secretary The business address of the Directors and Officers of Nationwide Investment Services Corporation 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: 26 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; and o Nationwide VLI Separate Account-7. 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. 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, Chairman of the Board from May 2002 to May 2003, and a Director of Nationwide since May 2000. Prior to joining Nationwide, he was Executive Vice President of Bank One Corporation from 1998 to 2000. He 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 5 years. MARK R. THRESHER has been President and Chief Operating Officer of Nationwide Financial since May 2004, and was President and Chief Operating Officer-Elect from December 2003 to May, 2004. 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 9 years. PATRICIA R. HATLER has been Executive Vice President and Chief Legal and Governance Officer of Nationwide since December, 2004. Previously, she was Executive Vice President, General Counsel and Secretary from October, 2004 to December 2004, 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 27 Independence Blue Cross from 1983 to July 1999. Ms. Hatler has been with Nationwide for 6 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 8 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 4 years. KATHLEEN D. RICORD has been Executive Vice President-Chief Marketing Officer of Nationwide since September 2003. Previously, she was Senior Vice President-Marketing and Strategy 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 19 years. ROBERT A. ROSHOLT has been Executive Vice President-Chief Finance and Investment Officer of Nationwide since March 2003. Previously, he was Executive Vice President-Finance and Investments from October 2002 to March 2003. 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 3 years. WESLEY K. AUSTEN has been Senior Vice President-Property and Casualty Commercial/Farm Product Pricing of Nationwide since September 2003. Previously, he was Vice President of Nationwide Mutual 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 to April 2002. Mr. Austen has been with Nationwide for 25 years. J. STEPHEN BAINE has been Senior Vice President-Corporate Strategy of Nationwide since June 2004. Prior to joining Nationwide, he served as general partner for the Starboard Fund for New Bancs, and has held management positions with Ragnarck Systems, Bank One and McKinsey & Company. Mr. Baine has been with Nationwide for 1 year. JAMES R. BURKE has been Senior Vice President-P/C Strategic Planning and Operations since August 2004. Mr. Burke held various management positions with Allied from June 1981 to November 2001. Mr. Burke has been with Nationwide for 24 years. DAVID A. DIAMOND has been Senior Vice President of Nationwide since September 2003. Previously, he was Senior Vice President-Corporate Strategy from December 2000 to September 2003. Senior Vice President-Corporate Controller from August 1999 to December 2000, Vice President-Enterprise Controller from August 1996 to May 1999, and Vice President-Controller from October 1993 to August 1996. Prior to that time, Mr. Diamond held several positions within Nationwide. Mr. Diamond has been with Nationwide for 16 years. THOMAS W. DIETRICH has been Senior Vice President-Division General Counsel of Nationwide since October 2004. Previously, he was Vice President-Associate General Counsel from October 1988 to October 2004 and Associate Vice President-Associate General Counsel from March 1987 to October 1988. He is also a director/officer of other Nationwide affiliates and subsidiaries. Mr. Dietrich has been with Nationwide for 34 years. DENNIS P. DRENT has been Senior Vice President-Internal Audits of Nationwide since May 2003. Previously, he 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 5 years. PETER A. GOLATO has been Senior Vice President-Individual Protection Business Head of Nationwide since May 2004. He is also a director/officer of several Nationwide affiliates and subsidiaries. Prior to joining Nationwide, he was Marketing Manager with Aetna Life & Casualty Company from September 1976 to March 1993. Mr. Golato has been with Nationwide for 12 years. J. LYNN GREENSTEIN has been Senior Vice President-Property and Casualty Personal Lines Product Pricing of Nationwide since April 2004. Previously, she was Senior Vice President-Product Management from March 2003 to April 2004, and 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 20 years. KELLY A. HAMILTON has been Senior Vice President-PC Finance of Nationwide since August, 2004. Previously she was Senior Vice President-NI Finance from 28 September 2003 to August 2004, and 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 10 years. DAVID K. HOLLINGSWORTH has been Senior Vice President-PCIO Brokerage Operations & Sponsor Relations of Nationwide since October 2004. Previously, he was Senior Vice President-President Nationwide Insurance Sales from January 2002 to October 2004. Mr. Hollingsworth has been with Nationwide for 15 years. DAVID R. JAHN has been Senior Vice President-Property and Casualty Claims of Nationwide since October 2003. Previously, he was Senior Vice President-Product Management from November 2000 to October 2003. Mr. Jahn has been with Nationwide for 33 years. M. EILEEN KENNEDY has been Senior Vice President-Chief Financial Officer of Nationwide since April 2004. Previously, she was Senior Vice President-NF Finance from January 2004 to April 2004. Ms. Kennedy has also been Executive Vice President and Chief Financial 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-Non-Affiliated Sales of Nationwide since May 2004. Previously, he was Senior Vice President-Sales-Financial Services from March 1993 to May 2004, and Vice President-Sales-Financial Services from February 1989 to March 1993. Prior to that time, Mr. Karas held several positions within Nationwide. Mr. Karas has been with Nationwide for 40 years. GALE V. KING has been Senior Vice President-Property and Casualty Human Resources of Nationwide since October 2003. Previously, she 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 22 years. SRINIVAS KOUSHIK has been Senior Vice President-Chief Technology Officer of Nationwide since December 2003. Previously, he 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 3 years. GREGORY S. LASHUTKA has been Senior Vice President-Corporate Relations of Nationwide since January 2000. Prior to joining Nationwide, he was Mayor of the City of Columbus (Ohio) from January 1992 to December 1999. Mr. Lashutka has been with Nationwide for 5 years. KATHERINE A. MABE has been Senior Vice President-Marketing, Strategy and Urban Operations of Nationwide since September 2003. Previously, she 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. Mabe has been with Nationwide for 29 years. DUANE C. MEEK has been Senior Vice President-Group Business Head of Nationwide since May 2004, and is a director/office of several Nationwide affiliates and subsidiaries. Mr. Meek has been with Nationwide for 29 years. KEITH MILLNER has been Senior Vice President, In-Retirement Business Head of Nationwide since November 2004. Prior to joining Nationwide, Mr. Millner was a Senior Vice President for CIGNA HealthCare from July 2002; an independent consultant from August 2001 to July 2002; and held various positions for Assurant Group (Fortis, Inc.) from 1996 to August 2001. Mr. Millner has been with Nationwide for less than 1 year. BRIAN W. NOCCO has been Senior Vice President and Treasurer of Nationwide since April 2001. Prior to 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 4 years. R. DENNIS NOICE has been Senior Vice President-NF of Nationwide since August 2004. He is also an officer of other Nationwide affiliates and subsidiaries. Mr. Noice has been with Nationwide for 34 years. MARK D. PHELAN has been Senior Vice President-Individual Investments Business Head of Nationwide since May 2004. Previously, he was Senior Vice President-Technology and Operations from December 2000 to May 2004. 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 5 years. STEVEN P. ROTHMAN has been Senior Vice President-IT Strategy and Solutions Delivery of Nationwide 29 since August 2004. Prior to joining Nationwide, he was Principal with Deloitte Consulting from July 2002 to August 2004, a Partner with Anderson Consulting from November 2000 to July 2002, and President with Leapnet/Eagle Tech Partners from August 1999 to November 2000. Prior to that time he held management positions with various companies from September 1979 to August 1999. Mr. Rothman has been with Nationwide for 1 year. GARY I. SIROKO has been Senior Vice President-CIO Strategic Investments of Nationwide since August 2004. Previously, he was Vice President-Technology Strategy from April 2002 to August 2004. He is also an officer of other Nationwide affiliates and subsidiaries. Prior to joining Nationwide, Mr. Siroko was a Senior Vice President for Bank One from October 1980 to February 2002. Mr. Siroko has been with Nationwide for 3 years. JOHN S. SKUBIK has been Senior Vice President-Consumer Finance of Nationwide since January 2003. Previously, 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 4 years. GAIL G. SNYDER has been Senior Vice President-Enterprise Portfolio & Strategy Management of Nationwide since February 2005. Prior to joining Nationwide, Ms. Snyder was Senior Vice President of Strategic Portfolio Management at GE from December 1996 to December 2004, and Director of Portfolio Management at Provident Life and Accident Insurance Company from December 1986 to March 1995. Ms. Snyder has been with Nationwide since 2005. 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 1 year. 30 - -------------------------------------------------------------------------------- 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 This sub-account is only available in policies issued before 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: To provide as high level of income as is consistent with the preservation of capital. - ------------------------------------------------ ----------------------------------------------------------------------------------- GARTMORE VARIABLE INSURANCE TRUST - GARTMORE GVIT GROWTH FUND: CLASS I This sub-account is only available in policies issued before 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 as is consistent with the preservation of capital and maintenance of liquidity. - ------------------------------------------------ ----------------------------------------------------------------------------------- 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: Total return through a flexible combination of capital appreciation and current income. - ------------------------------------------------ ----------------------------------------------------------------------------------- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST - AMT BALANCED PORTFOLIO - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Adviser: Neuberger Berman Management, Inc. - ------------------------------------------------ ----------------------------------------------------------------------------------- Investment Objective: Growth of capital and reasonable current income. - ------------------------------------------------ -----------------------------------------------------------------------------------
31 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% - -----------------------------------------------------------------------------------------------------------
32 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 SURRENDER CHARGE AS COMPLETED AS A % OF INITIAL COMPLETED CHARGE AS A % OF COMPLETED A % OF INITIAL POLICY SURRENDER POLICY INITIAL 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. Report of Independent Registered Public Accounting Firm 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, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004, 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, 2004, and the results of its operations, changes in contract owners' equity, and financial highlights for each of the periods indicated herein, in conformity with U.S. generally accepted accounting principles. KPMG LLP Columbus, Ohio March 4, 2005 NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY December 31, 2004 Assets: Investments at fair value: AIM VIF - Basic Value Fund - Series I Shares (AIMBValue) 56,644 shares (cost $616,545) ..................................................... $ 670,661 AIM VIF - Capital Appreciation Fund - Series I Shares (AIMCapAp) 2,572 shares (cost $55,376) ....................................................... 58,352 AIM VIF - Capital Development Fund - Series I Shares (AIMCapDev) 16,291 shares (cost $214,290) ..................................................... 239,146 Alliance VPSF - Alliance Bernstein Growth & Income Portfolio - Class A (AlVPGrIncA)37,928 shares (cost $829,708) ......................................... 913,315 Alliance VPSF - Alliance Bernstein Small Cap Value Portfolio - Class A (AlVPSmCapVA) 50,611 shares (cost $763,038) ....................................... 852,285 American Century VP - Balanced Fund - Class I (ACVPBal) 788,864 shares (cost $5,164,439) .................................................. 5,742,932 American Century VP - Capital Appreciation Fund - Class I (ACVPCapAp) 1,563,941 shares (cost $12,394,535) ............................................... 11,979,787 American Century VP - Income & Growth Fund - Class I (ACVPIncGr) 521,887 shares (cost $2,871,924) .................................................. 3,820,215 American Century VP - Inflation Protection Fund - Class II (ACVPInflaPro) 91,337 shares (cost $952,813) ..................................................... 963,603 American Century VP - International Fund - Class I (ACVPInt) 1,524,134 shares (cost $8,858,074) ................................................ 11,202,382 American Century VP - Ultra/(R)/ Fund - Class I (ACVPUltra) 93,038 shares (cost $876,505) ..................................................... 945,270 American Century VP - Value Fund - Class I (ACVPVal) 1,527,871 shares (cost $10,493,450) ............................................... 13,368,871 Credit Suisse Trust - Global Post-Venture Capital Portfolio (CSGPVen) 74,455 shares (cost $616,953) ..................................................... 830,174 Credit Suisse Trust - International Focus Portfolio (CSIntFoc) 657,025 shares (cost $5,531,569) .................................................. 6,603,097 Credit Suisse Trust - Small Cap Growth Portfolio (CSSmCapGr) 943,072 shares (cost $9,958,985) .................................................. 14,429,003 Dreyfus IP - Small Cap Stock Index Portfolio - Service Class (DrySmCapIxS) 134,224 shares (cost $1,818,968) .................................................. 2,092,549 Dreyfus Socially Responsible Growth Fund, Inc., The (DrySRGro) 370,962 shares (cost $12,505,609) ................................................. 9,337,103 Dreyfus Stock Index Fund, Inc. - Initial Shares (DryStkIx) 2,630,460 shares (cost $82,930,615) ............................................... 81,254,904 Dreyfus VIF - Appreciation Portfolio - Initial Shares (DryVIFApp) 172,889 shares (cost $5,264,074) .................................................. 6,147,941 Dreyfus VIF - Developing Leaders Portfolio - Initial Shares (DryVIFDevLd) 10,501 shares (cost $410,500) ..................................................... 436,298 Dreyfus VIF - Growth and Income Portfolio - Initial Shares (DryVIFGrInc) 114,885 shares (cost $2,293,379) .................................................. 2,458,540 Federated IS - American Leaders Fund II - Primary Shares (FedAmLead) 5,765 shares (cost $108,296) ...................................................... 119,161 Federated IS - Capital Appreciation Fund II - Primary Shares (FedCapAp) 4,487 shares (cost $23,745) ....................................................... 26,161
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY, Continued Federated IS - Quality Bond Fund II - Primary Shares (FedQualBd) 98,227 shares (cost $1,152,240) ................................................... $ 1,146,314 Fidelity/(R)/ VIP - Equity-Income Portfolio - Initial Class (FidVIPEI) 2,985,928 shares (cost $69,891,040) ............................................... 75,752,997 Fidelity/(R)/ VIP - Growth Portfolio - Initial Class (FidVIPGr) 2,806,707 shares (cost $122,904,252) .............................................. 89,842,682 Fidelity/(R)/ VIP - High Income Portfolio - Initial Class (FidVIPHI) 3,541,912 shares (cost $23,204,814) ............................................... 24,793,383 Fidelity/(R)/ VIP - Overseas Portfolio - Initial Class (FidVIPOv) 1,069,218 shares (cost $13,142,119) ............................................... 18,732,692 Fidelity/(R)/ VIP II - Asset Manager Portfolio - Initial Class (FidVIPAM) 1,555,767 shares (cost $24,267,464) ............................................... 23,103,142 Fidelity/(R)/ VIP II - Contrafund/(R)/ Portfolio - Initial Class (FidVIPCon) 2,253,094 shares (cost $53,637,403) ............................................... 59,977,362 Fidelity/(R)/ VIP II - Investment Grade Bond Portfolio: Service Class (FidVIPIGBdS) 69,750 shares (cost $896,214) ..................................................... 919,304 Fidelity/(R)/ VIP III - Growth Opportunities Portfolio - Initial Class (FidVIPGrOp) 276,062 shares (cost $4,252,540) .................................................. 4,436,314 Fidelity/(R)/ VIP III - Mid Cap Portfolio - Service Class (FidVIPMCapS) 142,768 shares (cost $3,682,978) .................................................. 4,293,019 Fidelity/(R)/ VIP III - Value Strategies Portfolio - Service Class (FidVIPValS) 143,487 shares (cost $1,935,205) .................................................. 2,021,738 Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I (FrVIPRisDiv) 141,814 shares (cost $2,315,285) .................................... 2,517,193 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I (FTVIPSmCpVal) 119,087 shares (cost $1,653,348) ................................... 1,887,534 Franklin Templeton VIP - Templeton Foreign Securities Fund - Class I (FrVIPForSec) 107,380 shares (cost $1,381,595) .................................................. 1,560,227 Gartmore GVIT Comstock Value Fund - Class I (GVITCVal) 49,712 shares (cost $513,290) ..................................................... 573,176 Gartmore GVIT Dreyfus International Value Fund - Class I (GVITDryIntVal) 97,426 shares (cost $1,349,667) ................................................... 1,517,900 Gartmore GVIT Dreyfus Mid Cap Index Fund - Class I (GVITDMidCapI) 425,977 shares (cost $5,543,723) .................................................. 7,071,225 Gartmore GVIT Emerging Markets Fund - Class I (GVITEmMrkts) 178,091 shares (cost $1,887,949) .................................................. 1,928,724 Gartmore GVIT Federated High Income Bond Fund - Class I (GVITFHiInc) 91,689 shares (cost $746,451) ..................................................... 751,849 Gartmore GVIT Global Financial Services Fund - Class I (GVITGlFin1) 42,249 shares (cost $514,994) ..................................................... 541,627 Gartmore GVIT Global Health Sciences Fund - Class I (GVITGlHlth) 98,727 shares (cost $1,032,669) ................................................... 1,055,390 Gartmore GVIT Global Technology and Communications Fund - Class I (GVITGlTech) 242,107 shares (cost $924,498) .................................................... 936,952 Gartmore GVIT Global Utilities Fund - Class I (GVITGlUtl1) 100,170 shares (cost $1,055,617) .................................................. 1,127,917 Gartmore GVIT Government Bond Fund - Class I (GVITGvtBd) 1,115,030 shares (cost $13,592,735) ............................................... 12,956,646 Gartmore GVIT Growth Fund - Class I (GVITGrowth) 1,593,485 shares (cost $26,578,506) ............................................... 17,145,896 Gartmore GVIT ID Aggressive Fund - Class II (GVITIDAgg) 113,843 shares (cost $1,201,999) .................................................. 1,311,469 Gartmore GVIT ID Conservative Fund - Class II (GVITIDCon) 58,361 shares (cost $597,078) ..................................................... 609,877
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY, Continued Gartmore GVIT ID Moderate Fund - Class II (GVITIDMod) 428,325 shares (cost $4,359,070) .................................................. $ 4,822,937 Gartmore GVIT ID Moderately Aggressive Fund - Class II (GVITIDModAgg) 356,546 shares (cost $3,606,681) .................................................. 4,107,412 Gartmore GVIT ID Moderately Conservative Fund - Class II (GVITIDModCon) 166,657 shares (cost $1,713,522) .................................................. 1,818,226 Gartmore GVIT International Growth Fund - Class I (GVITIntGro) 35,711 shares (cost $239,550) ..................................................... 255,687 Gartmore GVIT Mid Cap Growth Fund - Class I (GVITSMdCpGr) 51,280 shares (cost $1,124,358) ................................................... 1,268,666 Gartmore GVIT Money Market Fund - Class I (GVITMyMkt) 26,695,914 shares (cost $26,695,914) .............................................. 26,695,914 Gartmore GVIT Nationwide/(R)/ Fund: Class I (GVITNWFund) 6,720,651 shares (cost $95,814,294) ............................................... 74,800,841 Gartmore GVIT Nationwide/(R)/ Leaders Fund - Class I (GVITLead) 12,279 shares (cost $159,231) ..................................................... 169,207 Gartmore GVIT Small Cap Growth Fund - Class I (GVITSmCapGr) 128,526 shares (cost $1,706,915) .................................................. 1,890,624 Gartmore GVIT Small Cap Value Fund - Class I (GVITSmCapVal) 1,187,252 shares (cost $12,558,750) ............................................... 14,983,125 Gartmore GVIT Small Company Fund - Class I (GVITSmComp) 1,229,125 shares (cost $23,929,406) ............................................... 28,220,717 Gartmore GVIT U.S. Growth Leaders Fund - Class I (GVITUSGro) 76,055 shares (cost $814,787) ..................................................... 879,201 Gartmore GVIT Van Kampen Multi Sector Bond Fund - Class I (GVITVKMultiSec) 121,096 shares (cost $1,192,282) .................................................. 1,210,964 Janus AS - Balanced Portfolio - Service Shares (JanBal) 3,731 shares (cost $89,204) ....................................................... 94,168 Janus AS - Capital Appreciation Portfolio - Service Shares (JanCapAp) 103,234 shares (cost $2,089,909) .................................................. 2,517,875 Janus AS - Global Technology Portfolio - Service Shares (JanGlTech) 321,390 shares (cost $907,259) .................................................... 1,140,933 Janus AS - International Growth Portfolio - Service Shares (JanIntGro) 66,152 shares (cost $1,283,075) ................................................... 1,782,123 Janus AS - Risk-Managed Large Cap Core Portfolio - Service Shares (JanRMgLgCap) 6,497 shares (cost $86,898) ....................................................... 88,294 MFS VIT - MFS Investors Growth Stock Series - Initial Class (MFSVITInvGrwI) 27,172 shares (cost $240,856) ..................................................... 258,409 MFS VIT - MFS Value Series - Initial Class (MFSVITValIn) 15,067 shares (cost $165,811) ..................................................... 182,760 Neuberger Berman AMT - Balanced Portfolio (NBAMTBal) 4,986 shares (cost $43,469) ....................................................... 48,068 Neuberger Berman AMT - Fasciano Portfolio - S Class Shares (NBAMTFasc) 8,321 shares (cost $108,545) ...................................................... 115,083 Neuberger Berman AMT - Growth Portfolio (NBAMTGro) 1,417,598 shares (cost $13,051,390) ............................................... 17,223,820 Neuberger Berman AMT - Guardian Portfolio - I Class Shares (NBAMTGuard) 137,968 shares (cost $1,728,291) .................................................. 2,230,940 Neuberger Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) 430,063 shares (cost $5,732,402) .................................................. 5,513,405 Neuberger Berman AMT - Mid Cap Growth Portfolio - S Class (NBAMTMCGrS) 14,144 shares (cost $220,979) ..................................................... 250,765 Neuberger Berman AMT - Partners Portfolio (NBAMTPart) 1,216,935 shares (cost $17,490,604) ............................................... 22,294,243
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY, Continued Neuberger Berman AMT - Socially Responsive Portfolio - I Class (NBAMSocRes) 18,899 shares (cost $241,871) ..................................................... $ 264,402 Oppenheimer Aggressive Growth Fund/VA - Initial Class (OppAggGro) 50,126 shares (cost $1,898,931) ................................................... 2,204,028 Oppenheimer Bond Fund/VA - Initial Class (OppBdFd) 1,078,030 shares (cost $11,895,395) ............................................... 12,397,341 Oppenheimer Capital Appreciation Fund/VA - Initial Class (OppCapAp) 385,944 shares (cost $11,156,851) ................................................. 14,276,083 Oppenheimer Global Securities Fund/VA - Initial Class (OppGlSec) 1,255,454 shares (cost $27,732,899) ............................................... 37,048,436 Oppenheimer High Income Fund/VA - Initial Class (OppHighInc) 78,556 shares (cost $649,271) ..................................................... 691,297 Oppenheimer Main Street/(R)/ Fund/VA - Initial Class (OppMSFund) 78,902 shares (cost $1,483,907) ................................................... 1,644,322 Oppenheimer Main Street/(R)/ Small Cap Fund/VA - Initial Class (OppMSSmCap) 29,332 shares (cost $399,529) ..................................................... 470,773 Oppenheimer Multiple Strategies Fund/VA - Initial Class (OppMultStr) 913,606 shares (cost $14,278,614) ................................................. 15,851,058 Putnam VT - Growth & Income Fund - IB Shares (PVTGroInc) 3,115 shares (cost $72,571) ....................................................... 79,239 Putnam VT - International Equity Fund - IB Shares (PVTIntEq) 9,031 shares (cost $119,267) ...................................................... 132,847 Putnam VT - Voyager II Fund - IB Shares (PVTVoyII) 1,964 shares (cost $50,423) ....................................................... 53,429 Strong Opportunity Fund II, Inc (StOpp2) 1,602,444 shares (cost $32,926,527) ............................................... 35,974,870 Strong VIF - Strong Discovery Fund II (StDisc2) 567,107 shares (cost $6,132,915) .................................................. 8,308,120 Van Eck WIT - Worldwide Bond Fund (VEWrldBd) 290,216 shares (cost $3,609,668) .................................................. 3,868,578 Van Eck WIT - Worldwide Emerging Markets Fund (VEWrldEMkt) 409,513 shares (cost $4,405,137) .................................................. 6,228,686 Van Eck WIT - Worldwide Hard Assets Fund (VEWrldHAs) 358,669 shares (cost $4,898,262) .................................................. 6,585,171 Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A (VKoreFI) 17,491 shares (cost $201,887) ..................................................... 202,191 Van Kampen UIF - Emerging Markets Debt Portfolio (VKEmMkt) 260,969 shares (cost $2,234,636) .................................................. 2,320,015 Van Kampen UIF - U.S. Real Estate Portfolio - Class A (VKUSRealEst) 914,430 shares (cost $13,076,894) ................................................. 18,727,534 --------------- Total Investments .............................................................. 915,197,126 Accounts Receivable ..................................................................... 430,350 --------------- Total Assets ................................................................... 915,627,476 Accounts Payable ........................................................................ - --------------- Contract Owners Equity (note 7) ......................................................... $ 915,627,476 ===============
See accompanying notes to financial statements. NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS Year Ended December 31, 2004
Total AIMBValue AIMCapAp AIMCapDev ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 11,329,028 - - - Mortality and expense risk charges (note 3) ................................. (6,419,845) (3,551) (653) (855) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 4,909,183 (3,551) (653) (855) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 213,853,565 136,501 61,302 31,229 Cost of mutual fund shares sold ........... (216,130,078) (124,942) (53,853) (26,308) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... (2,276,513) 11,559 7,449 4,921 Change in unrealized gain (loss) on investments ........................... 79,434,320 40,599 (5,301) 20,230 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 77,157,807 52,158 2,148 25,151 ------------- ------------- ------------- ------------- Reinvested capital gains .................. 5,894,860 - - - ------------- ------------- ------------- ------------- Net increase(decrease) in contract owners' equity resulting from operations ........................... $ 87,961,850 48,607 1,495 24,296 ============= ============= ============= ============= AlVPGrIncA AlVPSmCapVA ACVPBal ACVPCapAp ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 6,944 628 92,318 - Mortality and expense risk charges (note 3) ................................. (4,026) (3,045) (40,764) (93,439) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 2,918 (2,417) 51,554 (93,439) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 210,912 364,972 821,084 2361,782 Cost of mutual fund shares sold ........... (185,926) (323,411) (853,243) (2,982,019) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 24,986 41,561 (32,159) (620,237) Change in unrealized gain (loss) on investments ........................... 50,846 68,703 457,056 1,468,614 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 75,832 110,264 424,897 848,377 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - 8,078 - - ------------- ------------- ------------- ------------- Net increase(decrease) in contract owners' equity resulting from operations ........................... 78,750 115,925 476,451 754,938 ============= ============= ============= =============
ACVPIncGr ACVPInflaPro ACVPInt ACVPUItra ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 53,276 20,128 61,454 - Mortality and expense risk charges (note 3) ................................. (26,146) (4,073) (76,947) (5,362) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 27,130 16,055 (15,493) (5,362) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 828,018 284,019 2,807,667 1,545,969 Cost of mutual fund shares sold ........... (659,417) (283,364) (2,936,660) (1,553,392) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 168,601 655 (128,993) (7,423) Change in unrealized gain (loss) on investments ........................... 221,739 9,790 1,534,838 40,489 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 390,340 10,445 1,405,845 33,066 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - 172 - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 417,470 26,672 1,390,352 27,704 ============= ============= ============= ============= ACVPVal CSGPVen CSIntFoc CSSmCapGr ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 129,944 _ 59,850 _ Mortality and expense risk charges (note 3) ................................. (92,656) (5,968) (40,767) (103,596) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 37,288 (5,968) 19,083 (103,596) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 4,015,736 277,270 950,759 3,286,563 Cost of mutual fund shares sold ........... (3,534,625) (218,165) (864,338) (2,486,875) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 481,111 59,105 86,421 799,688 Change in unrealized gain (loss) on investments ........................... 1,012,962 73,406 694,824 682,170 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 1,494,073 132,511 781,245 1,481,858 ------------- ------------- ------------- ------------- Reinvested capital gains .................. 100,800 _ - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 1,632,161 126,543 800,328 1,378,262 ============= ============= ============= =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2004
DrySmCapIxS DrySRGro DryStkIx DryVIFApp ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 7,392 36,080 1,408,140 101,724 Mortality and expense risk charges (note 3) ................................. (8,566) (69,808) (535,064) (45,253) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (1,174) (33,728) 873,076 56,471 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 720,708 1,653,034 10,291,131 1,535,992 Cost of mutual fund shares sold ........... (589,224) (2,459,733) (11,824,016) (1,380,980) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 131,484 (806,699) (1,532,885) 155,012 Change in unrealized gain (loss) on investments ........................... 172,260 1,328,566 8,040,385 46,494 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 303,744 521,867 6,507,500 201,506 ------------- ------------- ------------- ------------- Reinvested capital gains .................. 41,304 - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ............................. $ 343,874 488,139 7,380,576 257,977 ============= ============= ============= ============= DryVIFDevLd DryVIFGrInc FedAmLead FedCapAp ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 826 30,102 236 48 Mortality and expense risk charges (note 3) ................................. (2,488) (16,763) (418) (117) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (1,662) 13,339 (182) (69) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 157,204 501,232 8,549 1,035 Cost of mutual fund shares sold ........... (141,214) (617,819) (7,970) (926) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 15,990 (116,587) 579 109 Change in unrealized gain (loss) on investments ........................... 12,674 272,360 10,052 1,916 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 28,664 155,773 10,631 2,025 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ............................. 27,002 169,112 10,449 1,956 ============= ============= ============= =============
FedQualBd FidVIPEI FidVIPGr FidVIPHI ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 68,628 1,144,044 243,960 2,035,634 Mortality and expense risk charges (note 3) ................................. (10,022) (551,425) (687,550) (170,835) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 58,606 592,619 (443,590) 1,864,799 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 872,353 8,195,577 9,346,321 21,439,178 Cost of mutual fund shares sold ........... (900,050) (8,330,036) (13,259,195) (19,218,334) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... (27,697) (134,459) (3,912,874) 2,220,844 Change in unrealized gain (loss) on investments ........................... (13,787) 6,772,765 6,531,064 (1,972,719) ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... (41,484) 6,638,306 2,618,190 248,125 ------------- ------------- ------------- ------------- Reinvested capital gains .................. 15,062 273,300 - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 32,184 7,504,225 2,174,600 2,112,924 ============= ============= ============= ============= FidVIPOv FidVIPAM FidVIPCon FidVIPIGBdS ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 198,082 643,386 187,464 15,192 Mortality and expense risk charges (note 3) ................................. (128,515) (181,994) (406,716) (4,419) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 69,567 461,392 (219,252) 10,773 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 2,092,008 2,880,210 5,634,125 620,825 Cost of mutual fund shares sold ........... (1,855,921) (3,409,358) (5,706,241) (631,215) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 236,087 (529,148) (72,116) (10,390) Change in unrealized gain (loss) on investments ........................... 1,839,902 1,123,796 7,993,551 18,606 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 2,075,989 594,648 7,921,435 8,216 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - 10,740 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 2,145,556 1,056,040 7,702,183 29,729 ============= ============= ============= =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2004
FidVIPGrOp FidVIPMCapS FidVIPValS FrVIPRisDiv ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 22,204 - - 11,392 Mortality and expense risk charges (note 3) ................................. (28,389) (13,935) (16,146) (10,367) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (6,185) (13,935) (16,146) 1,025 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 716,350 491,820 2,690,263 364,996 Cost of mutual fund shares sold ........... (994,285) (420,100) (2,480,261) (319,621) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... (277,935) 71,720 210,002 45,375 Change in unrealized gain (loss) on investments ........................... 555,712 551,905 (95,148) 136,846 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 277,777 623,625 114,854 182,221 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - 5,608 20,468 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 271,592 609,690 104,316 203,714 ============= ============= ============= ============= FTVIPSmCpVal FrVIPForSec GVITCVal GVITDryIntVal ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 1,484 9,792 5,000 14,760 Mortality and expense risk charges (note 3) ................................. (5,035) (5,504) (2,266) (4,594) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (3,551) 4,288 2,734 10,166 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 134,375 197,646 55,274 266,320 Cost of mutual fund shares sold ........... (113,115) (171,842) (46,326) (242,793) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 21,260 25,804 8,948 23,527 Change in unrealized gain (loss) on investments ........................... 219,705 147,057 47,320 150,304 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 240,965 172,861 56,268 173,831 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 237,414 177,149 59,002 183,997 ============= ============= ============= =============
GVITDMidCapI GVITEmMrkts GVITFHiInc GVITGlFin1 ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 36,744 17,808 33,194 7,162 Mortality and expense risk charges (note 3) ................................. (48,610) (13,835) (2,196) (4,109) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (11,866) 3,973 30,998 3,053 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 1,849,745 1,573,388 425,175 317,972 Cost of mutual fund shares sold ........... (1,371,033) (1,334,879) (422,071) (297,131) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 478,712 238,509 3,104 20,841 Change in unrealized gain (loss) on investments ........................... 286,574 (187,562) 1,341 22,641 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 765,286 50,947 4,445 43,482 ------------- ------------- ------------- ------------- Reinvested capital gains .................. 166,818 154,636 - 31,262 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 920,238 209,556 35,443 77,797 ============= ============= ============= ============= GVITGlHlth GVITGlTech GVITGlUtl1 GVITGvtBd ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... - - 7,418 790,932 Mortality and expense risk charges (note 3) ................................. (7,884) (9,013) (2,929) (108,869) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (7,884) (9,013) 4,489 682,063 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 932,369 1,123,742 203,115 4,995,395 Cost of mutual fund shares sold ........... (971,925) (1,078,078) (165,380) (5,204,762) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... (39,556) 45,664 37,735 (209,367) Change in unrealized gain (loss) on investments ........................... 55,376 (46,031) 54,265 (428,372) ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 15,820 (367) 92,000 (637,739) ------------- ------------- ------------- ------------- Reinvested capital gains .................. 4,166 - 46,716 298,626 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 12,102 (9,380) 143,205 342,950 ============= ============= ============= =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2004
GVITGrowth GVITIDAgg GVITIDCon GVITIDMod ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 54,066 19,100 13,018 78,146 Mortality and expense risk charges (note 3) ................................. (120,392) (8,018) (4,003) (23,827) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (66,326) 11,082 9,015 54,319 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 1,819,888 222,698 209,097 427,411 Cost of mutual fund shares sold ........... (4,936,838) (189,363) (196,454) (360,031) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... (3,116,950) 33,335 12,643 67,380 Change in unrealized gain (loss) on investments ........................... 4,364,984 71,983 (2,310) 189,320 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 1,248,034 105,318 10,333 256,700 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - 27,300 5,140 19,510 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 1,181,708 143,700 24,488 330,529 ============= ============= ============= ============= GVITIDModAgg GVITIDModCon GVITIntGro GVITSMdCpGr ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 59,358 33,856 2,026 - Mortality and expense risk charges (note 3) ................................. (22,974) (11,137) (1,140) (9,995) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 36,384 22,719 886 (9,995) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 300,197 172,210 147,742 2,140,761 Cost of mutual fund shares sold ........... (236,745) (151,765) (142,642) (1,963,658) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 63,452 20,445 5,100 177,103 Change in unrealized gain (loss) on investments ........................... 223,424 55,620 11,025 (5,663) ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 286,876 76,065 16,125 171,440 ------------- ------------- ------------- ------------- Reinvested capital gains .................. 48,204 7,790 - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 371,464 106,574 17,011 161,445 ============= ============= ============= =============
GVITMyMkt GVITNWFund GVITLead GVITSmCapGr ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 254,094 927,372 562 - Mortality and expense risk charges (note 3) ................................. (239,268) (542,138) (849) (10,577) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 14,826 385,234 (287) (10,577) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 41,434,418 6,177,723 127,157 1,124,812 Cost of mutual fund shares sold ........... (41,434,418) (9,686,214) (108,189) (1,018,356) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... - (3,508,491) 18,968 106,456 Change in unrealized gain (loss) on investments ........................... - 9,344,235 (7,534) 82,462 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... - 5,835,744 11,434 188,918 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - 2,094 - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 14,826 6,220,978 13,241 178,341 ============= ============= ============= ============= GVITSmCapVal GVITSmComp GVITTGroFoc GVITUSGro ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 30 - - - Mortality and expense risk charges (note 3) ................................. (103,969) (185,854) (1,480) (6,707) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (103,939) (185,854) (1,480) (6,707) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 6,428,617 5,813,238 794,532 831,207 Cost of mutual fund shares sold ........... (4,200,648) (5,071,595) (696,749) (867,889) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 2,227,969 741,643 97,783 (36,682) Change in unrealized gain (loss) on investments ........................... (1,098,406) 733,177 (76,678) 78,876 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 1,129,563 1,474,820 21,105 42,194 ------------- ------------- ------------- ------------- Reinvested capital gains .................. 1,045,306 3,163,878 - 43,050 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 2,070,930 4,452,844 19,625 78,537 ============= ============= ============= =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2004
GVITVKMultiSec JanBal JanCapAp JanGlTech -------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 56,154 1,814 588 - Mortality and expense risk charges (note 3) ................................. (8,221) (392) (17,406) (8,182) -------------- ------------- ------------- ------------- Net investment income (loss) ............ 47,933 1,422 (16,818) (8,182) -------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 915,668 9,453 1,457,996 407,483 Cost of mutual fund shares sold ........... (904,606) (8,816) (1,276,550) (333,885) -------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 11,062 637 181,446 73,598 Change in unrealized gain (loss) on investments ........................... (2,839) 4,089 200,822 (70,981) -------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 8,223 4,726 382,268 2,617 -------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - -------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 56,156 6,148 365,450 (5,565) ============== ============= ============= ============= JanIntGro JanRMgLgCap MFSVITInvGrwI MFSVITValIn ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 13,582 860 - 284 Mortality and expense risk charges (note 3) ................................. (12,186) (305) (1,241) (523) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 1,396 555 (1,241) (239) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 641,832 69,845 111,895 21,472 Cost of mutual fund shares sold ........... (435,978) (69,504) (110,909) (18,422) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 205,854 341 986 3,050 Change in unrealized gain (loss) on investments ........................... 46,089 894 16,004 13,100 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 251,943 1,235 16,990 16,150 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - 5,250 - 842 ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 253,339 7,040 15,749 16,753 ============= ============= ============= =============
NBAMTBal NBAMTFasc NBAMTGro NBAMTGuard ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 910 - - 2,382 Mortality and expense risk charges (note 3) ................................. (560) (241) (122,271) (12,390) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 350 (241) (122,271) (10,008) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 33,470 4,232 3,612,425 498,563 Cost of mutual fund shares sold ........... (32,566) (3,766) (3,678,212) (357,280) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 904 466 (65,787) 141,283 Change in unrealized gain (loss) on investments ........................... 4,443 5,792 2,575,966 151,481 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 5,347 6,258 2,510,179 292,764 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - 152 - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ............................. $ 5,697 6,169 2,387,908 282,756 ============= ============= ============= ============= NBAMTLMat NBAMTMCGrS NBAMTPart NBAMSocRes ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 217,694 - 2,328 - Mortality and expense risk charges (note 3) ................................. (44,601) (1,734) (137,210) (810) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 173,093 (1,734) (134,882) (810) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 1,878,608 258,684 2,862,874 5,959 Cost of mutual fund shares sold ........... (1,876,540) (243,224) (2,651,175) (4,827) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 2,068 15,460 211,699 1,132 Change in unrealized gain (loss) on investments ........................... (172,376) 20,124 3,414,183 18,249 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... (170,308) 35,584 3,625,882 19,381 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ............................. 2,785 33,850 3,491,000 18,571 ============= ============= ============= =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2004
OppAggGro OppBdFd OppCapAp OppGlSec ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ - 620,700 46,112 418,342 Mortality and expense risk charges (note 3) ................................. (15,105) (90,118) (104,504) (248,060) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (15,105) 530,582 (58,392) 170,282 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 1,045,613 2,227,685 2,912,724 3,870,507 Cost of mutual fund shares sold ........... (969,566) (2,218,368) (2,590,637) (4,017,305) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 76,047 9,317 322,087 (146,798) Change in unrealized gain (loss) on investments ........................... 268,323 46,534 548,435 5,762,698 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 344,370 55,851 870,522 5,615,900 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ............................ $ 329,265 586,433 812,130 5,786,182 ============= ============= ============= ============= OppHighInc OppMSFund OppMSSmCap OppMultStr ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... 23,054 13,498 - 156,530 Mortality and expense risk charges (note 3) ................................. (3,025) (10,908) (2,876) (118,739) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 20,029 2,590 (2,876) 37,791 ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 228,090 638,302 319,347 1,999,990 Cost of mutual fund shares sold ........... (221,958) (567,148) (285,295) (1,994,964) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 6,132 71,154 34,052 5,026 Change in unrealized gain (loss) on investments ........................... 26,739 46,372 41,925 1,342,038 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 32,871 117,526 75,977 1,347,064 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ............................ 52,900 120,116 73,101 1,384,855 ============= ============= ============= =============
PVTGroInc PVTIntEq PVTVoyII StOpp2 ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 1,226 1,660 74 - Mortality and expense risk charges (note 3) ................................. (460) (782) (152) (262,942) ------------- ------------- ------------- ------------- Net investment income (loss) ............ 766 878 (78) (262,942) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 37,156 54,622 1,122 5,060,109 Cost of mutual fund shares sold ........... (34,727) (48,845) (1,022) (5,375,936) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 2,429 5,777 100 (315,827) Change in unrealized gain (loss) on investments ........................... 5,108 8,163 1,982 6,108,252 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 7,537 13,940 2,082 5,792,425 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... $ 8,303 14,818 2,004 5,529,483 ============= ============= ============= ============= StDisc2 VEWrldBd VEWrldEMkt VEWrldHAs ------------- ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... - 350,920 32,588 20,834 Mortality and expense risk charges (note 3) ................................. (57,587) (32,639) (37,709) (42,536) ------------- ------------- ------------- ------------- Net investment income (loss) ............ (57,587) 318,281 (5,121) (21,702) ------------- ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 1,190,618 2,282,703 2,195,648 1,851,614 Cost of mutual fund shares sold ........... (894,194) (2,273,091) (1,486,897) (1,315,878) ------------- ------------- ------------- ------------- Realized gain (loss) on investments ..... 296,424 9,612 708,751 535,736 Change in unrealized gain (loss) on investments ........................... 813,089 (13,258) 452,466 666,602 ------------- ------------- ------------- ------------- Net gain (loss) on investments .......... 1,109,513 (3,646) 1,161,217 1,202,338 ------------- ------------- ------------- ------------- Reinvested capital gains .................. - - - - ------------- ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 1,051,926 314,635 1,156,096 1,180,636 ============= ============= ============= =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF OPERATIONS, Continued Year Ended December 31, 2004
VKoreFI VKEmMkt VKUSRealEst ------------- ------------- ------------- Investment activity: Reinvested dividends ...................... $ 5,548 162,392 233,956 Mortality and expense risk charges (note 3) ................................. (802) (16,049) (108,769) ------------- ------------- ------------- Net investment income (loss) ............ 4,746 146,343 125,187 ------------- ------------- ------------- Proceeds from mutual fund shares sold ..... 38,736 2,681,844 3,983,758 Cost of mutual fund shares sold ........... (38,306) (2,609,088) (2,866,667) ------------- ------------- ------------- Realized gain (loss) on investments ..... 430 72,756 1,117,091 Change in unrealized gain (loss) on investments ........................... (110) (96,117) 3,194,741 ------------- ------------- ------------- Net gain (loss) on investments ......... 320 (23,361) 4,311,832 ------------- ------------- ------------- Reinvested capital gains .................. 334 75,894 272,360 ------------- ------------- ------------- Net increase (decrease) in contract owners' equity resulting from operations .......................... $ 5,400 198,876 4,709,379 ============= ============= =============
See accompanying notes to financial statements. NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY Years Ended December 31, 2004 and 2003
Total AIMBValue ----------------------------- --------------------------- 2004 2003 2004 2003 ------------- ------------- ------------ ------------ Investment activity: Net investment income (loss) ............. $ 4,909,183 3,052,110 (3,551) (294) Realized gain (loss) on investments ...... (2,276,513) (36,230,760) 11,559 4,489 Change in unrealized gain (loss) on investments .......................... 79,434,320 223,498,022 40,599 13,517 Reinvested capital gains ................. 5,894,860 231,065 - - ------------- ------------- ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ............................ 87,961,850 190,550,437 48,607 17,712 ------------- ------------- ------------ ------------ Equity transactions: Purchase payments received from contract owners (note 6) ................ 69,481,040 79,106,617 35,522 13,196 Transfers between funds .................. - - 493,566 174,047 Surrenders (note 6) ...................... (73,138,728) (65,928,134) (101,278) - Death benefits (note 4) .................. (4,542,616) (2,595,113) - - Net policy repayments (loans) (note 5) ... 3,031,442 2,893,261 7,288 - Deductions for surrender charges (note 2d) ............................... (1,863,380) (3,047,308) (472) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ....................... (45,778,018) (46,579,808) (15,900) (1,479) Asset charges (note 3): MSP contracts .......................... (401,693) (360,513) (37) (11) LSFP contracts ......................... (408,347) (348,047) (81) (21) Adjustments to maintain reserves ......... (276,260) 847,458 84 (6) ------------- ------------- ------------ ------------ Net equity transactions .............. (53,896,560) (36,011,587) 418,692 185,726 ------------- ------------- ------------ ------------ Net change in contract owners' equity ...... 34,065,290 154,538,850 467,299 203,438 Contract owners' equity beginning of period ................................. 881,562,186 727,023,336 203,438 - ------------- ------------- ------------ ------------ Contract owners' equity end of period ...... $ 915,627,476 881,562,186 670,737 203,438 ============= ============= ============ ============ CHANGES IN UNITS: Beginning units .......................... 42,122,919 43,194,768 15,645 - ------------- ------------- ------------ ------------ Units purchased .......................... 8,772,462 9,067,289 39,833 15,769 Units redeemed ........................... (11,514,275) (10,139,138) (8,668) (124) ------------- ------------- ------------ ------------ Ending units ............................. 39,381,106 42,122,919 46,810 15,645 ============= ============= ============ ============ AIMCapAp AIMCapDev --------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Investment activity: Net investment income (loss) ............. (653) (235) (855) (105) Realized gain (loss) on investments ...... 7,449 525 4,921 740 Change in unrealized gain (loss) on investments .......................... (5,301) 8,278 20,230 4,627 Reinvested capital gains ................. - - - - ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations ............................ 1,495 8,568 24,296 5,262 ------------ ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners (note 6) ................ 29,196 4,077 13,168 17,738 Transfers between funds .................. (26,360) 54,624 148,686 39,891 Surrenders (note 6) ...................... (10,006) - (582) - Death benefits (note 4) .................. - - - - Net policy repayments (loans) (note 5) ... - - (684) - Deductions for surrender charges (note 2d) ............................... (164) - (8) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ....................... (2,518) (554) (7,884) (518) Asset charges (note 3): MSP contracts .......................... - - (16) - LSFP contracts ......................... (8) - (191) (11) Adjustments to maintain reserves ......... 54 (4) 88 12 ------------ ------------ ------------ ------------ Net equity transactions .............. (9,806) 58,143 152,577 57,112 ------------ ------------ ------------ ------------ Net change in contract owners' equity ...... (8,311) 66,711 176,873 62,374 Contract owners' equity beginning of period ................................. 66,711 - 62,374 - ------------ ------------ ------------ ------------ Contract owners' equity end of period ...... 58,400 66,711 239,247 62,374 ============ ============ ============ ============ CHANGES IN UNITS: Beginning units .......................... 5,411 - 4,816 - ------------ ------------ ------------ ------------ Units purchased .......................... 2,721 5,459 11,990 4,859 Units redeemed ........................... (3,656) (48) (724) (43) ------------ ------------ ------------ ------------ Ending units ............................. 4,476 5,411 16,082 4,816 ============ ============ ============ ============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
AIVPGrIncA AIVPSmCapVA ----------------------------- --------------------------- 2004 2003 2004 2003 ------------- ------------- ------------ ------------ Investment activity: Net investment income (loss) ............. $ 2,918 (418) (2,417) (292) Realized gain (loss) on investments ...... 24,986 75 41,561 942 Change in unrealized gain (loss) on investments .......................... 50,846 32,761 68,703 20,545 Reinvested capital gains ................. - - 8,078 31 ------------- ------------- ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations .............................. 78,750 32,418 115,925 21,226 ------------- ------------- ------------ ------------ Equity transactions: Purchase payments received from contract owners (note 6) ................ 127,076 33,861 49,214 10,110 Transfers between funds .................. 398,776 352,236 631,852 188,663 Surrenders (note 6) ...................... (64,460) (29) (86,583) (7,886) Death benefits (note 4) .................. - - - - Net policy repayments (loans) (note 5) ... (5,074) 1,309 (52,904) 1,348 Deductions for surrender charges (note 2d) ............................... (1,890) (1) (147) (364) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ....................... (34,606) (3,094) (15,714) (1,814) Asset charges (note 3): MSP contracts .......................... (855) (130) (504) (97) LSFP contracts ......................... (788) (188) (194) - Adjustments to maintain reserves ......... 127 (5) 201 155 ------------- ------------- ------------ ------------ Net equity transactions .............. 418,306 383,959 525,221 190,115 ------------- ------------- ------------ ------------ Net change in contract owners' equity ...... 497,056 416,377 641,146 211,341 Contract owners' equity beginning of period ................................. 416,377 - 211,341 - ------------- ------------- ------------ ------------ Contract owners' equity end of period ...... $ 913,433 416,377 852,487 211,341 ============= ============= ============ ============ CHANGES IN UNITS: Beginning units .......................... 33,587 - 15,381 - ------------- ------------- ------------ ------------ Units purchased .......................... 40,603 33,907 46,840 15,534 Units redeemed ........................... (7,732) (320) (9,837) (153) ------------- ------------- ------------ ------------ Ending units ............................. 66,458 33,587 52,384 15,381 ============= ============= ============ ============ ACVPBal ACVPCapAp --------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Investment activity: Net investment income (loss) ............. 51,554 90,489 (93,439) (92,344) Realized gain (loss) on investments ...... (32,159) (326,105) (620,237) (1,902,562) Change in unrealized gain (loss) on investments .......................... 457,056 1,118,651 1,468,614 4,110,801 Reinvested capital gains ................. - - - - ------------ ------------ ------------ ------------ Net increase (decrease) in contract owners' equity resulting from operations .............................. 476,451 883,035 754,938 2,115,895 ------------ ------------ ------------ ------------ Equity transactions: Purchase payments received from contract owners (note 6) ................ 391,466 538,281 1,058,944 1,235,265 Transfers between funds .................. 23,106 193,768 (952,342) (407,015) Surrenders (note 6) ...................... (473,397) (281,959) (1,043,813) (646,593) Death benefits (note 4) .................. (57,230) (12,858) (30,998) (3,714) Net policy repayments (loans) (note 5) ... 42,342 (42,073) (171,170) 102,148 Deductions for surrender charges (note 2d) ............................... (9,903) (13,033) (13,664) (29,887) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ....................... (273,398) (292,765) (713,770) (791,534) Asset charges (note 3): MSP contracts .......................... (4,296) (3,799) (4,329) (4,502) LSFP contracts ......................... (1,547) (1,595) (2,365) (2,026) Adjustments to maintain reserves ......... (16,752) 3,370 13,111 32,991 ------------ ------------ ------------ ------------ Net equity transactions .............. (379,609) 87,337 (1,860,396) (514,867) ------------ ------------ ------------ ------------ Net change in contract owners' equity ...... 96,842 970,372 (1,105,458) 1,601,028 Contract owners' equity beginning of period ................................. 5,629,641 4,659,269 13,098,949 11,497,921 ------------ ------------ ------------ ------------ Contract owners' equity end of period ...... 5,726,483 5,629,641 11,993,491 13,098,949 ============ ============ ============ ============ CHANGES IN UNITS: Beginning units .......................... 281,953 277,290 787,974 839,237 ------------ ------------ ------------ ------------ Units purchased .......................... 46,826 47,943 104,451 118,180 Units redeemed ........................... (64,879) (43,280) (234,331) (169,443) ------------ ------------ ------------ ------------ Ending units ............................. 263,900 281,953 658,094 787,974 ============ ============ ============ ============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
ACVPIncGr ACVPInflaPro ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. $ 27,130 19,586 16,055 443 Realized gain (loss) on investments .......... 168,601 (256,841) 655 (225) Change in unrealized gain (loss) on investments .............................. 221,739 1,047,403 9,790 1,001 Reinvested capital gains ..................... - - 172 18 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 417,470 810,148 26,672 1,237 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 226,060 359,246 87,896 19,342 Transfers between funds ...................... (75,266) 82,945 819,828 66,741 Surrenders (note 6) .......................... (296,076) (322,295) (18,824) - Death benefits (note 4) ...................... - (10,466) - - Net policy repayments (loans) (note 5) ....... (5,576) (17,312) (2,120) (10,850) Deductions for surrender charges (note 2d) ... (15,820) (14,897) (64) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (168,154) (173,350) (24,724) (1,292) Asset charges (note 3): MSP contracts .............................. (2,732) (2,173) (158) - LSFP contracts ............................. (1,729) (2,145) (47) (30) Adjustments to maintain reserves ............. 242 (19) (36) (12) -------------- -------------- -------------- -------------- Net equity transactions .................. (339,051) (100,466) 861,751 73,899 -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 78,419 709,682 888,423 75,136 Contract owners' equity beginning of period ..................................... 3,742,003 3,032,321 75,136 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... $ 3,820,422 3,742,003 963,559 75,136 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 353,293 368,062 7,313 - -------------- -------------- -------------- -------------- Units purchased .............................. 49,103 51,709 85,609 8,499 Units redeemed ............................... (80,382) (66,478) (3,676) (1,186) -------------- -------------- -------------- -------------- Ending units ................................. 322,014 353,293 89,246 7,313 ============== ============== ============== ============== ACVPInt ACVPUltra ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. (15,493) 1,294 (5,362) (2,083) Realized gain (loss) on investments .......... (128,993) (1,820,628) (7,423) 22,471 Change in unrealized gain (loss) on investments .............................. 1,534,838 4,044,090 40,489 31,622 Reinvested capital gains ..................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 1,390,352 2,224,756 27,704 52,010 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 772,956 1,270,341 69,390 51,821 Transfers between funds ...................... (1,004,794) (927,232) 446,860 637,951 Surrenders (note 6) .......................... (865,282) (1,014,639) (19,123) (38,610) Death benefits (note 4) ...................... (17,724) (23,621) (10,646) - Net policy repayments (loans) (note 5) ....... (12,270) 63,696 (6,214) (205,636) Deductions for surrender charges (note 2d) ... (31,075) (46,898) (226) (1,785) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (494,264) (546,856) (26,972) (10,651) Asset charges (note 3): MSP contracts .............................. (3,576) (3,290) (876) (419) LSFP contracts ............................. (6,467) (6,570) (642) (145) Adjustments to maintain reserves ............. (16,185) 11,971 122 (104,636) -------------- -------------- -------------- -------------- Net equity transactions .................. (1,678,681) (1,223,098) 451,673 327,890 -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... (288,329) 1,001,658 479,377 379,900 Contract owners' equity beginning of period ..................................... 11,474,398 10,472,740 466,000 86,100 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... 11,186,069 11,474,398 945,377 466,000 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 762,045 860,438 46,927 10,760 -------------- -------------- -------------- -------------- Units purchased .............................. 92,138 107,107 49,139 66,318 Units redeemed ............................... (203,609) (205,500) (9,548) (30,151) -------------- -------------- -------------- -------------- Ending units ................................. 650,574 762,045 86,518 46,927 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
ACVPVal CSGPVen ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. $ 37,288 38,127 (5,968) (5,477) Realized gain (loss) on investments .......... 481,111 (468,624) 59,105 142,046 Change in unrealized gain (loss) on investments .............................. 1,012,962 3,272,161 73,406 162,735 Reinvested capital gains ..................... 100,800 - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 1,632,161 2,841,664 126,543 299,304 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 901,250 890,906 52,592 72,537 Transfers between funds ...................... (334,816) (303,398) (128,082) (646,030) Surrenders (note 6) .......................... (1,231,770) (1,332,433) (41,977) (81,611) Death benefits (note 4) ...................... (68,752) (32,386) (4,548) - Net policy repayments (loans) (note 5) ....... 258,974 388,906 (7,418) 7,169 Deductions for surrender charges (note 2d) ... (21,878) (61,587) (1,426) (3,772) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (501,372) (506,696) (39,452) (44,504) Asset charges (note 3): MSP contracts .............................. (7,193) (5,716) (483) (353) LSFP contracts ............................. (8,766) (8,230) (641) (481) Adjustments to maintain reserves ............. 745 (10,775) 83 (5) -------------- -------------- -------------- -------------- Net equity transactions .................. (1,013,578) (981,409) (171,352) (697,050) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 618,583 1,860,255 (44,809) (397,746) Contract owners' equity beginning of period ..................................... 12,750,977 10,890,722 875,066 1,272,812 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... $ 13,369,560 12,750,977 830,257 875,066 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 672,518 735,597 81,649 174,334 -------------- -------------- -------------- -------------- Units purchased .............................. 133,333 105,740 9,118 19,057 Units redeemed ............................... (184,657) (168,819) (25,069) (111,742) -------------- -------------- -------------- -------------- Ending units ................................. 621,194 672,518 65,698 81,649 ============== ============== ============== ============== CSIntFoc CSSmCapGr ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. 19,083 (11,298) (103,596) (89,532) Realized gain (loss) on investments .......... 86,421 (57,724) 799,688 (1,559,060) Change in unrealized gain (loss) on investments .............................. 694,824 1,638,617 682,170 6,398,613 Reinvested capital gains ..................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 800,328 1,569,595 1,378,262 4,750,021 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 482,274 589,111 1,143,502 1,395,647 Transfers between funds ...................... (155,782) (322,319) (962,634) 22,985 Surrenders (note 6) .......................... (367,092) (404,585) (1,237,023) (782,163) Death benefits (note 4) ...................... (18,522) (10,839) (28,560) (36,374) Net policy repayments (loans) (note 5) ....... (5,770) 55,209 77,356 (59,178) Deductions for surrender charges (note 2d) ... (14,049) (18,701) (43,380) (36,153) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (305,216) (302,094) (769,020) (769,185) Asset charges (note 3): MSP contracts .............................. (3,639) (2,338) (4,704) (3,361) LSFP contracts ............................. (5,035) (4,458) (9,701) (7,181) Adjustments to maintain reserves ............. 501 (2,077) 1,336 (161) -------------- -------------- -------------- -------------- Net equity transactions .................. (392,330) (423,091) (1,832,828) (275,124) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 407,998 1,146,504 (454,566) 4,474,897 Contract owners' equity beginning of period ..................................... 6,195,578 5,049,074 14,884,787 10,409,890 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... 6,603,576 6,195,578 14,430,221 14,884,787 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 591,551 637,322 906,285 932,671 -------------- -------------- -------------- -------------- Units purchased .............................. 85,208 90,205 134,426 132,389 Units redeemed ............................... (123,577) (135,976) (239,399) (158,775) -------------- -------------- -------------- -------------- Ending units ................................. 553,182 591,551 801,312 906,285 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
DrySmCapIxS DrySRGro ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. $ (1,174) (1,552) (33,728) (57,090) Realized gain (loss) on investments .......... 131,484 65,355 (806,699) (745,207) Change in unrealized gain (loss) on investments .............................. 172,260 101,495 1,328,566 2,849,243 Reinvested capital gains ..................... 41,304 5,323 - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................. 343,874 170,621 488,139 2,046,946 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 161,358 34,884 1,128,736 1,300,735 Transfers between funds ...................... 630,836 554,704 (666,026) (354,728) Surrenders (note 6) .......................... (64,217) (53,225) (831,998) (728,259) Death benefits (note 4) ...................... - - (37,622) (47,698) Net policy repayments (loans) (note 5) ....... (40,932) (11,377) 15,494 95,761 Deductions for surrender charges (note 2d) ... (3,743) (2,460) (23,562) (33,661) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (47,766) (12,026) (714,430) (774,418) Asset charges (note 3): MSP contracts .............................. (2,217) (681) (2,730) (2,600) LSFP contracts ............................. (1,297) (142) (3,474) (3,343) Adjustments to maintain reserves ............. 157 325,606 (4,322) 4,702 -------------- -------------- -------------- -------------- Net equity transactions .................. 632,179 835,283 (1,139,934) (543,509) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 976,053 1,005,904 (651,795) 1,503,437 Contract owners' equity beginning of period ..................................... 1,116,634 110,730 9,989,459 8,486,022 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... $ 2,092,687 1,116,634 9,337,664 9,989,459 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 106,585 14,471 474,191 505,221 -------------- -------------- -------------- -------------- Units purchased .............................. 76,878 101,010 89,754 81,656 Units redeemed ............................... (18,449) (8,896) (143,507) (112,686) -------------- -------------- -------------- -------------- Ending units ................................. 165,014 106,585 420,438 474,191 ============== ============== ============== ============== DryStkIx DryVIFApp ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. 873,076 545,235 56,471 39,229 Realized gain (loss) on investments .......... (1,532,885) (2,046,981) 155,012 (1,007,708) Change in unrealized gain (loss) on investments .............................. 8,040,385 18,594,894 46,494 2,073,274 Reinvested capital gains ..................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................. 7,380,576 17,093,148 257,977 1,104,795 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 5,819,012 6,831,591 473,540 532,770 Transfers between funds ...................... (761,242) (215,290) (289,280) 14,944 Surrenders (note 6) .......................... (5,274,180) (4,911,709) (612,235) (525,761) Death benefits (note 4) ...................... (76,370) (106,620) (3,640) (2,993) Net policy repayments (loans) (note 5) ....... (19,290) 43,990 127,596 (21,948) Deductions for surrender charges (note 2d) ... (169,358) (227,027) (17,243) (24,302) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .......................... (3,849,024) (3,976,253) (276,726) (302,722) Asset charges (note 3): MSP contracts .............................. (33,721) (28,833) (1,480) (1,612) LSFP contracts ............................. (64,318) (52,162) (6,503) (5,859) Adjustments to maintain reserves ............. (17,510) 32,979 917 (5,161) -------------- -------------- -------------- -------------- Net equity transactions .................. (4,446,001) (2,609,334) (605,054) (342,644) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 2,934,575 14,483,814 (347,077) 762,151 Contract owners' equity beginning of period ..................................... 78,302,969 63,819,155 6,495,336 5,733,185 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... 81,237,544 78,302,969 6,148,259 6,495,336 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 3,212,360 3,317,324 503,372 534,799 -------------- -------------- -------------- -------------- Units purchased .............................. 503,402 472,303 64,225 59,732 Units redeemed ............................... (691,124) (577,267) (110,899) (91,159) -------------- -------------- -------------- -------------- Ending units ................................. 3,024,638 3,212,360 456,698 503,372 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
DryVIFDevLd DryVIFGrInc ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. $ (1,662) (176) 13,339 3,402 Realized gain (loss) on investments .......... 15,990 1,050 (116,587) (316,811) Change in unrealized gain (loss) on investments .............................. 12,674 13,125 272,360 800,579 Reinvested capital gains ..................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 27,002 13,999 169,112 487,170 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 35,436 2,943 190,266 198,654 Transfers between funds ...................... 297,292 161,527 (177,546) 78,440 Surrenders (note 6) .......................... (63,513) - (81,752) (148,469) Death benefits (note 4) ...................... - - (634) (10,153) Net policy repayments (loans) (note 5) ....... (14,384) - (28,366) (11,543) Deductions for surrender charges (note 2d) ... (2,314) - (2,029) (6,862) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (19,066) (2,014) (121,480) (125,126) Asset charges (note 3): MSP contracts .............................. (84) (57) (2,069) (1,904) LSFP contracts ............................. (332) (140) (2,022) (1,694) Adjustments to maintain reserves ............. 71 8 177 19 -------------- -------------- -------------- -------------- Net equity transactions .................. 233,106 162,267 (225,455) (28,638) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 260,108 176,266 (56,343) 458,532 Contract owners' equity beginning of period ..................................... 176,266 - 2,515,058 2,056,526 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... $ 436,374 176,266 2,458,715 2,515,058 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 13,709 - 203,263 208,582 -------------- -------------- -------------- -------------- Units purchased .............................. 24,841 13,890 23,926 34,554 Units redeemed ............................... (7,834) (181) (41,301) (39,873) -------------- -------------- -------------- -------------- Ending units ................................. 30,716 13,709 185,888 203,263 ============== ============== ============== ============== FedAmLead FedCapAp ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. (182) (11) (69) (12) Realized gain (loss) on investments .......... 579 (37) 109 (39) Change in unrealized gain (loss) on investments .............................. 10,052 814 1,916 500 Reinvested capital gains ..................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 10,449 766 1,956 449 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 18,822 40 2,036 2,649 Transfers between funds ...................... 77,360 13,081 16,614 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) ........................... (1,294) (58) (1,082) (86) Asset charges (note 3): MSP contracts .............................. - - - - LSFP contracts ............................. (8) - - - Adjustments to maintain reserves ............. 26 6 61 (6) -------------- -------------- -------------- -------------- Net equity transactions .................. 94,906 13,069 17,629 6,181 -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 105,355 13,835 19,585 6,630 Contract owners' equity beginning of period ..................................... 13,835 - 6,630 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... 119,190 13,835 26,215 6,630 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 1,104 - 553 - -------------- -------------- -------------- -------------- Units purchased .............................. 7,714 1,109 1,582 561 Units redeemed ............................... (102) (5) (89) (8) -------------- -------------- -------------- -------------- Ending units ................................. 8,716 1,104 2,046 553 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
FedQualBd FidVIPEI ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. $ 58,606 56,680 592,619 650,310 Realized gain (loss) on investments .......... (27,697) 45,165 (134,459) (1,651,935) Change in unrealized gain (loss) on investments .............................. (13,787) (31,320) 6,772,765 17,928,029 Reinvested capital gains ..................... 15,062 - 273,300 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 32,184 70,525 7,504,225 16,926,404 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 109,548 166,447 4,682,522 5,470,555 Transfers between funds ...................... (263,806) 468,108 (609,102) 195,335 Surrenders (note 6) .......................... (280,016) (210,375) (5,559,758) (4,143,940) Death benefits (note 4) ...................... - - (453,804) (191,683) Net policy repayments (loans) (note 5) ....... 5,516 (17,519) (281,628) 144,919 Deductions for surrender charges (note 2d) ... (1,758) (9,724) (138,476) (191,540) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (79,436) (103,142) (3,619,962) (3,618,312) Asset charges (note 3): MSP contracts .............................. (1,037) (885) (35,698) (28,378) LSFP contracts ............................. (241) (634) (26,478) (22,049) Adjustments to maintain reserves ............. 1,802 (1,664) 6,794 (7,981) -------------- -------------- -------------- -------------- Net equity transactions .................. (509,428) 290,612 (6,035,590) (2,393,074) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... (477,244) 361,137 1,468,635 14,533,330 Contract owners' equity beginning of period ..................................... 1,623,752 1,262,615 74,284,791 59,751,461 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... $ 1,146,508 1,623,752 75,753,426 74,284,791 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 145,750 117,678 2,059,854 2,146,294 -------------- -------------- -------------- -------------- Units purchased .............................. 25,226 64,282 252,033 270,295 Units redeemed ............................... (71,072) (36,210) (438,091) (356,735) -------------- -------------- -------------- -------------- Ending units ................................. 99,904 145,750 1,873,796 2,059,854 ============== ============== ============== ============== FidVIPGr FidVIPHI ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. (443,590) (423,142) 1,864,799 1,212,817 Realized gain (loss) on investments .......... (3,912,874) (5,517,543) 2,220,844 257,996 Change in unrealized gain (loss) on investments .............................. 6,531,064 29,260,774 (1,972,719) 4,109,732 Reinvested capital gains ..................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 2,174,600 23,320,089 2,112,924 5,580,545 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 7,682,530 9,045,995 1,274,410 1,736,677 Transfers between funds ...................... (3,502,668) (2,370,299) (850,270) 943,588 Surrenders (note 6) .......................... (6,015,624) (5,367,306) (1,847,641) (1,521,127) Death benefits (note 4) ...................... (203,234) (187,564) (235,720) (280,214) Net policy repayments (loans) (note 5) ....... (163,886) 547,985 (269,810) (48,477) Deductions for surrender charges (note 2d) ... (122,330) (248,086) (63,387) (70,309) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (5,031,380) (5,278,346) (1,112,912) (1,212,987) Asset charges (note 3): MSP contracts .............................. (23,346) (22,563) (15,003) (15,750) LSFP contracts ............................. (29,338) (26,103) (10,950) (10,973) Adjustments to maintain reserves ............. 43,880 (1,039) 31,312 (20,215) -------------- -------------- -------------- -------------- Net equity transactions .................. (7,365,396) (3,907,326) (3,099,971) (499,787) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... (5,190,796) 19,412,763 (987,047) 5,080,758 Contract owners' equity beginning of period ..................................... 95,076,199 75,663,436 25,786,807 20,706,049 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... 89,885,403 95,076,199 24,799,760 25,786,807 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 2,758,125 2,922,853 1,189,559 1,206,230 -------------- -------------- -------------- -------------- Units purchased .............................. 419,056 414,867 161,920 156,030 Units redeemed ............................... (708,993) (579,595) (316,441) (172,701) -------------- -------------- -------------- -------------- Ending units ................................. 2,468,188 2,758,125 1,035,038 1,189,559 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
FidVIPOv FidVIPAM ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. $ 69,567 5,925 461,392 644,420 Realized gain (loss) on investments .......... 236,087 (262,828) (529,148) (578,106) Change in unrealized gain (loss) on investments .............................. 1,839,902 5,358,106 1,123,796 3,592,165 Reinvested capital gains ..................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 2,145,556 5,101,203 1,056,040 3,658,479 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 1,200,290 1,605,394 1,362,064 1,656,663 Transfers between funds ...................... 242,818 234,691 (575,488) (262,954) Surrenders (note 6) .......................... (1,183,433) (1,417,940) (1,751,498) (1,951,807) Death benefits (note 4) ...................... (69,402) (49,771) (100,692) (146,560) Net policy repayments (loans) (note 5) ....... 28,242 87,313 (60,134) 196,742 Deductions for surrender charges (note 2d) ... (19,778) (65,539) (25,977) (90,216) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (785,808) (742,808) (1,042,868) (1,139,485) Asset charges (note 3): MSP contracts .............................. (5,129) (3,909) (8,291) (6,820) LSFP contracts ............................. (7,924) (5,162) (4,465) (3,784) Adjustments to maintain reserves ............. (4,815) 23,666 (5,288) 1,925 -------------- -------------- -------------- -------------- Net equity transactions .................. (604,939) (334,065) (2,212,637) (1,746,296) -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 1,540,617 4,767,138 (1,156,597) 1,912,183 Contract owners' equity beginning of period .... 17,192,760 12,425,622 24,255,904 22,343,721 -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... $ 18,733,377 17,192,760 23,099,307 24,255,904 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 929,231 968,581 929,268 1,013,935 -------------- -------------- -------------- -------------- Units purchased .............................. 189,869 154,575 200,959 152,269 Units redeemed ............................... (251,558) (193,925) (300,917) (236,936) -------------- -------------- -------------- -------------- Ending units ................................. 867,542 929,231 829,310 929,268 ============== ============== ============== ============== FidVIPCon FidVIPIGBdS ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ................. (219,252) (137,237) 10,773 (467) Realized gain (loss) on investments .......... (72,116) (1,243,309) (10,390) 77 Change in unrealized gain (loss) on investments .............................. 7,993,551 13,191,640 18,606 4,485 Reinvested capital gains ..................... - - 10,740 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ................................ 7,702,183 11,811,094 29,729 4,095 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) .................... 3,768,052 4,167,255 120,520 4,528 Transfers between funds ...................... 930,944 252,182 822,392 237,978 Surrenders (note 6) .......................... (3,850,752) (2,630,439) (242,179) (857) Death benefits (note 4) ...................... (136,828) (139,232) - - Net policy repayments (loans) (note 5) ....... (343,396) (145,214) (10,414) (2,527) Deductions for surrender charges (note 2d) ... (183,454) (121,583) (5,992) (40) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) ........................... (2,563,618) (2,566,971) (33,280) (2,890) Asset charges (note 3): MSP contracts .............................. (20,179) (15,681) (594) - LSFP contracts ............................. (28,070) (22,686) (1,132) (35) Adjustments to maintain reserves ............. 7,627 6,533 110 5 -------------- -------------- -------------- -------------- Net equity transactions .................. (2,419,674) (1,215,836) 649,431 236,162 -------------- -------------- -------------- -------------- Net change in contract owners' equity .......... 5,282,509 10,595,258 679,160 240,257 Contract owners' equity beginning of period ..................................... 54,672,650 44,077,392 240,257 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .......... 59,955,159 54,672,650 919,417 240,257 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units .............................. 2,298,709 2,364,387 23,615 - -------------- -------------- -------------- -------------- Units purchased .............................. 298,867 311,477 89,463 24,251 Units redeemed ............................... (401,044) (377,155) (26,068) (636) -------------- -------------- -------------- -------------- Ending units ................................. 2,196,532 2,298,709 87,010 23,615 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
FidVIPGrOp FidVIPMCapS ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (6,185) 1,460 (13,935) (1,105) Realized gain (loss) on investments .................... (277,935) (341,822) 71,720 16,699 Change in unrealized gain (loss) on investments ........ 555,712 1,280,096 551,905 58,136 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 271,592 939,734 609,690 73,730 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 404,720 452,147 336,798 48,341 Transfers between funds ................................ 107,890 249,767 3,000,958 634,806 Surrenders (note 6) .................................... (301,588) (246,768) (232,890) (77) Death benefits (note 4) ................................ (16,426) (13,232) - - Net policy repayments (loans) (note 5) ................. 30,642 (11,656) (59,662) (8,758) Deductions for surrender charges (note 2d) ............. (16,966) (11,406) (5,869) (4) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (210,638) (217,262) (93,814) (7,104) Asset charges (note 3): MSP contracts ........................................ (1,797) (1,664) (2,020) (185) LSFP contracts ....................................... (3,255) (2,618) (878) (53) Adjustments to maintain reserves ....................... 185 42 238 (4) -------------- -------------- -------------- -------------- Net equity transactions ............................ (7,233) 197,350 2,942,861 666,962 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 264,359 1,137,084 3,552,551 740,692 Contract owners' equity beginning of period .............. 4,172,118 3,035,034 740,692 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 4,436,477 4,172,118 4,293,243 740,692 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 423,769 398,008 52,810 - -------------- -------------- -------------- -------------- Units purchased ........................................ 66,328 86,273 219,882 54,049 Units redeemed ......................................... (67,219) (60,512) (25,642) (1,239) -------------- -------------- -------------- -------------- Ending units ........................................... 422,878 423,769 247,050 52,810 ============== ============== ============== ==============
FidVIPValS FrVIPRisDiv ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (16,146) (7,699) 1,025 (903) Realized gain (loss) on investments .................... 210,002 189,710 45,375 815 Change in unrealized gain (loss) on investments ........ (95,148) 186,255 136,846 65,062 Reinvested capital gains ............................... 5,608 12,819 20,468 1,517 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 104,316 381,085 203,714 66,491 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 205,304 102,826 300,688 80,062 Transfers between funds ................................ (180,056) 1,755,855 1,348,144 777,906 Surrenders (note 6) .................................... (101,474) (32,768) (145,801) - Death benefits (note 4) ................................ - - - - Net policy repayments (loans) (note 5) ................. (44,428) (131,607) (18,846) (1,592) Deductions for surrender charges (note 2d) ............. (1,994) (1,515) (2,978) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (94,152) (31,523) (78,610) (8,936) Asset charges (note 3): MSP contracts ........................................ (1,669) (1,287) (1,802) (405) LSFP contracts ....................................... (780) (195) (775) (75) Adjustments to maintain reserves ....................... 53 108 211 (10) -------------- -------------- -------------- -------------- Net equity transactions ............................ (219,196) 1,659,894 1,400,231 846,950 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (114,880) 2,040,979 1,603,945 913,441 Contract owners' equity beginning of period .............. 2,136,777 95,798 913,441 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 2,021,897 2,136,777 2,517,386 913,441 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 182,656 12,826 74,514 - -------------- -------------- -------------- -------------- Units purchased ........................................ 34,952 192,628 126,703 75,462 Units redeemed ......................................... (65,126) (22,798) (15,507) (948) -------------- -------------- -------------- -------------- Ending units ........................................... 152,482 182,656 185,710 74,514 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
FTVIPSmCpVal FrVIPForSec ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (3,551) (295) 4,288 222 Realized gain (loss) on investments .................... 21,260 8,066 25,804 11,639 Change in unrealized gain (loss) on investments ........ 219,705 14,481 147,057 31,576 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 237,414 22,252 177,149 43,437 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 106,506 22,558 95,482 40,705 Transfers between funds ................................ 1,438,660 126,262 1,007,026 359,375 Surrenders (note 6) .................................... (16,060) (815) (51,766) (57,155) Death benefits (note 4) ................................ - - (16,632) - Net policy repayments (loans) (note 5) ................. (9,666) (149) 3,054 (5,716) Deductions for surrender charges (note 2d) ............. (267) (38) (673) (2,642) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (37,460) (955) (27,632) (2,429) Asset charges (note 3): MSP contracts ........................................ (440) - (429) (15) LSFP contracts ....................................... (233) (39) (827) (88) Adjustments to maintain reserves ....................... 199 11 96 6 -------------- -------------- -------------- -------------- Net equity transactions ............................ 1,481,239 146,835 1,007,699 332,041 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 1,718,653 169,087 1,184,848 375,478 Contract owners' equity beginning of period .............. 169,087 - 375,478 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 1,887,740 169,087 1,560,326 375,478 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 12,709 - 28,423 - -------------- -------------- -------------- -------------- Units purchased ........................................ 106,989 12,866 77,809 33,927 Units redeemed ......................................... (4,480) (157) (6,378) (5,504) -------------- -------------- -------------- -------------- Ending units ........................................... 115,218 12,709 99,854 28,423 ============== ============== ============== ==============
GVITCVal GVITDryIntVal ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... 2,734 333 10,166 (311) Realized gain (loss) on investments .................... 8,948 1,653 23,527 9,011 Change in unrealized gain (loss) on investments ........ 47,320 12,566 150,304 18,013 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 59,002 14,552 183,997 26,713 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 31,332 6,770 83,122 10,916 Transfers between funds ................................ 382,380 110,212 1,119,622 174,077 Surrenders (note 6) .................................... (13,645) - (29,572) - Death benefits (note 4) ................................ - - - - Net policy repayments (loans) (note 5) ................. 1,954 - (23,014) - Deductions for surrender charges (note 2d) ............. (116) - (489) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (17,250) (1,889) (27,700) (1,134) Asset charges (note 3): MSP contracts ........................................ (14) (3) (372) (99) LSFP contracts ....................................... (113) - (431) (52) Adjustments to maintain reserves ....................... 97 (8) 2,557 (1) -------------- -------------- -------------- -------------- Net equity transactions ............................ 384,625 115,082 1,123,723 183,707 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 443,627 129,634 1,307,720 210,420 Contract owners' equity beginning of period .............. 129,634 - 210,420 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 573,261 129,634 1,518,140 210,420 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 10,283 - 15,258 - -------------- -------------- -------------- -------------- Units purchased ........................................ 30,754 10,445 81,949 15,359 Units redeemed ......................................... (2,081) (162) (5,705) (101) -------------- -------------- -------------- -------------- Ending units ........................................... 38,956 10,283 91,502 15,258 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
GVITDMidCapI GVITEmMrkts ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (11,866) (12,730) 3,973 (481) Realized gain (loss) on investments .................... 478,712 (157,515) 238,509 149,677 Change in unrealized gain (loss) on investments ........ 286,574 1,649,966 (187,562) 219,942 Reinvested capital gains ............................... 166,818 40 154,636 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 920,238 1,479,761 209,556 369,138 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 379,206 547,174 106,916 118,749 Transfers between funds ................................ (208,152) 1,761,755 334,962 1,059,724 Surrenders (note 6) .................................... (370,743) (427,117) (249,676) (160,155) Death benefits (note 4) ................................ (24,324) (19,754) - - Net policy repayments (loans) (note 5) ................. (87,850) (22,331) 3,154 (11,495) Deductions for surrender charges (note 2d) ............. (11,516) (19,742) (4,721) (7,403) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (268,398) (244,137) (81,474) (31,240) Asset charges (note 3): MSP contracts ........................................ (5,049) (3,408) (1,189) (552) LSFP contracts ....................................... (3,951) (2,402) (1,029) (332) Adjustments to maintain reserves ....................... 356 (140,291) 281 1,906 -------------- -------------- -------------- -------------- Net equity transactions ............................ (600,421) 1,429,747 107,224 969,202 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 319,817 2,909,508 316,780 1,338,340 Contract owners' equity beginning of period .............. 6,751,719 3,842,211 1,612,207 273,867 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 7,071,536 6,751,719 1,928,987 1,612,207 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 585,904 445,821 142,811 39,708 -------------- -------------- -------------- -------------- Units purchased ........................................ 84,218 215,981 55,251 115,260 Units redeemed ......................................... (136,172) (75,898) (55,868) (12,157) -------------- -------------- -------------- -------------- Ending units ........................................... 533,950 585,904 142,194 142,811 ============== ============== ============== ==============
GVITFHiInc GVITGlFin1 ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... 30,998 6,330 3,053 131 Realized gain (loss) on investments .................... 3,104 642 20,841 24,710 Change in unrealized gain (loss) on investments ........ 1,341 4,057 22,641 4,592 Reinvested capital gains ............................... - - 31,262 36,957 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 35,443 11,029 77,797 66,390 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 93,324 11,770 32,914 88,543 Transfers between funds ................................ 514,170 222,001 99,268 159,904 Surrenders (note 6) .................................... (63,910) (27,497) (6,767) (18,112) Death benefits (note 4) ................................ - - - - Net policy repayments (loans) (note 5) ................. (10,348) (3,241) 1,396 2,194 Deductions for surrender charges (note 2d) ............. (641) (1,271) (124) (837) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (24,318) (3,710) (18,622) (6,395) Asset charges (note 3): MSP contracts ........................................ (652) (185) (202) (30) LSFP contracts ....................................... (119) - (147) (43) Adjustments to maintain reserves ....................... 82 4 123 11 -------------- -------------- -------------- -------------- Net equity transactions ............................ 507,588 197,871 107,839 225,235 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 543,031 208,900 185,636 291,625 Contract owners' equity beginning of period .............. 208,900 - 356,116 64,491 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 751,931 208,900 541,752 356,116 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 18,857 - 29,492 7,495 -------------- -------------- -------------- -------------- Units purchased ........................................ 50,816 20,105 10,634 24,908 Units redeemed ......................................... (7,649) (1,248) (2,738) (2,911) -------------- -------------- -------------- -------------- Ending units ........................................... 62,024 18,857 37,388 29,492 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
GVITGlHlth GVITGlTech ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (7,884) (5,970) (9,013) (5,695) Realized gain (loss) on investments .................... (39,556) 138,267 45,664 153,660 Change in unrealized gain (loss) on investments ........ 55,376 (27,859) (46,031) 95,094 Reinvested capital gains ............................... 4,166 70,723 - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 12,102 175,161 (9,380) 243,059 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 59,664 32,402 186,008 56,062 Transfers between funds ................................ 469,650 700,808 (338,000) 863,669 Surrenders (note 6) .................................... (16,305) (350,559) (152,345) (68,772) Death benefits (note 4) ................................ (19,378) - (32) (5,717) Net policy repayments (loans) (note 5) ................. (34,896) (42,579) 42,390 (25,530) Deductions for surrender charges (note 2d) ............. (285) (16,203) (2,819) (3,179) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (43,152) (25,020) (62,196) (46,421) Asset charges (note 3): MSP contracts ........................................ (818) (238) (430) (468) LSFP contracts ....................................... (512) (184) (242) (39) Adjustments to maintain reserves ....................... 126 16 71 227 -------------- -------------- -------------- -------------- Net equity transactions ............................ 414,094 298,443 (327,595) 769,832 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 426,196 473,604 (336,975) 1,012,891 Contract owners' equity beginning of period .............. 629,312 155,708 1,273,981 261,090 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 1,055,508 629,312 937,006 1,273,981 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 56,010 18,805 426,738 134,649 -------------- -------------- -------------- -------------- Units purchased ........................................ 42,107 78,585 93,708 342,452 Units redeemed ......................................... (10,483) (41,380) (217,484) (50,363) -------------- -------------- -------------- -------------- Ending units ........................................... 87,634 56,010 302,962 426,738 ============== ============== ============== ==============
GVITGlUtl1 GVITGvtBd ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... 4,489 (170) 682,063 486,697 Realized gain (loss) on investments .................... 37,735 5,237 (209,367) (19,208) Change in unrealized gain (loss) on investments ........ 54,265 18,068 (428,372) (207,136) Reinvested capital gains ............................... 46,716 - 298,626 29,787 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 143,205 23,135 342,950 290,140 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 36,290 1,323 1,006,916 1,454,811 Transfers between funds ................................ 807,656 109,537 (2,260,102) (3,784,652) Surrenders (note 6) .................................... (12,101) (244,561) (1,685,271) (2,627,215) Death benefits (note 4) ................................ - - (330,542) (61,806) Net policy repayments (loans) (note 5) ................. (458) 254,660 223,756 56,813 Deductions for surrender charges (note 2d) ............. (145) (11,304) (31,821) (121,434) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (12,034) (2,583) (717,200) (1,071,795) Asset charges (note 3): MSP contracts ........................................ (196) (45) (14,028) (17,553) LSFP contracts ....................................... (233) (133) (4,861) (8,560) Adjustments to maintain reserves ....................... 119 (4) 9,852 (65,883) -------------- -------------- -------------- -------------- Net equity transactions ............................ 818,898 106,890 (3,803,301) (6,247,274) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 962,103 130,025 (3,460,351) (5,957,134) Contract owners' equity beginning of period .............. 165,929 35,904 16,424,258 22,381,392 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 1,128,032 165,929 12,963,907 16,424,258 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 15,619 4,164 735,699 1,024,071 -------------- -------------- -------------- -------------- Units purchased ........................................ 69,288 13,650 72,739 91,225 Units redeemed ......................................... (2,667) (2,195) (248,636) (379,597) -------------- -------------- -------------- -------------- Ending units ........................................... 82,240 15,619 559,802 735,699 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
GVITGrowth GVITIDAgg ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (66,326) (107,563) 11,082 1,896 Realized gain (loss) on investments .................... (3,116,950) (3,868,654) 33,335 44,183 Change in unrealized gain (loss) on investments ........ 4,364,984 8,180,131 71,983 42,877 Reinvested capital gains ............................... - - 27,300 5,518 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 1,181,708 4,203,914 143,700 94,474 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 2,420,292 2,819,241 116,778 47,188 Transfers between funds ................................ (849,524) (527,911) 816,808 235,905 Surrenders (note 6) .................................... (1,371,347) (1,252,791) (198,704) (5,780) Death benefits (note 4) ................................ (61,054) (72,160) - - Net policy repayments (loans) (note 5) ................. 149,202 89,662 (12,542) 1,380 Deductions for surrender charges (note 2d) ............. (45,401) (57,906) (732) (267) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (1,422,256) (1,446,738) (50,690) (22,528) Asset charges (note 3): MSP contracts ........................................ (4,709) (4,472) (9) (2) LSFP contracts ....................................... (8,832) (7,643) - - Adjustments to maintain reserves ....................... (393) 4,496 87 28 -------------- -------------- -------------- -------------- Net equity transactions ............................ (1,194,022) (456,222) 670,996 255,924 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (12,314) 3,747,692 814,696 350,398 Contract owners' equity beginning of period .............. 17,159,255 13,411,563 496,855 146,457 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 17,146,941 17,159,255 1,311,551 496,855 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 1,137,890 1,170,029 45,926 17,710 -------------- -------------- -------------- -------------- Units purchased ........................................ 236,511 236,749 84,874 31,669 Units redeemed ......................................... (318,213) (268,888) (24,064) (3,453) -------------- -------------- -------------- -------------- Ending units ........................................... 1,056,188 1,137,890 106,736 45,926 ============== ============== ============== ==============
GVITIDCon GVITIDMod ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... 9,015 7,043 54,319 19,641 Realized gain (loss) on investments .................... 12,643 5,929 67,380 5,830 Change in unrealized gain (loss) on investments ........ (2,310) 16,454 189,320 285,948 Reinvested capital gains ............................... 5,140 1,440 19,510 946 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 24,488 30,866 330,529 312,365 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 24,908 32,945 355,834 276,128 Transfers between funds ................................ 243,122 58,691 2,034,482 1,514,517 Surrenders (note 6) .................................... (39,863) (13,603) (171,362) (32,051) Death benefits (note 4) ................................ - (11,368) - - Net policy repayments (loans) (note 5) ................. (418) (13,680) 11,084 (47,251) Deductions for surrender charges (note 2d) ............. (20) (629) (621) (1,481) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (23,128) (18,893) (202,360) (94,023) Asset charges (note 3): MSP contracts ........................................ (447) (431) (4,064) (1,685) LSFP contracts ....................................... (39) (188) (617) (228) Adjustments to maintain reserves ....................... 61 7 183 28 -------------- -------------- -------------- -------------- Net equity transactions ............................ 204,176 32,851 2,022,559 1,613,954 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 228,664 63,717 2,353,088 1,926,319 Contract owners' equity beginning of period .............. 381,273 317,556 2,470,014 543,695 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 609,937 381,273 4,823,102 2,470,014 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 35,654 31,754 228,410 59,819 -------------- -------------- -------------- -------------- Units purchased ........................................ 26,633 16,723 217,965 187,414 Units redeemed ......................................... (7,367) (12,823) (37,181) (18,823) -------------- -------------- -------------- -------------- Ending units ........................................... 54,920 35,654 409,194 228,410 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
GVITIDModAgg GVITIDModCon -------------------------------- -------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 36,384 10,420 22,719 9,165 Realized gain (loss) on investments .................... 63,452 (7,574) 20,445 14,955 Change in unrealized gain (loss) on investments ........ 223,424 318,164 55,620 48,943 Reinvested capital gains ............................... 48,204 - 7,790 1,142 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 371,464 321,010 106,574 74,205 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 411,256 203,520 76,060 64,735 Transfers between funds ................................ 1,517,198 721,450 1,019,982 353,657 Surrenders (note 6) .................................... (68,638) (22,041) (9,847) (4,714) Death benefits (note 4) ................................ - - - (11,855) Net policy repayments (loans) (note 5) ................. 21,058 24,606 (16,580) (6,687) Deductions for surrender charges (note 2d) ............. (924) (1,019) (108) (218) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (217,050) (114,767) (59,032) (33,029) Asset charges (note 3): MSP contracts ........................................ (933) (396) (2,435) (1,050) LSFP contracts ....................................... (642) (454) (90) (154) Adjustments to maintain reserves ....................... 179 18 120 (92) -------------- -------------- -------------- -------------- Net equity transactions ............................ 1,661,504 810,917 1,008,070 360,593 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 2,032,968 1,131,927 1,114,644 434,798 Contract owners' equity beginning of period .............. 2,074,616 942,689 703,690 268,892 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 4,107,584 2,074,616 1,818,334 703,690 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 191,327 109,211 64,892 28,027 -------------- -------------- -------------- -------------- Units purchased ........................................ 178,077 101,890 108,440 42,950 Units redeemed ......................................... (29,038) (19,774) (14,488) (6,085) -------------- -------------- -------------- -------------- Ending units ........................................... 340,366 191,327 158,844 64,892 ============== ============== ============== ==============
GVITIntGro GVITSMdCpGr -------------------------------- -------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... 886 (438) (9,995) (16,320) Realized gain (loss) on investments .................... 5,100 9,484 177,103 314,734 Change in unrealized gain (loss) on investments ........ 11,025 5,034 (5,663) 196,161 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 17,011 14,080 161,445 494,575 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 5,288 129,786 68,408 269,326 Transfers between funds ................................ 163,264 14,697 (1,040,164) 905,513 Surrenders (note 6) .................................... (145) (123,145) (81,738) (96,786) Death benefits (note 4) ................................ - - - (126,970) Net policy repayments (loans) (note 5) ................. (3,314) (636) (33,732) (261,405) Deductions for surrender charges (note 2d) ............. (2) (5,692) (2,255) (4,474) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (7,554) (2,872) (76,480) (78,859) Asset charges (note 3): MSP contracts ........................................ (89) (19) (640) (829) LSFP contracts ....................................... (22) (14) (700) (803) Adjustments to maintain reserves ....................... 37 7 (721,648) 718,835 -------------- -------------- -------------- -------------- Net equity transactions ............................ 157,463 12,112 (1,888,949) 1,323,548 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 174,474 26,192 (1,727,504) 1,818,123 Contract owners' equity beginning of period .............. 81,249 55,057 2,996,301 1,178,178 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 255,723 81,249 1,268,797 2,996,301 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 12,282 11,233 613,017 335,821 -------------- -------------- -------------- -------------- Units purchased ........................................ 25,002 5,032 45,410 418,292 Units redeemed ......................................... (2,926) (3,983) (432,263) (141,096) -------------- -------------- -------------- -------------- Ending units ........................................... 34,358 12,282 226,164 613,017 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
GVITMyMkt GVITNWFund -------------------------------- -------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 14,826 (48,086) 385,234 (128,378) Realized gain (loss) on investments .................... - - (3,508,491) (2,319,832) Change in unrealized gain (loss) on investments ........ - - 9,344,235 18,094,378 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 14,826 (48,086) 6,220,978 15,646,168 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 3,980,268 4,279,006 7,503,374 8,223,681 Transfers between funds ................................ (834,436) (6,838,365) (2,144,250) (1,394,191) Surrenders (note 6) .................................... (9,992,566) (10,294,119) (4,356,117) (3,227,744) Death benefits (note 4) ................................ (525,790) (68,054) (462,056) (241,692) Net policy repayments (loans) (note 5) ................. 4,435,022 666,422 (89,138) 9,325 Deductions for surrender charges (note 2d) ............. (223,037) (475,811) (94,140) (149,192) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (1,886,032) (2,163,462) (5,370,136) (5,510,734) Asset charges (note 3): MSP contracts ........................................ (30,803) (41,707) (26,151) (24,994) LSFP contracts ....................................... (20,710) (23,441) (19,154) (16,647) Adjustments to maintain reserves ....................... (22,191) 22,947 38,325 4,809 -------------- -------------- -------------- -------------- Net equity transactions ............................ (5,120,275) (14,936,584) (5,019,443) (2,327,379) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (5,105,449) (14,984,670) 1,201,535 13,318,789 Contract owners' equity beginning of period .............. 31,779,903 46,764,573 73,644,353 60,325,564 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 26,674,454 31,779,903 74,845,888 73,644,353 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 2,142,989 3,181,070 2,521,462 2,622,768 -------------- -------------- -------------- -------------- Units purchased ........................................ 483,724 496,788 429,659 360,701 Units redeemed ......................................... (848,655) (1,534,869) (640,851) (462,007) -------------- -------------- -------------- -------------- Ending units ........................................... 1,778,058 2,142,989 2,310,270 2,521,462 ============== ============== ============== ==============
GVITLead GVITSmCapGr -------------------------------- -------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (287) (503) (10,577) (9,992) Realized gain (loss) on investments .................... 18,968 (3,394) 106,456 245,292 Change in unrealized gain (loss) on investments ........ (7,534) 22,125 82,462 101,046 Reinvested capital gains ............................... 2,094 - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 13,241 18,228 178,341 336,346 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 32,596 10,592 97,852 251,062 Transfers between funds ................................ 14,952 4,640 158,032 (19,343) Surrenders (note 6) .................................... - - (96,487) (51,376) Death benefits (note 4) ................................ - - (2,000) - Net policy repayments (loans) (note 5) ................. (5,088) (24,739) (1,510) (47,144) Deductions for surrender charges (note 2d) ............. - - (3,446) (2,375) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (5,630) (4,514) (79,462) (83,233) Asset charges (note 3): MSP contracts ........................................ (45) (61) (551) (406) LSFP contracts ....................................... (4) - (1,199) (769) Adjustments to maintain reserves ....................... 80 7 160 (684) -------------- -------------- -------------- -------------- Net equity transactions ............................ 36,861 (14,075) 71,389 45,732 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 50,102 4,153 249,730 382,078 Contract owners' equity beginning of period .............. 119,189 115,036 1,641,019 1,258,941 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 169,291 119,189 1,890,749 1,641,019 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 11,414 13,679 260,132 265,763 -------------- -------------- -------------- -------------- Units purchased ........................................ 7,054 4,986 49,869 48,697 Units redeemed ......................................... (4,726) (7,251) (44,399) (54,328) -------------- -------------- -------------- -------------- Ending units ........................................... 13,742 11,414 265,602 260,132 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
GVITSmCapVal GVITSmComp -------------------------------- -------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (103,939) (78,518) (185,854) (162,554) Realized gain (loss) on investments .................... 2,227,969 405,061 741,643 (941,330) Change in unrealized gain (loss) on investments ........ (1,098,406) 4,692,960 733,177 8,912,411 Reinvested capital gains ............................... 1,045,306 - 3,163,878 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 2,070,930 5,019,503 4,452,844 7,808,527 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 983,040 962,419 1,501,060 1,785,411 Transfers between funds ................................ (974,418) 1,983,387 (1,666,148) 282,080 Surrenders (note 6) .................................... (1,561,609) (962,055) (1,926,595) (1,042,745) Death benefits (note 4) ................................ (8,604) (95,096) (67,214) (73,828) Net policy repayments (loans) (note 5) ................. 92,882 (601,100) (100,620) (147,834) Deductions for surrender charges (note 2d) ............. (29,758) (44,468) (48,364) (48,197) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (576,466) (507,900) (1,257,388) (1,265,654) Asset charges (note 3): MSP contracts ........................................ (9,432) (6,907) (14,551) (12,510) LSFP contracts ....................................... (11,986) (10,106) (13,521) (11,018) Adjustments to maintain reserves ....................... 755 174 (1,241) 4,535 -------------- -------------- -------------- -------------- Net equity transactions ............................ (2,095,596) 718,348 (3,594,582) (529,760) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (24,666) 5,737,851 858,262 7,278,767 Contract owners' equity beginning of period .............. 15,008,440 9,270,589 27,363,463 20,084,696 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 14,983,774 15,008,440 28,221,725 27,363,463 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 872,565 838,299 1,062,343 1,090,705 -------------- -------------- -------------- -------------- Units purchased ........................................ 144,889 202,734 124,727 133,747 Units redeemed ......................................... (271,048) (168,468) (261,158) (162,109) -------------- -------------- -------------- -------------- Ending units ........................................... 746,406 872,565 925,912 1,062,343 ============== ============== ============== ==============
GVITTGroFoc GVITUSGro -------------------------------- -------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (1,480) (3,394) (6,707) (4,094) Realized gain (loss) on investments .................... 97,783 106,095 (36,682) 114,439 Change in unrealized gain (loss) on investments ........ (76,678) 99,325 78,876 (8,682) Reinvested capital gains ............................... - - 43,050 64,799 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 19,625 202,026 78,537 166,462 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 30,074 32,050 93,866 38,894 Transfers between funds ................................ (662,670) 437,266 (223,028) 938,704 Surrenders (note 6) .................................... (12,623) (179,355) (46,028) (17,480) Death benefits (note 4) ................................ - - (30,522) - Net policy repayments (loans) (note 5) ................. (11,088) (16,437) 7,548 (146,138) Deductions for surrender charges (note 2d) ............. (164) (8,290) (531) (808) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (11,168) (26,752) (35,240) (23,663) Asset charges (note 3): MSP contracts ........................................ (83) (220) (149) (31) LSFP contracts ....................................... (188) (548) (267) (140) Adjustments to maintain reserves ....................... 2 (75) (10,401) 8,382 -------------- -------------- -------------- -------------- Net equity transactions ............................ (667,908) 237,639 (244,752) 797,720 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (648,283) 439,665 (166,215) 964,182 Contract owners' equity beginning of period .............. 648,283 208,618 1,045,097 80,915 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... - 648,283 878,882 1,045,097 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 198,969 96,110 84,662 9,894 -------------- -------------- -------------- -------------- Units purchased ........................................ 8,546 127,213 16,545 93,269 Units redeemed ......................................... (207,515) (24,354) (37,495) (18,501) -------------- -------------- -------------- -------------- Ending units ........................................... - 198,969 63,712 84,662 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
GVITVKMultiSec JanBal ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 47,933 71,074 1,422 202 Realized gain (loss) on investments .................... 11,062 95,127 637 7 Change in unrealized gain (loss) on investments ........ (2,839) (5,724) 4,089 875 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 56,156 160,477 6,148 1,084 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 66,512 157,344 10,398 1,951 Transfers between funds ................................ 55,642 (146,693) 55,766 25,096 Surrenders (note 6) .................................... (177,833) (213,444) (4,206) - Death benefits (note 4) ................................ - - - - Net policy repayments (loans) (note 5) ................. (4,728) 7,695 - - Deductions for surrender charges (note 2d) ............. (3,103) (9,866) (55) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (48,846) (64,458) (1,798) (176) Asset charges (note 3): MSP contracts ........................................ (895) (881) (40) - LSFP contracts ....................................... (511) (880) - - Adjustments to maintain reserves ....................... 147 30,616 42 1 -------------- -------------- -------------- -------------- Net equity transactions ............................ (113,615) (240,567) 60,107 26,872 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (57,459) (80,090) 66,255 27,956 Contract owners' equity beginning of period .............. 1,268,569 1,348,659 27,956 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 1,211,110 1,268,569 94,211 27,956 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 99,033 117,430 2,548 - -------------- -------------- -------------- -------------- Units purchased ........................................ 18,043 24,936 5,983 2,565 Units redeemed ......................................... (27,680) (43,333) (551) (17) -------------- -------------- -------------- -------------- Ending units ........................................... 89,396 99,033 7,980 2,548 ============== ============== ============== ==============
JanCapAp JanGlTech ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (16,818) (11,135) (8,182) (8,186) Realized gain (loss) on investments .................... 181,446 (82,197) 73,598 (300,592) Change in unrealized gain (loss) on investments ........ 200,822 520,550 (70,981) 755,405 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 365,450 427,218 (5,565) 446,627 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 219,742 282,142 114,866 165,602 Transfers between funds ................................ (201,086) (140,161) (57,688) 32,152 Surrenders (note 6) .................................... (228,302) (148,985) (124,635) (78,038) Death benefits (note 4) ................................ (1,046) (719) (3,682) (1,735) Net policy repayments (loans) (note 5) ................. 7,202 (8,914) (43,396) 1,274 Deductions for surrender charges (note 2d) ............. (12,387) (6,886) (2,916) (3,607) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (129,148) (154,480) (64,060) (71,915) Asset charges (note 3): MSP contracts ........................................ (1,595) (1,377) (700) (844) LSFP contracts ....................................... (1,379) (1,316) (1,047) (817) Adjustments to maintain reserves ....................... 141 10 58 (38,722) -------------- -------------- -------------- -------------- Net equity transactions ............................ (347,858) (180,686) (183,200) 3,350 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 17,592 246,532 (188,765) 449,977 Contract owners' equity beginning of period .............. 2,500,408 2,253,876 1,329,744 879,767 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 2,518,000 2,500,408 1,140,979 1,329,744 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 409,213 440,390 371,145 357,176 -------------- -------------- -------------- -------------- Units purchased ........................................ 54,006 64,043 50,531 91,294 Units redeemed ......................................... (111,629) (95,220) (102,830) (77,325) -------------- -------------- -------------- -------------- Ending units ........................................... 351,590 409,213 318,846 371,145 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
JanIntGro JanRMgLgCap ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 1,396 3,449 555 (8) Realized gain (loss) on investments .................... 205,854 87,839 341 (37) Change in unrealized gain (loss) on investments ........ 46,089 377,425 894 503 Reinvested capital gains ............................... - - 5,250 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ...................... 253,339 468,713 7,040 458 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 140,402 390,875 5,478 197 Transfers between funds ................................ (80,274) (198,596) 73,042 7,352 Surrenders (note 6) .................................... (133,375) (304,722) (599) - Death benefits (note 4) ................................ (1,112) (1,441) - - Net policy repayments (loans) (note 5) ................. (28,212) (9,893) (1,902) 8 Deductions for surrender charges (note 2d) ............. (3,119) (14,085) (8) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (85,374) (88,680) (2,700) (72) Asset charges (note 3): MSP contracts ........................................ (810) (670) - - LSFP contracts ....................................... (1,230) (1,074) - - Adjustments to maintain reserves ....................... 99 (431) 59 (1) -------------- -------------- -------------- -------------- Net equity transactions ............................ (193,005) (228,717) 73,370 7,484 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 60,334 239,996 80,410 7,942 Contract owners' equity beginning of period .............. 1,721,873 1,481,877 7,942 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 1,782,207 1,721,873 88,352 7,942 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 291,169 334,648 649 - -------------- -------------- -------------- -------------- Units purchased ........................................ 41,327 43,772 5,915 656 Units redeemed ......................................... (77,472) (87,251) (378) (7) -------------- -------------- -------------- -------------- Ending units ........................................... 255,024 291,169 6,186 649 ============== ============== ============== ==============
MFSVITInvGrwI MFSVITValIn ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (1,241) (68) (239) (74) Realized gain (loss) on investments .................... 986 113 3,050 38 Change in unrealized gain (loss) on investments ........ 16,004 1,549 13,100 3,849 Reinvested capital gains ............................... - - 842 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations ...................... 15,749 1,594 16,753 3,813 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 15,306 933 9,032 2,515 Transfers between funds ................................ 189,424 55,220 134,988 38,323 Surrenders (note 6) .................................... (4,306) (1,557) (19,256) - Death benefits (note 4) ................................ - - - - Net policy repayments (loans) (note 5) ................. (928) - 1,942 (326) Deductions for surrender charges (note 2d) ............. (127) (72) (333) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (12,200) (533) (3,932) (617) Asset charges (note 3): MSP contracts ........................................ - - (29) (7) LSFP contracts ....................................... (95) - (110) - Adjustments to maintain reserves ....................... 86 (2) 56 - -------------- -------------- -------------- -------------- Net equity transactions ............................ 187,160 53,989 122,358 39,888 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 202,909 55,583 139,111 43,701 Contract owners' equity beginning of period .............. 55,583 - 43,701 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 258,492 55,583 182,812 43,701 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 4,816 - 3,551 - -------------- -------------- -------------- -------------- Units purchased ........................................ 17,442 5,007 11,128 3,635 Units redeemed ......................................... (1,606) (191) (1,709) (84) -------------- -------------- -------------- -------------- Ending units ........................................... 20,652 4,816 12,970 3,551 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
NBAMTBal NBAMTFasc ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 350 604 (241) (42) Realized gain (loss) on investments .................... 904 (877) 466 750 Change in unrealized gain (loss) on investments ........ 4,443 8,095 5,792 747 Reinvested capital gains ............................... - - 152 5 -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 5,697 7,822 6,169 1,460 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 2,606 6,261 6,350 552 Transfers between funds ................................ 4,666 10,323 95,586 10,214 Surrenders (note 6) .................................... (29,767) - (14,167) (648) Death benefits (note 4) ................................ - - - - Net policy repayments (loans) (note 5) ................. 278 22 13,390 (328) Deductions for surrender charges (note 2d) ............. (460) - (184) (30) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (3,114) (2,308) (2,746) (505) Asset charges (note 3): MSP contracts ........................................ - - (29) - LSFP contracts ....................................... - - - - Adjustments to maintain reserves ....................... 19 7 43 (5) -------------- -------------- -------------- -------------- Net equity transactions ............................ (25,772) 14,305 98,243 9,250 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (20,075) 22,127 104,412 10,710 Contract owners' equity beginning of period .............. 68,167 46,040 10,710 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 48,092 68,167 115,122 10,710 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 3,415 2,497 854 - -------------- -------------- -------------- -------------- Units purchased ........................................ 383 1,044 7,673 926 Units redeemed ......................................... (1,492) (126) (283) (72) -------------- -------------- -------------- -------------- Ending units ........................................... 2,306 3,415 8,244 854 ============== ============== ============== ==============
NBAMTGro NBAMTGuard ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (122,271) (113,247) (10,008) 3,217 Realized gain (loss) on investments .................... (65,787) (2,849,105) 141,283 (219,402) Change in unrealized gain (loss) on investments ........ 2,575,966 6,753,242 151,481 710,906 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 2,387,908 3,790,890 282,756 494,721 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 1,422,100 1,709,589 148,296 147,198 Transfers between funds ................................ (437,744) 119,597 53,930 (5,208) Surrenders (note 6) .................................... (1,321,082) (2,092,717) (92,306) (168,265) Death benefits (note 4) ................................ (84,216) (25,820) - - Net policy repayments (loans) (note 5) ................. 66,888 792,718 (27,708) (6,356) Deductions for surrender charges (note 2d) ............. (30,080) (96,729) (2,357) (7,778) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (972,086) (1,002,885) (88,002) (98,065) Asset charges (note 3): MSP contracts ........................................ (2,886) (2,540) (1,260) (1,250) LSFP contracts ....................................... (5,895) (5,756) (1,576) (1,689) Adjustments to maintain reserves ....................... 20,840 17,434 117 22 -------------- -------------- -------------- -------------- Net equity transactions ............................ (1,344,161) (587,109) (10,866) (141,391) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 1,043,747 3,203,781 271,890 353,330 Contract owners' equity beginning of period .............. 16,201,312 12,997,531 1,959,167 1,605,837 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 17,245,059 16,201,312 2,231,057 1,959,167 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 821,615 866,555 195,762 210,005 -------------- -------------- -------------- -------------- Units purchased ........................................ 134,685 140,684 39,197 31,713 Units redeemed ......................................... (226,112) (185,624) (41,743) (45,956) -------------- -------------- -------------- -------------- Ending units ........................................... 730,188 821,615 193,216 195,762 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
NBAMTLMat NBAMTMCGrS ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 173,093 239,549 (1,734) (601) Realized gain (loss) on investments .................... 2,068 19,906 15,460 7,082 Change in unrealized gain (loss) on investments ........ (172,376) (150,522) 20,124 9,663 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 2,785 108,933 33,850 16,144 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 297,222 419,152 26,634 11,530 Transfers between funds ................................ (36,250) 90,649 39,838 247,205 Surrenders (note 6) .................................... (719,031) (1,419,276) (90,743) - Death benefits (note 4) ................................ (279,808) (398) - - Net policy repayments (loans) (note 5) ................. 212,060 681,836 (19,292) 84 Deductions for surrender charges (note 2d) ............. (8,138) (65,601) (43) - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (210,888) (259,691) (11,196) (2,747) Asset charges (note 3): MSP contracts ........................................ (4,235) (7,524) (37) - LSFP contracts ....................................... (1,935) (1,699) (319) (148) Adjustments to maintain reserves ....................... 4,711 (30,720) 113 (12) -------------- -------------- -------------- -------------- Net equity transactions ............................ (746,292) (593,272) (55,045) 255,912 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (743,507) (484,339) (21,195) 272,056 Contract owners' equity beginning of period .............. 6,257,182 6,741,521 272,056 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 5,513,675 6,257,182 250,861 272,056 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 352,066 390,323 22,177 - -------------- -------------- -------------- -------------- Units purchased ........................................ 49,406 48,590 13,917 22,437 Units redeemed ......................................... (96,484) (86,847) (18,374) (260) -------------- -------------- -------------- -------------- Ending units ........................................... 304,988 352,066 17,720 22,177 ============== ============== ============== ==============
NBAMTPart NBAMSocRes ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (134,882) (125,663) (810) (106) Realized gain (loss) on investments .................... 211,699 (2,482,304) 1,132 25 Change in unrealized gain (loss) on investments ........ 3,414,183 8,076,460 18,249 4,282 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 3,491,000 5,468,493 18,571 4,201 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 1,811,132 1,956,281 108,636 1,275 Transfers between funds ................................ (318,362) (669,643) 100,258 35,670 Surrenders (note 6) .................................... (1,489,288) (2,336,671) - - Death benefits (note 4) ................................ (163,254) (73,321) - - Net policy repayments (loans) (note 5) ................. (174,578) 567,185 (12) 143 Deductions for surrender charges (note 2d) ............. (71,638) (108,005) - - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (1,120,926) (1,166,922) (3,546) (759) Asset charges (note 3): MSP contracts ........................................ (12,080) (10,782) (34) - LSFP contracts ....................................... (18,835) (15,068) - - Adjustments to maintain reserves ....................... 150,638 (1,353) 55 6 -------------- -------------- -------------- -------------- Net equity transactions ............................ (1,407,191) (1,858,299) 205,357 36,335 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 2,083,809 3,610,194 223,928 40,536 Contract owners' equity beginning of period .............. 20,361,047 16,750,853 40,536 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 22,444,856 20,361,047 264,464 40,536 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 903,543 990,334 3,293 - -------------- -------------- -------------- -------------- Units purchased ........................................ 148,097 124,453 16,107 3,372 Units redeemed ......................................... (209,120) (211,244) (288) (79) -------------- -------------- -------------- -------------- Ending units ........................................... 842,520 903,543 19,112 3,293 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
OppAggGro OppBdFd ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (15,105) (11,886) 530,582 679,789 Realized gain (loss) on investments .................... 76,047 229,204 9,317 (4,847) Change in unrealized gain (loss) on investments ........ 268,323 73,026 46,534 124,933 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 329,265 290,344 586,433 799,875 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 221,836 318,237 901,146 986,173 Transfers between funds ................................ 44,672 301,461 (379,158) (729,951) Surrenders (note 6) .................................... (45,473) (68,982) (859,561) (1,054,622) Death benefits (note 4) ................................ (34,534) (2,559) (206,078) (14,916) Net policy repayments (loans) (note 5) ................. (17,348) (29,327) (196,780) (9,225) Deductions for surrender charges (note 2d) ............. (2,370) (3,188) (26,725) (48,746) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (120,132) (122,764) (612,690) (683,420) Asset charges (note 3): MSP contracts ........................................ (1,039) (660) (8,648) (9,531) LSFP contracts ....................................... (545) (166) (6,365) (6,190) Adjustments to maintain reserves ....................... 201 (11,039) 5,975 (37,158) -------------- -------------- -------------- -------------- Net equity transactions ............................ 45,268 381,013 (1,388,884) (1,607,586) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 374,533 671,357 (802,451) (807,711) Contract owners' equity beginning of period .............. 1,829,696 1,158,339 13,201,599 14,009,310 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 2,204,229 1,829,696 12,399,148 13,201,599 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 385,863 304,625 607,217 685,876 -------------- -------------- -------------- -------------- Units purchased ........................................ 109,911 141,228 91,514 95,828 Units redeemed ......................................... (105,224) (59,990) (159,989) (174,487) -------------- -------------- -------------- -------------- Ending units ........................................... 390,550 385,863 538,742 607,217 ============== ============== ============== ==============
OppCapAp OppGlSec ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (58,392) (49,154) 170,282 (1,280) Realized gain (loss) on investments .................... 322,087 (2,159,972) (146,798) (4,355,424) Change in unrealized gain (loss) on investments ........ 548,435 5,578,110 5,762,698 14,079,632 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 812,130 3,368,984 5,786,182 9,722,928 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 1,223,634 1,377,491 2,032,224 2,087,217 Transfers between funds ................................ (1,165,538) 369,298 534,826 207,428 Surrenders (note 6) .................................... (740,992) (676,382) (2,425,284) (1,759,910) Death benefits (note 4) ................................ (50,554) (134,063) (90,694) (49,058) Net policy repayments (loans) (note 5) ................. (63,270) (101,777) (133,226) 153,062 Deductions for surrender charges (note 2d) ............. (30,565) (31,263) (60,616) (81,346) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (735,336) (772,898) (1,453,212) (1,383,805) Asset charges (note 3): MSP contracts ........................................ (5,222) (5,271) (12,749) (9,838) LSFP contracts ....................................... (6,153) (5,208) (9,658) (7,297) Adjustments to maintain reserves ....................... 729 31,756 3,026 22,496 -------------- -------------- -------------- -------------- Net equity transactions ............................ (1,573,267) 51,683 (1,615,363) (821,051) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (761,137) 3,420,667 4,170,819 8,901,877 Contract owners' equity beginning of period .............. 15,037,972 11,617,305 32,880,624 23,978,747 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 14,276,835 15,037,972 37,051,443 32,880,624 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 1,025,550 1,030,433 1,150,008 1,190,779 -------------- -------------- -------------- -------------- Units purchased ........................................ 149,997 167,469 254,793 148,719 Units redeemed ......................................... (259,393) (172,352) (309,935) (189,490) -------------- -------------- -------------- -------------- Ending units ........................................... 916,154 1,025,550 1,094,866 1,150,008 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
OppHighInc OppMSFund ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 20,029 (475) 2,590 2,578 Realized gain (loss) on investments .................... 6,132 2,808 71,154 81,690 Change in unrealized gain (loss) on investments ........ 26,739 15,287 46,372 214,017 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 52,900 17,620 120,116 298,285 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 44,568 17,306 121,866 100,521 Transfers between funds ................................ 346,876 301,861 187,100 195,608 Surrenders (note 6) .................................... (18,234) (13,447) (143,536) (62,594) Death benefits (note 4) ................................ - - - - Net policy repayments (loans) (note 5) ................. (23,832) (5,673) (276) (42,180) Deductions for surrender charges (note 2d) ............. (322) (622) (3,173) (2,893) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (21,854) (4,568) (65,446) (54,561) Asset charges (note 3): MSP contracts ........................................ (754) (256) (1,585) (1,227) LSFP contracts ....................................... (237) (40) (1,008) (811) Adjustments to maintain reserves ....................... 88 (11) 183 19 -------------- -------------- -------------- -------------- Net equity transactions ............................ 326,299 294,550 94,125 131,882 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 379,199 312,170 214,241 430,167 Contract owners' equity beginning of period .............. 312,170 - 1,430,259 1,000,092 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 691,369 312,170 1,644,500 1,430,259 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 28,013 - 175,119 154,096 -------------- -------------- -------------- -------------- Units purchased ........................................ 34,681 30,411 57,917 46,202 Units redeemed ......................................... (5,424) (2,398) (47,690) (25,179) -------------- -------------- -------------- -------------- Ending units ........................................... 57,270 28,013 185,346 175,119 ============== ============== ============== ==============
OppMSSmCap OppMultStr ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (2,876) (584) 37,791 275,544 Realized gain (loss) on investments .................... 34,052 1,581 5,026 (166,820) Change in unrealized gain (loss) on investments ........ 41,925 29,320 1,342,038 2,834,011 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 73,101 30,317 1,384,855 2,942,735 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 43,982 20,279 1,078,916 1,155,345 Transfers between funds ................................ 33,862 365,548 197,728 434,484 Surrenders (note 6) .................................... (41,329) (7,875) (1,310,498) (532,500) Death benefits (note 4) ................................ (24,258) - (50,442) (18,039) Net policy repayments (loans) (note 5) ................. 1,010 80 (99,578) (62,595) Deductions for surrender charges (note 2d) ............. (430) (364) (19,981) (24,613) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (18,740) (4,125) (720,680) (738,657) Asset charges (note 3): MSP contracts ........................................ (178) (37) (9,268) (8,381) LSFP contracts ....................................... (21) (53) (3,641) (3,405) Adjustments to maintain reserves ....................... 106 (7) 6,181 1,395 -------------- -------------- -------------- -------------- Net equity transactions ............................ (5,996) 373,446 (931,263) 203,034 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 67,105 403,763 453,592 3,145,769 Contract owners' equity beginning of period .............. 403,763 - 15,405,023 12,259,254 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 470,868 403,763 15,858,615 15,405,023 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 29,251 - 549,203 543,407 -------------- -------------- -------------- -------------- Units purchased ........................................ 6,754 29,584 81,077 76,748 Units redeemed ......................................... (7,215) (333) (114,684) (70,952) -------------- -------------- -------------- -------------- Ending units ........................................... 28,790 29,251 515,596 549,203 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
PVTGroInc PVTIntEq ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ 766 (40) 878 (131) Realized gain (loss) on investments .................... 2,429 (42) 5,777 2,026 Change in unrealized gain (loss) on investments ........ 5,108 1,560 8,163 5,418 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 8,303 1,478 14,818 7,313 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 3,164 543 22,980 1,697 Transfers between funds ................................ 57,970 13,190 62,948 55,373 Surrenders (note 6) .................................... (786) - (9,097) (845) Death benefits (note 4) ................................ - - (16,252) - Net policy repayments (loans) (note 5) ................. - - 20 33 Deductions for surrender charges (note 2d) ............. (10) - (124) (39) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (4,220) (252) (5,228) (754) Asset charges (note 3): MSP contracts ........................................ - - - - LSFP contracts ....................................... (143) - - - Adjustments to maintain reserves ....................... 42 (5) 67 (3) -------------- -------------- -------------- -------------- Net equity transactions ............................ 56,017 13,476 55,314 55,462 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 64,320 14,954 70,132 62,775 Contract owners' equity beginning of period .............. 14,954 - 62,775 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 79,274 14,954 132,907 62,775 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 1,210 - 4,931 - -------------- -------------- -------------- -------------- Units purchased ........................................ 4,994 1,233 6,455 5,067 Units redeemed ......................................... (408) (23) (2,334) (136) -------------- -------------- -------------- -------------- Ending units ........................................... 5,796 1,210 9,052 4,931 ============== ============== ============== ==============
PVTVoyII StOpp2 ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... (78) (36) (262,942) (220,857) Realized gain (loss) on investments .................... 100 114 (315,827) (2,014,228) Change in unrealized gain (loss) on investments ........ 1,982 1,025 6,108,252 11,846,663 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 2,004 1,103 5,529,483 9,611,578 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 14,440 727 2,279,452 2,539,077 Transfers between funds ................................ 23,716 13,491 (1,564,776) (2,376,920) Surrenders (note 6) .................................... - - (2,433,372) (2,584,861) Death benefits (note 4) ................................ - - (65,608) (71,968) Net policy repayments (loans) (note 5) ................. - - (54,978) 165,371 Deductions for surrender charges (note 2d) ............. - - (45,345) (119,477) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (1,682) (223) (1,661,992) (1,735,526) Asset charges (note 3): MSP contracts ........................................ (84) - (8,687) (6,701) LSFP contracts ....................................... (62) - (8,055) (6,270) Adjustments to maintain reserves ....................... 82 (3) (39,900) 34,096 -------------- -------------- -------------- -------------- Net equity transactions ............................ 36,410 13,992 (3,603,261) (4,163,179) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 38,414 15,095 1,926,222 5,448,399 Contract owners' equity beginning of period .............. 15,095 - 34,049,288 28,600,889 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 53,509 15,095 35,975,510 34,049,288 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 1,280 - 891,693 1,014,316 -------------- -------------- -------------- -------------- Units purchased ........................................ 3,319 1,300 173,276 118,496 Units redeemed ......................................... (277) (20) (262,811) (241,119) -------------- -------------- -------------- -------------- Ending units ........................................... 4,322 1,280 802,158 891,693 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
StIntStk2 StDisc2 ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ - 21,096 (57,587) (51,688) Realized gain (loss) on investments .................... - (57,620) 296,424 389,397 Change in unrealized gain (loss) on investments ........ - (7,327) 813,089 1,778,903 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... - (43,851) 1,051,926 2,116,612 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) - 32,865 460,124 611,081 Transfers between funds ................................ - (1,542,823) 180,546 (120,100) Surrenders (note 6) .................................... - (28,101) (472,825) (344,691) Death benefits (note 4) ................................ - (570) (137,894) (49,278) Net policy repayments (loans) (note 5) ................. - 445 (40,052) 21,455 Deductions for surrender charges (note 2d) ............. - (1,299) (8,681) (15,932) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. - (15,810) (346,490) (350,368) Asset charges (note 3): MSP contracts ........................................ - (75) (1,865) (1,643) LSFP contracts ....................................... - (295) (693) (701) Adjustments to maintain reserves ....................... - (778) (6,447) 7,055 -------------- -------------- -------------- -------------- Net equity transactions ............................ - (1,556,441) (374,277) (243,122) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... - (1,600,292) 677,649 1,873,490 Contract owners' equity beginning of period .............. - 1,600,292 7,631,067 5,757,577 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ - - 8,308,716 7,631,067 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ - 285,304 300,059 313,582 -------------- -------------- -------------- -------------- Units purchased ........................................ - 102,641 56,220 44,706 Units redeemed ......................................... - (387,945) (72,169) (58,229) -------------- -------------- -------------- -------------- Ending units ........................................... - - 284,110 300,059 ============== ============== ============== ==============
VEWrldBd VEWrldEMkt ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... 318,281 47,832 (5,121) (23,710) Realized gain (loss) on investments .................... 9,612 529,474 708,751 764,615 Change in unrealized gain (loss) on investments ........ (13,258) 135,636 452,466 1,136,659 Reinvested capital gains ............................... - - - - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 314,635 712,942 1,156,096 1,877,564 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 187,640 441,801 358,934 609,752 Transfers between funds ................................ (752,214) (331,784) 147,794 (129,198) Surrenders (note 6) .................................... (440,910) (457,882) (757,540) (426,215) Death benefits (note 4) ................................ (126,398) (8,634) (12,234) (17,744) Net policy repayments (loans) (note 5) ................. 243,984 (8,665) (4,256) 103,055 Deductions for surrender charges (note 2d) ............. (7,794) (21,164) (12,080) (19,700) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (179,718) (250,797) (247,600) (227,740) Asset charges (note 3): MSP contracts ........................................ (1,408) (2,331) (2,494) (2,156) LSFP contracts ....................................... (729) (1,849) (4,567) (3,500) Adjustments to maintain reserves ....................... (38,437) (6,158) (5,705) 633 -------------- -------------- -------------- -------------- Net equity transactions ............................ (1,115,984) (647,463) (539,748) (112,813) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (801,349) 65,479 616,348 1,764,751 Contract owners' equity beginning of period .............. 4,666,549 4,601,070 5,573,967 3,809,216 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 3,865,200 4,666,549 6,190,315 5,573,967 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 248,334 291,343 582,778 609,125 -------------- -------------- -------------- -------------- Units purchased ........................................ 43,903 44,705 74,842 151,286 Units redeemed ......................................... (105,267) (87,714) (140,110) (177,633) -------------- -------------- -------------- -------------- Ending units ........................................... 186,970 248,334 517,510 582,778 ============== ============== ============== ==============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Years Ended December 31, 2004 and 2003
VEWrldHAs VKoreFI ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... $ (21,702) (12,004) 4,746 (54) Realized gain (loss) on investments .................... 535,736 688,621 430 80 Change in unrealized gain (loss) on investments ........ 666,602 856,699 (110) 414 Reinvested capital gains ............................... - - 334 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 1,180,636 1,533,316 5,400 440 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 378,056 484,564 8,264 529 Transfers between funds ................................ 559,764 (743,244) 163,312 29,850 Surrenders (note 6) .................................... (457,841) (263,804) - - Death benefits (note 4) ................................ (22,680) (2,937) - - Net policy repayments (loans) (note 5) ................. (11,024) (22,204) - - Deductions for surrender charges (note 2d) ............. (5,285) (12,193) - - Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (264,062) (224,533) (5,370) (201) Asset charges (note 3): MSP contracts ........................................ (3,385) (2,233) (34) - LSFP contracts ....................................... (1,484) (886) - - Adjustments to maintain reserves ....................... (7,896) (674) 61 (7) -------------- -------------- -------------- -------------- Net equity transactions ............................ 164,163 (788,144) 166,233 30,171 -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... 1,344,799 745,172 171,633 30,611 Contract owners' equity beginning of period .............. 5,210,328 4,465,156 30,611 - -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... $ 6,555,127 5,210,328 202,244 30,611 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 288,700 345,490 3,007 - -------------- -------------- -------------- -------------- Units purchased ........................................ 82,927 60,677 16,678 3,028 Units redeemed ......................................... (68,915) (117,467) (519) (21) -------------- -------------- -------------- -------------- Ending units ........................................... 302,712 288,700 19,166 3,007 ============== ============== ============== ==============
VKEmMkt VKUSRealEst ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Investment activity: Net investment income (loss) ........................... 146,343 (14,792) 125,187 (81,334) Realized gain (loss) on investments .................... 72,756 316,470 1,117,091 150,623 Change in unrealized gain (loss) on investments ........ (96,117) 218,451 3,194,741 3,325,139 Reinvested capital gains ............................... 75,894 - 272,360 - -------------- -------------- -------------- -------------- Net increase (decrease) in contract owners' equity resulting from operations .................... 198,876 520,129 4,709,379 3,394,428 -------------- -------------- -------------- -------------- Equity transactions: Purchase payments received from contract owners (note 6) 140,568 344,106 918,742 963,507 Transfers between funds ................................ (424,230) 747,030 2,210,362 313,407 Surrenders (note 6) .................................... (371,959) (100,572) (1,260,930) (669,155) Death benefits (note 4) ................................ - - (52,372) (27,635) Net policy repayments (loans) (note 5) ................. 29,362 10,322 (120,630) 25,738 Deductions for surrender charges (note 2d) ............. (4,708) (4,649) (35,729) (30,929) Redemptions to pay cost of insurance charges and administration charges (notes 2b and 2c) .............. (104,182) (99,079) (661,004) (590,730) Asset charges (note 3): MSP contracts ........................................ (1,131) (1,481) (7,358) (5,098) LSFP contracts ....................................... (3,951) (3,217) (6,992) (4,899) Adjustments to maintain reserves ....................... 199 (19,647) 284,480 (1,086) -------------- -------------- -------------- -------------- Net equity transactions ............................ (740,032) 872,813 1,268,569 (26,880) -------------- -------------- -------------- -------------- Net change in contract owners' equity .................... (541,156) 1,392,942 5,977,948 3,367,548 Contract owners' equity beginning of period .............. 2,861,361 1,468,419 13,033,980 9,666,432 -------------- -------------- -------------- -------------- Contract owners' equity end of period .................... 2,320,205 2,861,361 19,011,928 13,033,980 ============== ============== ============== ============== CHANGES IN UNITS: Beginning units ........................................ 190,911 123,689 463,861 469,840 -------------- -------------- -------------- -------------- Units purchased ........................................ 22,530 83,477 113,729 77,792 Units redeemed ......................................... (72,735) (16,255) (78,970) (83,771) -------------- -------------- -------------- -------------- Ending units ........................................... 140,706 190,911 498,620 463,861 ============== ============== ============== ==============
See accompanying notes to financial statements. NATIONWIDE VLI SEPARATE ACCOUNT-2 NOTES TO FINANCIAL STATEMENTS December 31, 2004 and 2003 (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 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 (AIM VIF); AIM VIF - Basic Value Fund - Series I Shares (AIMBValue) AIM VIF - Capital Appreciation Fund - Series I Shares (AIMCapAp) AIM VIF - Capital Development Fund - Series I Shares (AIMCapDev) Portfolios of Alliance Variable Product Series Funds, Inc. (Alliance VPSF); Alliance VPSF - Alliance Bernstein Growth & Income Portfolio - Class A (AlVPGrIncA) Alliance VPSF - Alliance Bernstein Small Cap Value Portfolio - Class A (AlVPSmCapVA) 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 (ACVPInflaPro) American Century VP - International Fund - Class I (ACVPInt) American Century VP - Ultra/(R)/ Fund - Class I (ACVPUltra) American Century VP - Value Fund - Class I (ACVPVal) Portfolios of the Credit Suisse Trust; Credit Suisse Trust - Global Post-Venture Capital Portfolio (CSGPVen) Credit Suisse Trust - International Focus Portfolio (CSIntFoc) Credit Suisse Trust - Small Cap Growth Portfolio (CSSmCapGr) Portfolios of the Dreyfus Investment Portfolios (Dreyfus IP); Dreyfus IP - Small Cap Stock Index Portfolio - Service Class (DrySmCapIxS) Funds of Dreyfus Inc.; Dreyfus Socially Responsible Growth Fund, Inc., The (DrySRGro) Dreyfus Stock Index Fund, Inc. - Initial Shares (DryStkIx) Portfolios of the Dreyfus Variable Investment Fund (Dreyfus VIF); Dreyfus VIF - Appreciation Portfolio - Initial Shares (DryVIFApp) Dreyfus VIF - Developing Leaders Portfolio - Initial Shares (DryVIFDevLd) Dreyfus VIF - Growth and Income Portfolio - Initial Shares (DryVIFGrInc) Portfolios of Federated Insurance Series (Federated IS); Federated IS - American Leaders Fund II - Primary Shares (FedAmLead) Federated IS - Capital Appreciation Fund II - Primary Shares (FedCapAp) Federated IS - 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/(R)/ Portfolio - Initial Class (FidVIPCon) Fidelity/(R)/ VIP II - Investment Grade Bond Portfolio: Service Class (FidVIPIGBdS) 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 (FidVIPMCapS) Fidelity/(R)/ VIP III - Value Strategies Portfolio - Service Class (FidVIPValS) Funds of the Franklin Templeton Variable Insurance Products Trust (Franklin Templeton VIP); Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I (FrVIPRisDiv) Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I (FTVIPSmCpVal) Franklin Templeton VIP - Templeton Foreign Securities Fund - Class I (FrVIPForSec) Funds of the Gartmore Variable Insurance Trust (Gartmore GVIT) (Gartmore is an affiliate of the Company); Gartmore GVIT Comstock Value Fund - Class I (GVITCVal) Gartmore GVIT Dreyfus International Value Fund - Class I (GVITDryIntVal) Gartmore GVIT Dreyfus Mid Cap Index Fund - Class I (GVITDMidCapI) Gartmore GVIT Emerging Markets Fund - Class I (GVITEmMrkts) Gartmore GVIT Federated High Income Bond Fund - Class I (GVITFHiInc) Gartmore GVIT Global Financial Services Fund - Class I (GVITGlFin1) 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 (GVITGlUtl1) Gartmore GVIT Government Bond Fund - Class I (GVITGvtBd) Gartmore GVIT Growth Fund - Class I (GVITGrowth) Gartmore GVIT ID Aggressive Fund - Class II (GVITIDAgg) Gartmore GVIT ID Conservative Fund - Class II (GVITIDCon) Gartmore GVIT ID Moderate Fund - Class II (GVITIDMod) Gartmore GVIT ID Moderately Aggressive Fund - Class II (GVITIDModAgg) Gartmore GVIT ID Moderately Conservative Fund - Class II (GVITIDModCon) Gartmore GVIT International Growth Fund - Class I (GVITIntGro) Gartmore GVIT Mid Cap Growth Fund - Class I (GVITSMdCpGr) Gartmore GVIT Money Market Fund - Class I (GVITMyMkt) Gartmore GVIT Nationwide/(R)/ Fund: Class I (GVITNWFund) 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 U.S. Growth Leaders Fund - Class I (GVITUSGro) Gartmore GVIT Van Kampen Multi Sector Bond Fund - Class I (GVITVKMultiSec) 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 (JanGlTech) Janus AS - International Growth Portfolio - Service Shares (JanIntGro) Janus AS - Risk-Managed Large Cap Core Portfolio - Service Shares (JanRMgLgCap) Funds of the Massachusetts Financial Services Variable Insurance Trust (MFS VIT); MFS VIT - MFS Investors Growth Stock Series - Initial Class (MFSVITInvGrwI) MFS VIT - MFS Value Series - Initial Class (MFSVITValIn) (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 (NOTES TO FINANCIAL STATEMENTS, Continued) Portfolios of the Neuberger Berman Advisers Management Trust (Neuberger Berman AMT); Neuberger Berman AMT - Balanced Portfolio (NBAMTBal) Neuberger Berman AMT - Fasciano Portfolio - S Class Shares (NBAMTFasc) Neuberger Berman AMT - Growth Portfolio (NBAMTGro) Neuberger Berman AMT - Guardian Portfolio - I Class Shares (NBAMTGuard) Neuberger Berman AMT - Limited Maturity Bond Portfolio (NBAMTLMat) Neuberger Berman AMT - Mid Cap Growth Portfolio - S Class (NBAMTMCGrS) Neuberger Berman AMT - Partners Portfolio (NBAMTPart) Neuberger Berman AMT - Socially Responsive Portfolio - I Class (NBAMSocRes) Funds of the Oppenheimer Variable Account Funds (Oppenheimer VA); 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 (OppHighInc) Oppenheimer Main Street/(R)/ Fund/VA - Initial Class (OppMSFund) Oppenheimer Main Street/(R)/ Small Cap Fund/VA - Initial Class (OppMSSmCap) Oppenheimer Multiple Strategies Fund/VA - Initial Class (OppMultStr) Funds of the Putnam Variable Trust (Putnam VT); Putnam VT - Growth & Income Fund - IB Shares (PVTGroInc) Putnam VT - International Equity Fund - IB Shares (PVTIntEq) Putnam VT - Voyager II Fund - IB Shares (PVTVoyII) Strong Variable Insurance Funds, Inc.; Strong Opportunity Fund II, Inc. (StOpp2) Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF); Strong VIF - Strong Discovery Fund II (StDisc2) 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 Van Kampen Universal Institutional Funds, Inc. (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 - Class A (VKUSRealEst) At December 31, 2004, contract owners were invested in all of the above funds. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain contract expenses (see notes 2 and 3). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. A contract owner may choose from among a number of different underlying mutual fund options. The underlying mutual fund options are not available to the general public directly. The underlying mutual funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. 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. (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 (NOTES TO FINANCIAL STATEMENTS, Continued) 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 Investments in underlying mutual funds are valued on the closing net asset value per share at December 31, 2004 of such funds, which value their investment securities at fair value. 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 and are reinvested in the underlying mutual funds. (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 U.S generally accepted accounting principles may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) 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 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. The Company also deducts a sales load from each premium payment received not to exceed 3.5% of each premium payment. 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. 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 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. (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 (NOTES TO FINANCIAL STATEMENTS, Continued) (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 when the policy's specified amount is increased. The charge is equal $2.04 per year per $1,000 of the specified amount increase. For modified single premium contracts, the monthly charge is equal to an annualized rate of 0.30% 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 annualized rate of 0.15% 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 per policy charge and the per $1,000 basic coverage charge. For policy years one through ten the per 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 per policy charge is $5. Additionally, there is a $0.02 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 withdrawal of contract value from the Account and payment of the surrender proceeds to the policy 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 a 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 a specified amount each year 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 a specified amount each year to 0% after the ninth year. However, if a policy's specified amount increases, the amount of the increase will have a nine-year surrender charge period. For multiple payment contracts, last survivor flexible premium contract and flexible premium contracts, the amount charged is based upon a specified percentage of the initial specified amount and varies by issue age, sex and rate class. The charge is reduced at certain time intervals, and declines a specified amount each year to 0% in the ninth year for flexible premium contracts and after the end of the ninth year. However, if a policy's specified amount increases, the amount of the increase will have the same nine-year surrender charge period. For modified single premium contracts, the amount charged is based on a percentage of the original premium payment. The charge is 10% of the initial premium payment and declines a specified amount each year to 0% after the end of the ninth year. The Company may waive the surrender charge for certain contracts in which the sales expenses normally associated with the distribution of a contract are not incurred. (Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 (NOTES TO FINANCIAL STATEMENTS, Continued) (3) Asset Charges For single premium contracts, the Company deducts a mortality and expense risk 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 annualized rate of 0.95% during the first ten policy years, and 0.50% thereafter. For single premium contracts issued on or after April 16, 1990, the charge is equal to an annualized rate of 1.30% during the first ten policy years, and 1.00% thereafter. The charge is assessed through the daily unit value calculation and is reflected in the table below. For multiple payment contracts, the Company deducts a mortality and expense risk charge equal to an annualized rate of 0.80%. The charge is assessed through the daily unit value calculation and is reflected in the table below. For modified single premium contracts (MSP), the Company deducts an annualized rate of 0.90% charged against the cash value in the Variable Account. This charge is assessed monthly against each contract by liquidating units. For flexible premium contracts and last survivor flexible premium contracts (LSFP), the Company deducts an annualized rate of 0.80% in policy years one through ten. This charge is assessed monthly by liquidating units. In policy years eleven and after, the charge will continue to be deducted, but may be reduced for policies at specified asset levels. The following table provides mortality, expense and administration charges by contract type for the period ended December 31, 2004:
Total AIMBValue AIMCapAp AIMCapDev AlVPGrIncA ------------- ----------- ---------- ---------- ------------ Single Premium contracts issued prior to April 16, 1990 .............. $ 993,579 - - - - Single Premium contracts issued on or after April 16, 1990 .............. 6,425 - - - - Multiple Payment and Flexible Premium contracts .................... 5,419,841 3,551 653 855 4,026 ------------- ----------- ---------- ---------- ------------ Total ............................... $ 6,419,845 3,551 653 855 4,026 ============= =========== ========== ========== ============
AlVPSmCapVA ACVPBal ACVPCapAp ACVPIncGr ACVPInflaPro ------------- ----------- ---------- ---------- ------------ Single Premium contracts issued prior to April 16, 1990 .............. $ - 8,777 17,298 3,849 - Single Premium contracts issued on or after April 16, 1990 .............. - - 367 - - Multiple Payment and Flexible Premium contracts .................... 3,045 31,987 75,774 22,297 4,073 ------------- ----------- ---------- ---------- ------------ Total ............................... $ 3,045 40,764 93,439 26,146 4,073 ============= =========== ========== ========== ============
ACVPInt ACVPUltra ACVPVal CSGPVen CSIntFoc ------------- ----------- ---------- ---------- ------------ Single Premium contracts issued prior to April 16, 1990 .............. $ 8,937 1,094 22,329 1,298 4,635 Single Premium contracts issued on or after April 16, 1990 .............. 8 - 61 - - Multiple Payment and Flexible Premium contracts .................... 68,002 4,268 70,266 4,670 36,132 ------------- ----------- ---------- ---------- ------------ Total ............................... $ 76,947 5,362 92,656 5,968 40,767 ============= =========== ========== ========== ============
CSSmCapGr DrySmCapIxS DrySRGro DryStkIx DryVIFApp ------------- ----------- ---------- ---------- ------------ Single Premium contracts issued prior to April 16, 1990 .............. $ 10,342 2,555 2,685 56,050 11,465 Single Premium contracts issued on or after April 16, 1990 .............. - 285 - 157 - Multiple Payment and Flexible Premium contracts .................... 93,254 5,726 67,123 478,857 33,788 ------------- ----------- ---------- ---------- ------------ Total ............................... $ 103,596 8,566 69,808 535,064 45,253 ============= =========== ========== ========== ============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 (NOTES TO FINANCIAL STATEMENTS, Continued)
DryVIFDevLd DryVIFGrInc FedAmLead FedCapAp FedQualBd ------------ ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ - 3,128 - - 1,350 Single Premium contracts issued on or after April 16, 1990 ...... - - - - - Multiple Payment and Flexible Premium contracts ............... 2,488 13,635 418 117 8,672 ------------ ------------ ------------ ------------ ------------- Total .......................... $ 2,488 16,763 418 117 10,022 ============ ============ ============ ============ =============
FidVIPEI FidVIPGr FidVIPHI FidVIPOv FidVIPAM ------------ ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 107,249 95,204 35,423 24,368 49,295 Single Premium contracts issued on or after April 16, 1990 ...... 665 637 256 279 173 Multiple Payment and Flexible Premium contracts ............... 443,511 591,709 135,156 103,868 132,526 ------------ ------------ ------------ ------------ ------------- Total .......................... $ 551,425 687,550 170,835 128,515 181,994 ============ ============ ============ ============ =============
FidVIPCon FidVIPIGBdS FidVIPGrOp FidVIPMCapS FidVIPValS ------------ ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 53,400 - 2,172 - 4,984 Single Premium contracts issued on or after April 16, 1990 ...... - - 57 - 291 Multiple Payment and Flexible Premium contracts ............... 353,316 4,419 26,160 13,935 10,871 ------------ ------------ ------------ ------------ ------------- Total .......................... $ 406,716 4,419 28,389 13,935 16,146 ============ ============ ============ ============ =============
FrVIPRisDiv FTVIPSmCpVal FrVIPForSec GVITCVal GVITDryIntVal ------------ ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ - - - - - Single Premium contracts issued on or after April 16, 1990 ...... - - - - - Multiple Payment and Flexible Premium contracts ............... 10,367 5,035 5,504 2,266 4,594 ------------ ------------ ------------ ------------ ------------- Total .......................... $ 10,367 5,035 5,504 2,266 4,594 ============ ============ ============ ============ =============
GVITDMidCapI GVITEmMrkts GVITFHiInc GVITGlFin1 GVITGlHlth ------------ ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 11,164 3,070 - 1,335 3,681 Single Premium contracts issued on or after April 16, 1990 ...... 5 324 - 51 80 Multiple Payment and Flexible Premium contracts ............... 37,441 10,441 2,196 2,723 4,123 ------------ ------------ ------------ ------------ ------------- Total .......................... $ 48,610 13,835 2,196 4,109 7,884 ============ ============ ============ ============ =============
GVITGlTech GVITGlUtl1 GVITGvtBd GVITGrowth GVITIDAgg ------------ ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 1,239 1,462 33,881 4,800 - Single Premium contracts issued on or after April 16, 1990 ...... 267 53 177 - - Multiple Payment and Flexible Premium contracts ............... 7,507 1,414 74,811 115,592 8,018 ------------ ------------ ------------ ------------ ------------- Total .......................... $ 9,013 2,929 108,869 120,392 8,018 ============ ============ ============ ============ =============
GVITIDCon GVITIDMod GVITIDModAgg GVITIDModCon GVITIntGro ------------ ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 686 5,004 1,727 6,774 329 Single Premium contracts issued on or after April 16, 1990 ...... - - - - - Multiple Payment and Flexible Premium contracts ............... 3,317 18,823 21,247 4,363 811 ------------ ------------ ------------ ------------ ------------- Total .......................... $ 4,003 23,827 22,974 11,137 1,140 ============ ============ ============ ============ =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 (NOTES TO FINANCIAL STATEMENTS, Continued)
GVITSMdCpGr GVITMyMkt GVITNWFund GVITLead GVITSmCapGr -------------- ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 1,665 90,103 26,226 289 1,991 Single Premium contracts issued on or after April 16, 1990 ...... - 580 108 - 10 Multiple Payment and Flexible Premium contracts ............... 8,330 148,585 515,804 560 8,576 -------------- ------------ ------------ ------------ ------------- Total .......................... $ 9,995 239,268 542,138 849 10,577 ============== ============ ============ ============ =============
GVITSmCapVal GVITSmComp GVITTGroFoc GVITUSGro GVITVKMultiSec -------------- ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 26,441 12,888 447 1,562 1,539 Single Premium contracts issued on or after April 16, 1990 ...... 210 101 - - - Multiple Payment and Flexible Premium contracts ............... 77,318 172,865 1,033 5,145 6,682 -------------- ------------ ------------ ------------ ------------- Total .......................... $ 103,969 185,854 1,480 6,707 8,221 ============== ============ ============ ============ =============
JanBal JanCapAp JanGlTech JanIntGro JanRMgLgCap -------------- ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ - 1,169 1,242 3,124 - Single Premium contracts issued on or after April 16, 1990 ...... - - - - - Multiple Payment and Flexible Premium contracts ............... 392 16,237 6,940 9,062 305 -------------- ------------ ------------ ------------ ------------- Total .......................... $ 392 17,406 8,182 12,186 305 ============== ============ ============ ============ =============
MFSVITInvGrwI MFSVITValIn NBAMTBal NBAMTFasc NBAMTGro -------------- ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ - - - - 17,659 Single Premium contracts issued on or after April 16, 1990 ...... - - - - 381 Multiple Payment and Flexible Premium contracts ............... 1,241 523 560 241 104,231 -------------- ------------ ------------ ------------ ------------- Total .......................... $ 1,241 523 560 241 122,271 ============== ============ ============ ============ =============
NBAMTGuard NBAMTLMat NBAMTMCGrS NBAMTPart NBAMSocRes -------------- ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 744 15,096 - 11,474 - Single Premium contracts issued on or after April 16, 1990 ...... - 108 - - - Multiple Payment and Flexible Premium contracts ............... 11,646 29,397 1,734 125,736 810 -------------- ------------ ------------ ------------ ------------- Total .......................... $ 12,390 44,601 1,734 137,210 810 ============== ============ ============ ============ =============
OppAggGro OppBdFd OppCapAp OppGlSec OppHighInc -------------- ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 2,805 11,100 15,040 26,773 - Single Premium contracts issued on or after April 16, 1990 ...... 50 - 2 - - Multiple Payment and Flexible Premium contracts ............... 12,250 79,018 89,462 221,287 3,025 -------------- ------------ ------------ ------------ ------------- Total .......................... $ 15,105 90,118 104,504 248,060 3,025 ============== ============ ============ ============ =============
OppMSFund OppMSSmCap OppMultStr PVTGroInc PVTIntEq -------------- ------------ ------------ ------------ ------------- Single Premium contracts issued prior to April 16, 1990 ......... $ 2,558 - 25,757 - - Single Premium contracts issued on or after April 16, 1990 ...... - - - - - Multiple Payment and Flexible Premium contracts ............... 8,350 2,876 92,982 460 782 -------------- ------------ ------------ ------------ ------------- Total .......................... $ 10,908 2,876 118,739 460 782 ============== ============ ============ ============ =============
(Continued) NATIONWIDE VLI SEPARATE ACCOUNT-2 (NOTES TO FINANCIAL STATEMENTS, Continued)
PVTVoyII StOpp2 StDisc2 VEWrldBd VEWrldEMkt --------- ------- ------- ----------- ---------- Single Premium contracts issued prior to April 16, 1990 $ - 35,747 6,595 11,683 6,019 Single Premium contracts issued on or after April 16, 1990 - 186 36 109 59 Multiple Payment and Flexible Premium contracts 152 227,009 50,956 20,847 31,631 --------- ------- ------- ----------- ---------- Total $ 152 262,942 57,587 32,639 37,709 ========= ======= ======= =========== ==========
VEWrldHAs VKoreFI VKEmMkt VKUSRealEst --------- ------- ------- ----------- Single Premium contracts issued prior to April 16, 1990 $ 12,053 - 3,509 17,242 Single Premium contracts issued on or after April 16, 1990 52 - 105 135 Multiple Payment and Flexible Premium contracts 30,431 802 12,435 91,392 --------- ------- ------- ----------- Total $ 42,536 802 16,049 108,769 ========= ======= ======= =========== (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. These transfers are the result of the contract owner executing fund exchanges. Fund exchanges from the Account to the fixed account are included in surrenders, and fund exchanges from the fixed account to the Account are included in purchase payments received from contact owners, as applicable, on the accompanying Statements of Change in Contract Owners' Equity. Policy loan transactions (note 5), executed at the direction of the contract owner, also result in transfers between the Account and the fixed account of the Company. The fixed account assets are not reflected in the accompanying financial statements. For the periods ended December 31, 2004 and 2003, total transfers into the Account from the fixed account were $26,791,089 and $28,008,881, respectively, and total transfers from the Account to the fixed account were $25,279,930 and $28,642,868, 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 periods indicated, and the contract expense rate, investment income ratio and total return for each period in the five year period ended December 31, 2004.
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 - Basic Value Fund - Series I Shares 2004 ..................................... 0.00% 738 $ 14.514365 $ 10,712 0.00% 11.07% 2003 ..................................... 0.00% 1,146 13.067831 14,976 0.11% 30.68% 05/01/03 AIM VIF - Capital Appreciation Fund - Series I Shares 2004 ..................................... 0.00% 76 13.214909 1,004 0.00% 6.63% 2003 ..................................... 0.00% 78 12.393708 967 0.00% 23.94% 05/01/03 AIM VIF - Capital Development Fund - Series I Shares 2004 ..................................... 0.00% 2,534 15.025595 38,075 0.00% 15.50% 2003 ..................................... 0.00% 286 13.009212 3,721 0.00% 30.09% 05/01/03 Alliance VPSF - Alliance Bernstein Growth & Income Portfolio - Class A 2004 ..................................... 0.00% 18,484 13.867818 256,333 0.96% 11.46% 2003 ..................................... 0.00% 10,465 12.441750 130,203 0.00% 24.42% 05/01/03 Alliance VPSF - Alliance Bernstein Small Cap Value Portfolio - Class A 2004 ..................................... 0.00% 6,962 16.459431 114,591 0.13% 19.30% 2003 ..................................... 0.00% 3,645 13.796395 50,288 0.02% 37.96% 05/01/03 American Century VP - Balanced Fund - Class I 2004 ..................................... 0.00% 40,968 17.964228 735,958 1.68% 9.78% 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% American Century VP - Capital Appreciation Fund - Class I 2004 ..................................... 0.00% 71,068 11.375351 808,423 0.00% 7.58% 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% American Century VP - Income & Growth Fund - Class I 2004 ..................................... 0.00% 42,110 12.442664 523,961 1.44% 12.99% 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% American Century VP - Inflation Protection Fund - Class II 2004 ..................................... 0.00% 7,602 10.924094 83,045 3.57% 5.81% 2003 ..................................... 0.00% 739 10.324182 7,630 1.88% 3.24% 04/30/03 American Century VP - International Fund - Clas3s I 2004 ..................................... 0.00% 63,654 16.713189 1,063,861 0.58% 14.92% 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% American Century VP - Ultra/(R)/ Fund - Class I 2004 ..................................... 0.00% 12,672 11.111676 140,807 0.00% 10.68% 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% 05/01/02 American Century VP - Value Fund - Class I 2004 ..................................... 0.00% 80,992 22.827520 1,848,846 1.01% 14.33% 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%
(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 - Global Post-Venture Capital Portfolio 2004 ....................................... 0.00% 11,532 $ 13.315648 $ 153,556 0.00% 17.99% 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% Credit Suisse Trust - International Focus Portfolio 2004 ....................................... 0.00% 103,404 11.058069 1,143,449 0.99% 14.74% 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% Credit Suisse Trust - Small Cap Growth Portfolio 2004 ....................................... 0.00% 136,576 14.022473 1,915,133 0.00% 10.87% 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% 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 2004 ....................................... 0.00% 40,584 12.889095 523,091 0.50% 21.88% 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% 05/01/02 Dreyfus Socially Responsible Growth Fund, Inc., The 2004 ....................................... 0.00% 46,244 15.829359 732,013 0.38% 6.21% 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% Dreyfus Stock Index Fund, Inc. - Initial Shares 2004 ....................................... 0.00% 578,778 20.696422 11,978,634 1.80% 10.64% 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% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2004 ....................................... 0.00% 68,432 14.214838 972,750 1.63% 5.05% 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% Dreyfus VIF - Developing Leaders Portfolio - Initial Shares 2004 ....................................... 0.00% 3,802 14.363942 54,612 0.22% 11.34% 2003 ....................................... 0.00% 4,756 12.900917 61,357 0.08% 29.01% 05/01/03 Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2004 ....................................... 0.00% 37,814 13.961156 527,927 1.23% 7.47% 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% Federated IS - American Leaders Fund II - Primary Shares 2004 ....................................... 0.00% 306 13.830995 4,232 0.41% 9.78% Federated IS - Quality Bond Fund II - Primary Shares 2004 ....................................... 0.00% 12,318 11.692084 144,023 4.98% 3.62% 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% 05/01/02
(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*** -------- ------- ------------ -------------- ----------- ---------- Fidelity/(R)/ VIP - Equity-Income Portfolio - Initial Class 2004 ....................................... 0.00% 375,788 $ 20.410267 $ 7,669,933 1.56% 11.53% 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% Fidelity/(R)/ VIP - Growth Portfolio - Initial Class 2004 ....................................... 0.00% 365,242 17.401445 6,355,739 0.27% 3.38% 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% Fidelity/(R)/ VIP - High Income Portfolio - Initial Class 2004 ....................................... 0.00% 222,416 13.018901 2,895,612 8.82% 9.59% 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% Fidelity/(R)/ VIP - Overseas Portfolio - Initial Class 2004 ....................................... 0.00% 112,550 15.850578 1,783,983 1.14% 13.64% 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% Fidelity/(R)/ VIP II - Asset Manager Portfolio - Initial Class 2004 ....................................... 0.00% 80,426 17.785832 1,430,443 2.76% 5.47% 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% Fidelity/(R)/ VIP II - Contrafund/(R)/ Portfolio - Initial Class 2004 ....................................... 0.00% 258,620 24.855086 6,428,022 0.34% 15.48% 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% Fidelity/(R)/ VIP II - Investment Grade Bond Portfolio: Service Class 2004 ....................................... 0.00% 24,840 10.659014 264,770 1.88% 4.32% 2003 ....................................... 0.00% 998 10.217718 10,197 0.00% 2.18% 05/01/03 Fidelity/(R)/ VIP III - Growth Opportunities Portfolio - Initial Class 2004 ....................................... 0.00% 61,482 11.036087 678,521 0.53% 7.19% 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% Fidelity/(R)/ VIP III - Mid Cap Portfolio - Service Class 2004 ....................................... 0.00% 27,716 17.574515 487,095 0.00% 24.77% 2003 ....................................... 0.00% 9,873 14.085331 139,064 0.00% 40.85% 05/01/03 Fidelity/(R)/ VIP III - Value Strategies Portfolio - Service Class 2004 ....................................... 0.00% 27,044 13.506506 365,270 0.00% 13.99% 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% 05/01/02 Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I 2004 ....................................... 0.00% 30,080 13.690957 411,824 0.66% 11.25% 2003 ....................................... 0.00% 15,727 12.306508 193,544 0.20% 23.07% 05/01/03 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I 2004 ....................................... 0.00% 7,248 16.575156 120,137 0.19% 24.09% 2003 ....................................... 0.00% 2,401 13.357313 32,071 0.12% 33.57% 05/01/03 Franklin Templeton VIP - Templeton Foreign Securities Fund - Class I 2004 ....................................... 0.00% 25,722 15.773327 405,722 1.10% 18.87% 2003 ....................................... 0.00% 4,015 13.269107 53,275 0.79% 32.69% 05/01/03
(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*** -------- ------- ------------ -------------- ----------- ---------- Gartmore GVIT Comstock Value Fund - Class I 2004 ....................................... 0.00% 1,768 $ 14.889740 $ 26,325 1.56% 17.50% 2003 ....................................... 0.00% 75 12.672281 950 1.52% 26.72% 05/01/03 Gartmore GVIT Dreyfus International Value Fund - Class I 2004 ....................................... 0.00% 11,032 16.772215 185,031 2.03% 20.29% 2003 ....................................... 0.00% 3,602 13.838062 49,845 0.00% 38.38% 05/01/03 Gartmore GVIT Dreyfus Mid Cap Index Fund - Class I 2004 ....................................... 0.00% 74,186 13.700026 1,016,350 0.54% 15.73% 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% Gartmore GVIT Emerging Markets Fund - Class I 2004 ....................................... 0.00% 16,620 13.973799 232,245 0.93% 20.74% 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 Federated High Income Bond Fund - Class I 2004 ....................................... 0.00% 7,390 12.241616 90,466 8.50% 10.10% 2003 ....................................... 0.00% 5,828 11.119017 64,802 9.25% 11.19% 05/01/03 Gartmore GVIT Global Financial Services Fund - Class I 2004 ....................................... 0.00% 1,534 14.827817 22,746 1.45% 20.99% 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% 05/01/02 Gartmore GVIT Global Health Sciences Fund - Class I 2004 ....................................... 0.00% 11,908 12.296466 146,426 0.00% 7.86% 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% 05/01/02 Gartmore GVIT Global Technology and Communications Fund - Class I 2004 ....................................... 0.00% 24,430 3.193545 78,018 0.00% 4.31% 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% 10/02/00 Gartmore GVIT Global Utilities Fund - Class I 2004 ....................................... 0.00% 12,104 14.000446 169,461 1.92% 29.97% 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% 05/01/02 Gartmore GVIT Government Bond Fund - Class I 2004 ....................................... 0.00% 114,686 17.574111 2,015,504 5.48% 3.26% 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% Gartmore GVIT Growth Fund - Class I 2004 ............................... 0.00% 145,006 11.433814 1,657,972 0.33% 8.16% 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% Gartmore GVIT ID Aggressive Fund - Class II 2004 ............................... 0.00% 84 12.527746 1,052 1.75% 14.03% 2003 ............................... 0.00% 86 10.986753 945 1.41% 31.87% Gartmore GVIT ID Conservative Fund - Class II 2004 ............................... 0.00% 5,030 11.349571 57,088 2.46% 4.65% 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% 01/25/02 Gartmore GVIT ID Moderate Fund - Class II 2004 ............................... 0.00% 57,958 12.019313 696,615 2.27% 9.54% 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% 01/25/02
(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 ID Moderately Aggressive Fund - Class II 2004 ....................................... 0.00% 24,722 $ 12.332826 $ 304,892 1.97% 12.09% 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% 01/25/02 Gartmore GVIT ID Moderately Conservative Fund - Class II 2004 ....................................... 0.00% 27,902 11.748118 327,796 2.48% 7.16% 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% 01/25/02 Gartmore GVIT International Growth Fund - Class I 2004 ....................................... 0.00% 1,590 7.757434 12,334 1.40% 14.19% 2003 ....................................... 0.00% 2,327 6.793220 15,808 0.00% 35.62% Gartmore GVIT Mid Cap Growth Fund - Class I 2004 ....................................... 0.00% 21,204 5.783113 122,625 0.00% 15.34% 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% 05/01/00 Gartmore GVIT Money Market Fund - Class I 2004 ....................................... 0.00% 336,040 13.547206 4,552,403 0.78% 0.81% 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% Gartmore GVIT Nationwide/(R)/ Fund: Class I 2004 ....................................... 0.00% 283,884 18.672551 5,300,838 1.28% 9.75% 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% Gartmore GVIT Nationwide/(R)/ Leaders Fund - Class I 2004 ....................................... 0.00% 2,072 12.589767 26,086 0.52% 18.79% 2003 ....................................... 0.00% 680 10.598061 7,207 0.19% 25.38% 2002 ....................................... 0.00% 837 8.452459 7,075 1.18% -15.48% 05/01/02 Gartmore GVIT Small Cap Growth Fund - Class I 2004 ....................................... 0.00% 38,172 7.354229 280,726 0.00% 13.42% 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% Gartmore GVIT Small Cap Value Fund - Class I 2004 ....................................... 0.00% 125,486 21.025284 2,638,379 0.00% 17.30% 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% Gartmore GVIT Small Company Fund - Class I 2004 ....................................... 0.00% 143,764 25.327151 3,641,133 0.00% 19.02% 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% Gartmore GVIT Turner 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% Gartmore GVIT U.S. Growth Leaders Fund - Class I 2004 ....................................... 0.00% 4,040 14.068165 56,835 0.00% 12.41% 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% 05/01/02
(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 Van Kampen Multi Sector Bond Fund - Class I 2004 ....................................... 0.00% 12,326 $ 13.998807 $ 172,549 4.85% 6.53% 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% Janus AS - Balanced Portfolio - Service Shares 2004 ....................................... 0.00% 668 11.945467 7,980 3.27% 8.29% Janus AS - Capital Appreciation Portfolio - Service Shares 2004 ....................................... 0.00% 46,432 7.395085 343,369 0.02% 17.97% 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% 05/01/00 Janus AS - Global Technology Portfolio - Service Shares 2004 ....................................... 0.00% 46,310 3.697308 171,222 0.00% 0.57% 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% 05/01/00 Janus AS - International Growth Portfolio - Service Shares 2004 ....................................... 0.00% 47,840 7.217918 345,305 0.83% 18.69% 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% 05/01/00 MFS VIT - MFS Investors Growth Stock Series - Initial Class 2004 ....................................... 0.00% 1,058 12.663111 13,398 0.00% 9.18% MFS VIT - MFS Value Series - Initial Class 2004 ....................................... 0.00% 2,060 14.245099 29,345 0.34% 15.18% 2003 ....................................... 0.00% 255 12.367820 3,154 0.00% 23.68% 05/01/03 Neuberger Berman AMT - Fasciano Portfolio - S Class Shares 2004 ....................................... 0.00% 486 14.105334 6,855 0.00% 11.88% Neuberger Berman AMT - Growth Portfolio 2004 ....................................... 0.00% 79,436 14.354807 1,140,288 0.00% 16.60% 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% Neuberger Berman AMT - Guardian Portfolio - I Class Shares 2004 ....................................... 0.00% 34,354 12.031993 413,347 0.12% 15.81% 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% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2004 ....................................... 0.00% 57,882 14.963540 866,120 3.64% 0.78% 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% Neuberger Berman AMT - Mid Cap Growth Portfolio - S Class 2004 ....................................... 0.00% 3,532 14.298387 50,502 0.00% 16.03% 2003 ....................................... 0.00% 2,927 12.322580 36,068 0.00% 23.23% 05/01/03 Neuberger Berman AMT - Partners Portfolio 2004 ....................................... 0.00% 200,296 20.106864 4,027,324 0.01% 18.98% 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%
(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*** -------- ------- ------------ -------------- ----------- ---------- Neuberger Berman AMT - Socially Responsive Portfolio - I Class 2004 ....................................... 0.00% 510 $ 14.018027 $ 7,149 0.00% 13.28% 2003 ....................................... 0.00% 42 12.374746 520 0.00% 23.75% 05/01/03 Oppenheimer Aggressive Growth Fund/VA - Initial Class 2004 ....................................... 0.00% 34,910 5.841557 203,929 0.00% 19.78% 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% 05/01/00 Oppenheimer Bond Fund/VA - Initial Class 2004 ....................................... 0.00% 96,616 17.187703 1,660,607 4.80% 5.49% 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% Oppenheimer Capital Appreciation Fund/VA - Initial Class 2004 ....................................... 0.00% 83,842 16.462506 1,380,249 0.33% 6.94% 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% Oppenheimer Global Securities Fund/VA - Initial Class 2004 ....................................... 0.00% 105,104 29.422164 3,092,387 1.25% 19.16% 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% Oppenheimer High Income Fund/VA - Initial Class 2004 ....................................... 0.00% 12,018 12.184423 146,432 4.23% 8.97% 2003 ....................................... 0.00% 6,913 11.181817 77,300 0.00% 11.82% 05/01/03 Oppenheimer Main Street/(R)/ Fund/VA - Initial Class 2004 ....................................... 0.00% 28,322 9.162245 259,493 0.84% 9.46% 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% 05/01/00 Oppenheimer Main Street/(R)/ Small Cap Fund/VA - Initial Class 2004 ....................................... 0.00% 1,252 16.563464 20,737 0.00% 19.42% 2003 ....................................... 0.00% 2,855 13.869971 39,599 0.00% 38.70% 05/01/03 Oppenheimer Multiple Strategies Fund/VA - Initial Class 2004 ....................................... 0.00% 76,060 20.502973 1,559,456 1.01% 10.10% 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% Putnam VT - Growth & Income Fund - IB Shares 2004 ....................................... 0.00% 1,634 13.805820 22,559 1.66% 11.11% Putnam VT - Voyager II Fund - IB Shares 2004 ....................................... 0.00% 2,224 12.450430 27,690 0.19% 5.03% 2003 ....................................... 0.00% 42 11.853879 498 0.00% 18.54% 05/01/03 Strong Opportunity Fund II, Inc. 2004 ....................................... 0.00% 85,426 25.174087 2,150,522 0.00% 18.22% 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%
(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*** -------- ------- ------------ -------------- ----------- ---------- Strong VIF - Strong Discovery Fund II 2004 ....................................... 0.00% 17,898 $ 19.143146 $ 342,624 0.00% 15.72% 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% 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% Van Eck WIT - Worldwide Bond Fund 2004 ....................................... 0.00% 14,838 16.976579 251,898 8.78% 9.15% 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% Van Eck WIT - Worldwide Emerging Markets Fund 2004 ....................................... 0.00% 83,090 12.647730 1,050,900 0.59% 25.89% 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% Van Eck WIT - Worldwide Hard Assets Fund 2004 ....................................... 0.00% 41,778 14.400064 601,606 0.37% 24.23% 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% Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A 2004 ....................................... 0.00% 622 10.680729 6,643 4.78% 4.37% 2003 ....................................... 0.00% 49 10.233765 501 0.00% 2.34% 05/01/03 Van Kampen UIF - Emerging Markets Debt Portfolio 2004 ....................................... 0.00% 37,346 17.240440 643,861 6.41% 10.06% 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% Van Kampen UIF - U.S.Real Estate Portfolio - Class A 2004 ....................................... 0.00% 57,878 37.127644 2,148,874 1.55% 36.39% 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% Single Premium contracts issued prior to April 16, 1990 (policy years 11 and thereafter) AIM VIF - Basic Value Fund - Series I Shares 2004 ...................................... 0.50% 2,482 14.393873 35,726 0.00% 10.52% AIM VIF - Capital Appreciation Fund - Series I Shares 2004 ...................................... 0.50% 310 13.105225 4,063 0.00% 6.09% 2003 ...................................... 0.50% 1,364 12.965885 17,685 0.00% 29.66% 05/01/03 AIM VIF - Capital Development Fund - Series I Shares 2004 ...................................... 0.50% 4,050 14.900870 60,349 0.00% 14.92% Alliance VPSF - Alliance Bernstein Growth & Income Portfolio - Class A 2004 ...................................... 0.50% 9,008 13.752717 123,884 0.96% 10.91% 2003 ...................................... 0.50% 1,081 12.400313 13,405 0.00% 24.00% 05/01/03 Alliance VPSF - Alliance Bernstein Small Cap Value Portfolio - Class A 2004 ...................................... 0.50% 2,172 16.322856 35,453 0.13% 18.71% American Century VP - Balanced Fund - Class I 2004 ...................................... 0.50% 28,138 22.837145 642,592 1.68% 9.23% 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%
(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*** -------- ------- ------------ -------------- ----------- ---------- American Century VP - Capital Appreciation Fund - Class I 2004 ....................................... 0.50% 59,666 $ 28.675107 $ 1,710,929 0.00% 7.05% 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% American Century VP - Income & Growth Fund - Class I 2004 ....................................... 0.50% 28,284 12.034610 340,387 1.44% 12.43% 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 - Inflation Protection Fund - Class II 2004 ....................................... 0.50% 9,540 10.832965 103,346 3.57% 5.28% American Century VP - International Fund - Class I 2004 ....................................... 0.50% 59,792 17.564316 1,050,206 0.58% 14.35% 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% American Century VP - Ultra/(R)/ Fund - Class I 2004 ....................................... 0.50% 28,728 10.964413 314,986 0.00% 10.12% 2003 ....................................... 0.50% 2,408 9.956460 23,975 0.00% 24.28% American Century VP - Value Fund - Class I 2004 ....................................... 0.50% 83,868 21.810391 1,829,194 1.01% 13.76% 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% Credit Suisse Trust - Global Post-Venture Capital Portfolio 2004 ....................................... 0.50% 9,874 12.721972 125,617 0.00% 17.40% 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 2004 ....................................... 0.50% 39,228 12.375012 485,447 0.99% 14.17% 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 2004 ....................................... 0.50% 82,304 19.155888 1,576,606 0.00% 10.32% 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 IP - Small Cap Stock Index Portfolio - Service Class 2004 ....................................... 0.50% 32,364 12.718312 411,615 0.50% 21.28% 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% 05/01/02 Dreyfus Socially Responsible Growth Fund, Inc., The 2004 ....................................... 0.50% 31,910 23.320608 744,161 0.38% 5.68% 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% Dreyfus Stock Index Fund, Inc.- Initial Shares 2004 ....................................... 0.50% 347,660 28.759010 9,998,357 1.80% 10.09% 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% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2004 ....................................... 0.50% 39,366 13.653414 537,480 1.63% 4.52% 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% Dreyfus VIF - Developing Leaders Portfolio - Initial Shares 2004 ....................................... 0.50% 4,108 14.244729 58,517 0.22% 10.79% 2003 ....................................... 0.50% 840 12.857964 10,801 0.08% 28.58% 05/01/03
(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*** --------- --------- ----------- -------------- ---------- --------- Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2004 ................. 0.50% 10,312 $ 13.338990 $ 137,552 1.23% 6.93% 2003 ................. 0.50% 6,368 12.474297 79,436 0.84% 25.94% Federated IS - American Leaders Fund II - Primary Shares 2004 ................. 0.50% 2,628 13.716228 36,046 0.41% 9.23% Federated IS - Capital Appreciation Fund II - Primary Shares 2004 ................. 0.50% 1,276 12.836844 16,380 0.28% 6.86% Federated IS - Quality Bond Fund II - Primary Shares 2004 ................. 0.50% 9,180 11.537144 105,911 4.98% 3.10% 2003 ................. 0.50% 4,444 11.189906 49,728 3.93% 4.12% Fidelity/(R)/ VIP - Equity-Income Portfolio - Initial Class 2004 ................. 0.50% 187,988 53.967094 10,145,166 1.56% 10.97% 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% Fidelity/(R)/ VIP - Growth Portfolio - Initial Class 2004 ................. 0.50% 263,644 54.728412 14,428,817 0.27% 2.86% 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% Fidelity/(R)/ VIP - High Income Portfolio - Initial Class 2004 ................. 0.50% 140,176 28.136168 3,944,015 8.82% 9.05% 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% Fidelity/(R)/ VIP - Overseas Portfolio - Initial Class 2004 ................. 0.50% 160,928 27.905999 4,490,857 1.14% 13.07% 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% Fidelity/(R)/ VIP II - Asset Manager Portfolio - Initial Class 2004 ................. 0.50% 209,976 31.651957 6,646,151 2.76% 4.94% 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% Fidelity/(R)/ VIP II - Contrafund/(R)/ Portfolio - Initial Class 2004 ................. 0.50% 222,346 28.136431 6,256,023 0.34% 14.90% 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% Fidelity/(R)/ VIP II - Investment Grade Bond Portfolio: Service Class 2004 ................. 0.50% 14,444 10.570462 152,680 1.88% 3.80% 2003 ................. 0.50% 9,748 10.183621 99,270 0.00% 1.84% 05/01/03 Fidelity/(R)/ VIP III - Growth Opportunities Portfolio - Initial Class 2004 ................. 0.50% 38,174 10.600065 404,647 0.53% 6.66% 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% Fidelity/(R)/ VIP III - Mid Cap Portfolio - Service Class 2004 ................. 0.50% 28,738 17.428707 500,866 0.00% 24.15% 2003 ................. 0.50% 2,295 14.038431 32,218 0.00% 40.38% 05/01/03 Fidelity/(R)/ VIP III - Value Strategies Portfolio - Service Class 2004 ................. 0.50% 22,246 13.327560 296,485 0.00% 13.42% 2003 ................. 0.50% 15,781 11.750739 185,438 0.00% 57.00%
(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*** --------- --------- ----------- -------------- ---------- --------- Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I 2004 ................. 0.50% 45,226 $ 13.577316 $ 614,048 0.66% 10.70% 2003 ................. 0.50% 11,618 12.265513 142,501 0.20% 22.66% 05/01/03 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I 2004 ................. 0.50% 20,500 16.437638 336,972 0.19% 23.47% 2003 ................. 0.50% 2,305 13.312843 30,686 0.12% 33.13% 05/01/03 Franklin Templeton VIP - Templeton Foreign Securities Fund - Class I 2004 ................. 0.50% 10,062 15.642411 157,394 1.10% 18.28% 2003 ................. 0.50% 2,090 13.224912 27,640 0.79% 32.25% 05/01/03 Gartmore GVIT Comstock Value Fund - Class I 2004 ................. 0.50% 7,480 14.766163 110,451 1.56% 16.91% 2003 ................. 0.50% 570 12.630064 7,199 1.52% 26.30% 05/01/03 Gartmore GVIT Dreyfus International Value Fund - Class I 2004 ................. 0.50% 15,934 16.633064 265,031 2.03% 19.69% 2003 ................. 0.50% 4,952 13.791985 68,298 0.00% 37.92% 05/01/03 Gartmore GVIT Dreyfus Mid Cap Index Fund - Class I 2004 ................. 0.50% 57,928 13.383987 775,308 0.54% 15.15% 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% Gartmore GVIT Emerging Markets Fund - Class I 2004 ................. 0.50% 26,586 13.680089 363,699 0.93% 20.14% 2003 ................. 0.50% 17,288 11.386650 196,852 0.66% 64.44% Gartmore GVIT Federated High Income Bond Fund - Class I 2004 ................. 0.50% 25,084 12.139983 304,519 8.50% 9.55% Gartmore GVIT Global Financial Services Fund - Class I 2004 ................. 0.50% 3,124 14.631389 45,708 1.45% 20.39% 2003 ................. 0.50% 629 12.153349 7,644 0.88% 40.75% Gartmore GVIT Global Health Sciences Fund - Class I 2004 ................. 0.50% 10,306 12.133480 125,048 0.00% 7.32% 2003 ................. 0.50% 3,699 11.305727 41,820 0.00% 36.01% Gartmore GVIT Global Technology and Communications Fund - Class I 2004 ................. 0.50% 29,620 3.126331 92,602 0.00% 3.79% 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 Global Utilities Fund - Class I 2004 ................. 0.50% 10,822 13.814954 149,505 1.92% 29.32% Gartmore GVIT Government Bond Fund - Class I 2004 ................. 0.50% 43,088 31.204592 1,344,543 5.48% 2.75% 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% Gartmore GVIT Growth Fund - Class I 2004 ................. 0.50% 72,558 17.206018 1,248,434 0.33% 7.62% 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% Gartmore GVIT ID Aggressive Fund - Class II 2004 ................. 0.50% 49,550 12.345496 611,719 1.75% 13.46% Gartmore GVIT ID Conservative Fund - Class II 2004 ................. 0.50% 2,158 11.184449 24,136 2.46% 4.13% 2003 ................. 0.50% 1,037 10.740821 11,138 2.37% 7.37% Gartmore GVIT ID Moderate Fund - Class II 2004 ................. 0.50% 85,112 11.844428 1,008,103 2.27% 8.99% 2003 ................. 0.50% 16,518 10.867503 179,509 2.06% 19.45% Gartmore GVIT ID Moderately Aggressive Fund - Class II 2004 ................. 0.50% 41,042 12.153407 498,800 1.97% 11.53% Gartmore GVIT ID Moderately Conservative Fund - Class II 2004 ................. 0.50% 9,360 11.577210 108,363 2.48% 6.62% Gartmore GVIT International Growth Fund - Class I 2004 ................. 0.50% 1,290 7.594318 9,797 1.40% 13.62%
(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 Mid Cap Growth Fund - Class I 2004 0.50% 87,438 $ 5.649583 $ 493,988 0.00% 14.76% 2003 0.50% 74,157 4.922829 365,062 0.00% 39.44% Gartmore GVIT Money Market Fund - Class I 2004 0.50% 162,122 18.626719 3,019,801 0.78% 0.31% 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% Gartmore GVIT Nationwide/(R)/ Fund: Class I 2004 0.50% 167,838 41.656679 6,991,574 1.28% 9.20% 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% Gartmore GVIT Nationwide/(R)/ Leaders Fund - Class I 2004 0.50% 2,600 12.422944 32,300 0.52% 18.20% 2003 0.50% 588 10.510022 6,180 0.19% 24.76% Gartmore GVIT Small Cap Growth Fund - Class I 2004 0.50% 32,220 7.184440 231,483 0.00% 12.85% 2003 0.50% 10,334 6.366359 65,790 0.00% 33.60% Gartmore GVIT Small Cap Value Fund - Class I 2004 0.50% 100,222 20.335711 2,038,086 0.00% 16.71% 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% Gartmore GVIT Small Company Fund - Class I 2004 0.50% 94,992 31.945431 3,034,560 0.00% 18.43% 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% Gartmore GVIT Turner Growth Focus Fund - Class I 2003 0.50% 17,823 3.283013 58,513 0.00% 50.21% Gartmore GVIT U.S. Growth Leaders Fund - Class I 2004 0.50% 21,016 13.881788 291,740 0.00% 11.85% 2003 0.50% 8,655 12.411260 107,419 0.00% 51.38% Gartmore GVIT Van Kampen Multi Sector Bond Fund - Class I 2004 0.50% 9,006 13.676033 123,166 4.85% 6.00% 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% 05/01/00 Janus AS - Balanced Portfolio - Service Shares 2004 0.50% 730 11.846263 8,648 3.27% 7.75% Janus AS - Capital Appreciation Portfolio - Service Shares 2004 0.50% 23,622 7.224414 170,655 0.02% 17.38% 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 2004 0.50% 16,918 3.611898 61,106 0.00% 0.06% 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 2004 0.50% 11,248 7.051335 79,313 0.83% 18.09% 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% Janus AS - Risk-Managed Large Cap Core Portfolio - Service Shares 2004 0.50% 2,006 14.330811 28,748 2.29% 16.88%
(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*** --------- --------- ----------- -------------- ---------- --------- MFS VIT - MFS Investors Growth Stock Series - Initial Class 2004 ................. 0.50% 4,150 $ 12.557998 $ 52,116 0.00% 8.64% 2003 ................. 0.50% 1,131 11.559230 13,073 0.00% 15.59% 05/01/03 MFS VIT - MFS Value Series - Initial Class 2004 ................. 0.50% 1,594 14.126859 22,518 0.34% 14.60% Neuberger Berman AMT - Balanced Portfolio 2004 ................. 0.50% 408 10.580939 4,317 1.30% 8.76% 2003 ................. 0.50% 387 9.728263 3,765 1.91% 15.70% Neuberger Berman AMT - Fasciano Portfolio - S Class Shares 2004 ................. 0.50% 4,114 13.988281 57,548 0.00% 11.32% Neuberger Berman AMT - Growth Portfolio 2004 ................. 0.50% 72,940 34.521424 2,517,993 0.00% 16.02% 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% Neuberger Berman AMT - Guardian Portfolio - I Class Shares 2004 ................. 0.50% 32,314 11.637402 376,051 0.12% 15.24% 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% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2004 ................. 0.50% 37,986 22.429536 852,008 3.64% 0.28% 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% Neuberger Berman AMT - Mid Cap Growth Portfolio - S Class 2004 ................. 0.50% 2,568 14.179701 36,413 0.00% 15.46% 2003 ................. 0.50% 1,669 12.281545 20,498 0.00% 22.82% 05/01/03 Neuberger Berman AMT - Partners Portfolio 2004 ................. 0.50% 72,448 29.143256 2,111,371 0.01% 18.38% 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% Neuberger Berman AMT - Socially Responsive Portfolio - I Class 2004 ................. 0.50% 98 13.901675 1,362 0.00% 12.71% Oppenheimer Aggressive Growth Fund/VA - Initial Class 2004 ................. 0.50% 50,906 5.706718 290,506 0.00% 19.18% 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 2004 ................. 0.50% 73,062 26.240474 1,917,182 4.80% 4.97% 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% Oppenheimer Capital Appreciation Fund/VA - Initial Class 2004 ................. 0.50% 104,114 15.812092 1,646,260 0.33% 6.40% 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 2004 ................. 0.50% 191,944 34.834576 6,686,288 1.25% 18.57% 2003 ................. 0.50% 33,503 29.379176 984,291 0.76% 42.31% 2002 ................. 0.50% 4,420 20.644823 91,250 0.56% -22.52% 2000 ................. 0.50% 2,118 30.445645 64,484 0.27% 4.57% Oppenheimer High Income Fund/VA - Initial Class 2004 ................. 0.50% 14,518 12.083237 175,424 4.23% 8.42% 2003 ................. 0.50% 8,543 11.144531 95,208 0.00% 11.45% 05/01/03
(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)/ Fund/VA - Initial Class 2004 ................. 0.50% 33,884 $ 8.950876 $ 303,291 0.84% 8.91% 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 Main Street/(R)/ Small Cap Fund/VA - Initial Class 2004 ................. 0.50% 554 16.426073 9,100 0.00% 18.82% Oppenheimer Multiple Strategies Fund/VA - Initial Class 2004 ................. 0.50% 54,126 34.149236 1,848,362 1.01% 9.55% 2003 ................. 0.50% 23,053 31.171669 718,600 2.82% 24.33% 2002 ................. 0.50% 9,549 25.070852 239,402 3.60% -10.85% Putnam VT - Growth & Income Fund - IB Shares 2004 ................. 0.50% 236 13.691228 3,231 1.66% 10.56% Putnam VT - International Equity Fund - IB Shares 2004 ................. 0.50% 1,000 14.748085 14,748 1.61% 15.62% Putnam VT - Voyager II Fund - IB Shares 2004 ................. 0.50% 720 12.347084 8,890 0.19% 4.51% Strong Opportunity Fund II, Inc. 2004 ................. 0.50% 143,178 47.875122 6,854,664 0.00% 17.63% 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% Strong VIF - Strong Discovery Fund II 2004 ................. 0.50% 50,972 30.353233 1,547,165 0.00% 15.14% 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% Van Eck WIT - Worldwide Bond Fund 2004 ................. 0.50% 36,364 22.649785 823,637 8.78% 8.61% 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% Van Eck WIT - Worldwide Emerging Markets Fund 2004 ................. 0.50% 56,568 12.083728 683,552 0.59% 25.26% 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% Van Eck WIT - Worldwide Hard Assets Fund 2004 ................. 0.50% 65,614 20.546330 1,348,127 0.37% 23.61% 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% Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A 2004 ................. 0.50% 3,084 10.591991 32,666 4.78% 3.85% Van Kampen UIF - Emerging Markets Debt Portfolio 2004 ................. 0.50% 16,150 16.559313 267,433 6.41% 9.51% 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% Van Kampen UIF - U.S.Real Estate Portfolio - Class A 2004 ................. 0.50% 69,458 38.951553 2,705,497 1.55% 35.71% 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 - Basic Value Fund - Series I Shares 2004 ............... 0.80% 43,590 $ 14.322072 $ 624,299 0.00% 10.18% 2003 ............... 0.80% 14,499 12.998258 188,462 0.11% 29.98% 05/01/03 AIM VIF - Capital Appreciation Fund - Series I Shares 2004 ............... 0.80% 4,090 13.039850 53,333 0.00% 5.78% 2003 ............... 0.80% 5,333 12.327742 65,744 0.00% 23.28% 05/01/03 AIM VIF - Capital Development Fund - Series I Shares 2004 ............... 0.80% 9,498 14.826548 140,823 0.00% 14.58% 2003 ............... 0.80% 3,166 12.939952 40,968 0.00% 29.40% 05/01/03 Alliance VPSF - Alliance Bernstein Growth & Income Portfolio - Class A 2004 ............... 0.80% 38,966 13.684124 533,216 0.96% 10.57% 2003 ............... 0.80% 22,041 12.375515 272,769 0.00% 23.76% 05/01/03 Alliance VPSF - Alliance Bernstein Small Cap Value Portfolio - Class A 2004 ............... 0.80% 43,250 16.241455 702,443 0.13% 18.35% 2003 ............... 0.80% 11,736 13.722986 161,053 0.02% 37.23% 05/01/03 American Century VP - Balanced Fund - Class I 2004 ............... 0.80% 159,436 22.572554 3,598,878 1.68% 8.90% 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% American Century VP - Capital Appreciation Fund - Class I 2004 ............... 0.80% 460,364 17.935168 8,256,706 0.00% 6.73% 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% American Century VP - Income & Growth Fund - Class I 2004 ............... 0.80% 220,344 11.796249 2,599,233 1.44% 12.09% 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% American Century VP - Inflation Protection Fund - Class II 2004 ............... 0.80% 72,104 10.778433 777,168 3.57% 4.96% 2003 ............... 0.80% 6,574 10.268669 67,506 1.88% 2.69% 04/30/03 American Century VP - International Fund - Class I 2004 ............... 0.80% 471,466 17.302961 8,157,758 0.58% 14.01% 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% American Century VP - Ultra/(R)/ Fund - Class I 2004 ............... 0.80% 37,042 10.877007 402,906 0.00% 9.79% 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% 05/01/02 American Century VP - Value Fund - Class I 2004 ............... 0.80% 363,556 21.408869 7,783,323 1.01% 13.42% 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% Credit Suisse Trust - Global Post-Venture Capital Portfolio 2004 ............... 0.80% 40,182 12.487641 501,778 0.00% 17.05% 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%
(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 2004 ................. 0.80% 369,172 $ 12.174019 $ 4,494,307 0.99% 13.83% 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% Credit Suisse Trust - Small Cap Growth Portfolio 2004 ................. 0.80% 539,886 18.844567 10,173,918 0.00% 9.99% 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% 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% 05/01/00 Dreyfus IP - Small Cap Stock Index Portfolio - Service Class 2004 ................. 0.80% 70,472 12.616946 889,141 0.50% 20.91% 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% 05/01/02 Dreyfus Socially Responsible Growth Fund, Inc., The 2004 ................. 0.80% 333,044 23.001657 7,660,564 0.38% 5.36% 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% Dreyfus Stock Index Fund, Inc.- Initial Shares 2004 ................. 0.80% 1,932,026 28.366357 54,804,539 1.80% 9.76% 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% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2004 ................. 0.80% 279,490 13.390880 3,742,617 1.63% 4.21% 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% Dreyfus VIF - Developing Leaders Portfolio - Initial Shares 2004 ................. 0.80% 22,806 14.173675 323,245 0.22% 10.45% 2003 ................. 0.80% 8,113 12.832258 104,108 0.08% 28.32% 05/01/03 Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2004 ................. 0.80% 117,298 13.093387 1,535,828 1.23% 6.61% 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% Federated IS - American Leaders Fund II - Primary Shares 2004 ................. 0.80% 5,782 13.647806 78,912 0.41% 8.90% 2003 ................. 0.80% 1,104 12.531875 13,835 0.00% 25.32% 05/01/03 Federated IS - Capital Appreciation Fund II - Primary Shares 2004 ................. 0.80% 770 12.772814 9,835 0.28% 6.54% 2003 ................. 0.80% 553 11.988805 6,630 0.00% 19.89% 05/01/03 Federated IS - Quality Bond Fund II - Primary Shares 2004 ................. 0.80% 73,162 11.445157 837,351 4.98% 2.79% 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% 05/01/02
(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*** --------- --------- ----------- -------------- ---------- --------- Fidelity/(R)/ VIP - Equity-Income Portfolio - Initial Class 2004 ................. 0.80% 1,112,750 $ 44.687399 $ 49,725,903 1.56% 10.64% 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% Fidelity/(R)/ VIP - Growth Portfolio - Initial Class 2004 ................. 0.80% 1,643,610 37.792486 62,116,108 0.27% 2.55% 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% Fidelity/(R)/ VIP - High Income Portfolio - Initial Class 2004 ................. 0.80% 565,686 26.597360 15,045,754 8.82% 8.72% 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% Fidelity/(R)/ VIP - Overseas Portfolio - Initial Class 2004 ................. 0.80% 498,640 21.357697 10,649,802 1.14% 12.73% 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% Fidelity/(R)/ VIP II - Asset Manager Portfolio - Initial Class 2004 ................. 0.80% 416,912 27.502617 11,466,171 2.76% 4.63% 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% Fidelity/(R)/ VIP II - Contrafund/(R)/ Portfolio - Initial Class 2004 ................. 0.80% 1,547,972 27.679601 42,847,247 0.34% 14.56% 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% Fidelity/(R)/ VIP II - Investment Grade Bond Portfolio:Service Class 2004 ................. 0.80% 47,726 10.517675 501,967 1.88% 3.49% 2003 ................. 0.80% 12,869 10.163210 130,790 0.00% 1.63% 05/01/03 Fidelity/(R)/ VIP III - Growth Opportunities Portfolio - Initial Class 2004 ................. 0.80% 304,964 10.396153 3,170,452 0.53% 6.34% 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% Fidelity/(R)/ VIP III - Mid Cap Portfolio - Service Class 2004 ................. 0.80% 190,596 17.341823 3,305,282 0.00% 23.78% 2003 ................. 0.80% 40,642 14.010381 569,410 0.00% 40.10% 05/01/03 Fidelity/(R)/ VIP III - Value Strategies Portfolio - Service Class 2004 ................. 0.80% 79,260 13.221316 1,047,922 0.00% 13.08% 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% 05/01/02 Franklin Templeton VIP - Franklin Rising Dividends Securities Fund - Class I 2004 ................. 0.80% 110,404 13.509605 1,491,514 0.66% 10.36% 2003 ................. 0.80% 47,169 12.240997 577,396 0.20% 22.41% 05/01/03 Franklin Templeton VIP - Franklin Small Cap Value Securities Fund - Class I 2004 ................. 0.80% 87,470 16.355679 1,430,631 0.19% 23.10% 2003 ................. 0.80% 8,003 13.286230 106,330 0.12% 32.86% 05/01/03 Franklin Templeton VIP - Templeton Foreign Securities Fund - Class I 2004 ................. 0.80% 64,070 15.564386 997,210 1.10% 17.93% 2003 ................. 0.80% 22,318 13.198462 294,563 0.79% 31.98% 05/01/03
(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*** --------- --------- ----------- -------------- ---------- --------- Gartmore GVIT Comstock Value Fund - Class I 2004 ................. 0.80% 29,708 $ 14.692503 $ 436,485 1.56% 16.56% 2003 ................. 0.80% 9,638 12.604789 121,485 1.52% 26.05% 05/01/03 Gartmore GVIT Dreyfus International Value Fund - Class I 2004 ................. 0.80% 64,536 16.550116 1,068,078 2.03% 19.33% 2003 ................. 0.80% 6,704 13.764414 92,277 0.00% 37.64% 05/01/03 Gartmore GVIT Dreyfus Mid Cap Index Fund - Class I 2004 ................. 0.80% 324,610 13.197899 4,284,170 0.54% 14.81% 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% 05/01/00 Gartmore GVIT Emerging Markets Fund - Class I 2004 ................. 0.80% 84,992 13.506849 1,147,974 0.93% 19.78% 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% 10/02/00 Gartmore GVIT Federated High Income Bond Fund - Class I 2004 ................. 0.80% 29,550 12.079399 356,946 8.50% 9.22% 2003 ................. 0.80% 13,029 11.059766 144,098 9.25% 10.60% 05/01/03 Gartmore GVIT Global Financial Services Fund - Class I 2004 ................. 0.80% 23,526 14.514755 341,474 1.45% 20.03% 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% 05/01/02 Gartmore GVIT Global Health Sciences Fund - Class I 2004 ................. 0.80% 44,046 12.036757 530,171 0.00% 7.00% 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% 05/01/02 Gartmore GVIT Global Technology and Communications Fund - Class I 2004 ................. 0.80% 219,234 3.086695 676,708 0.00% 3.48% 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% 10/02/00 Gartmore GVIT Global Utilities Fund - Class I 2004 ................. 0.80% 38,258 13.704848 524,320 1.92% 28.93% 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% 05/01/02 Gartmore GVIT Government Bond Fund - Class I 2004 ................. 0.80% 314,094 23.746180 7,458,533 5.48% 2.44% 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% Gartmore GVIT Growth Fund - Class I 2004 ................. 0.80% 818,234 17.006258 13,915,099 0.33% 7.30% 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% Gartmore GVIT ID Aggressive Fund - Class II 2004 ................. 0.80% 57,102 12.237400 698,780 1.75% 13.12% 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% 01/25/02 Gartmore GVIT ID Conservative Fund - Class II 2004 ................. 0.80% 44,818 11.086539 496,877 2.46% 3.82% 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% 01/25/02
(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 ID Moderate Fund - Class II 2004 ................. 0.80% 230,378 $ 11.740731 $ 2,704,806 2.27% 8.66% 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% 01/25/02 Gartmore GVIT ID Moderately Aggressive Fund - Class II 2004 ................. 0.80% 250,424 12.046998 3,016,857 1.97% 11.20% 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% 01/25/02 Gartmore GVIT ID Moderately Conservative Fund - Class II 2004 ................. 0.80% 43,224 11.475860 496,033 2.48% 6.31% 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% 01/25/02 Gartmore GVIT International Growth Fund - Class I 2004 ................. 0.80% 16,036 7.498148 120,240 1.40% 13.28% 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% 10/02/00 Gartmore GVIT Mid Cap Growth Fund - Class I 2004 ................. 0.80% 97,936 5.570908 545,592 0.00% 14.42% 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% 05/01/00 Gartmore GVIT Money Market Fund - Class I 2004 ................. 0.80% 899,340 15.008890 13,498,095 0.78% 0.00% 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% Gartmore GVIT Nationwide/(R)/ Fund:Class I 2004 ................. 0.80% 1,808,392 33.651239 60,854,631 1.28% 8.88% 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% Gartmore GVIT Nationwide/(R)/ Leaders Fund - Class I 2004 ................. 0.80% 3,724 12.323917 45,894 0.52% 17.85% 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% 05/01/02 Gartmore GVIT Small Cap Growth Fund - Class I 2004 ................. 0.80% 168,182 7.084474 1,191,481 0.00% 12.51% 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% 05/01/00 Gartmore GVIT Small Cap Value Fund - Class I 2004 ................. 0.80% 410,958 19.932939 8,191,601 0.00% 16.36% 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% Gartmore GVIT Small Company Fund - Class I 2004 ................. 0.80% 659,468 31.412204 20,715,343 0.00% 18.07% 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%
(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 Turner 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% Gartmore GVIT U.S.Growth Leaders Fund - Class I 2004 ................. 0.80% 27,528 13.771155 379,092 0.00% 11.51% 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% 05/01/02 Gartmore GVIT Van Kampen Multi Sector Bond Fund - Class I 2004 ................. 0.80% 59,986 13.485955 808,968 4.85% 5.68% 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% 05/01/00 Janus AS - Balanced Portfolio - Service Shares 2004 ................. 0.80% 6,582 11.787133 77,583 3.27% 7.43% 2003 ................. 0.80% 2,548 10.971897 27,956 4.49% 9.72% 05/01/03 Janus AS - Capital Appreciation Portfolio - Service Shares 2004 ................. 0.80% 271,392 7.123936 1,933,379 0.02% 17.03% 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% 05/01/00 Janus AS - Global Technology Portfolio - Service Shares 2004 ................. 0.80% 234,210 3.561614 834,166 0.00% -0.23% 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% 05/01/00 Janus AS - International Growth Portfolio - Service Shares 2004 ................. 0.80% 166,012 6.953243 1,154,322 0.83% 17.74% 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% 05/01/00 Janus AS - Risk-Managed Large Cap Core Portfolio - Service Shares 2004 ................. 0.80% 4,180 14.259340 59,604 2.29% 16.53% 2003 ................. 0.80% 649 12.236775 7,942 0.30% 22.37% 05/01/03 MFS VIT - MFS Investors Growth Stock Series - Initial Class 2004 ................. 0.80% 15,444 12.495325 192,978 0.00% 8.32% 2003 ................. 0.80% 3,685 11.536092 42,510 0.00% 15.36% 05/01/03 MFS VIT - MFS Value Series - Initial Class 2004 ................. 0.80% 9,316 14.056392 130,949 0.34% 14.26% 2003 ................. 0.80% 3,296 12.301954 40,547 0.00% 23.02% 05/01/03 Neuberger Berman AMT - Balanced Portfolio 2004 ................. 0.80% 1,898 23.063588 43,775 1.30% 8.44% 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% 06/15/01 Neuberger Berman AMT - Fasciano Portfolio - S Class Shares 2004 ................. 0.80% 3,644 13.918505 50,719 0.00% 10.99% 2003 ................. 0.80% 854 12.540843 10,710 0.00% 25.41% 05/01/03 Neuberger Berman AMT - Growth Portfolio 2004 ................. 0.80% 519,352 23.576070 12,244,279 0.00% 15.67% 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%
(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*** --------- --------- ----------- -------------- ---------- --------- Neuberger Berman AMT - Guardian Portfolio - I Class Shares 2004 ................. 0.80% 121,580 $ 11.406874 $ 1,386,848 0.12% 14.89% 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% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2004 ................. 0.80% 165,170 18.154314 2,998,548 3.64% -0.02% 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% Neuberger Berman AMT - Mid Cap Growth Portfolio - S Class 2004 ................. 0.80% 11,620 14.108984 163,946 0.00% 15.11% 2003 ................. 0.80% 17,581 12.256991 215,490 0.00% 22.57% 05/01/03 Neuberger Berman AMT - Partners Portfolio 2004 ................. 0.80% 534,216 28.709463 15,337,054 0.01% 18.03% 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% Neuberger Berman AMT - Socially Responsive Portfolio - I Class 2004 ................. 0.80% 18,504 13.832310 255,953 0.00% 12.38% 2003 ................. 0.80% 3,251 12.308850 40,016 0.00% 23.09% 05/01/03 Oppenheimer Aggressive Growth Fund/VA - Initial Class 2004 ................. 0.80% 265,960 5.627305 1,496,638 0.00% 18.82% 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% 05/01/00 Oppenheimer Bond Fund/VA - Initial Class 2004 ................. 0.80% 337,846 23.877339 8,066,863 4.80% 4.65% 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% Oppenheimer Capital Appreciation Fund/VA - Initial Class 2004 ................. 0.80% 653,294 15.508004 10,131,286 0.33% 6.08% 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% Oppenheimer Global Securities Fund/VA - Initial Class 2004 ................. 0.80% 723,504 34.359210 24,859,026 1.25% 18.21% 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% Oppenheimer High Income Fund/VA - Initial Class 2004 ................. 0.80% 30,734 12.022940 369,513 4.23% 8.10% 2003 ................. 0.80% 12,557 11.122220 139,662 0.00% 11.22% 05/01/03 Oppenheimer Main Street/(R)/ Fund/VA - Initial Class 2004 ................. 0.80% 97,760 8.826404 862,869 0.84% 8.59% 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% 05/01/00 Oppenheimer Main Street/(R)/ Small Cap Fund/VA - Initial Class 2004 ................. 0.80% 26,984 16.344185 441,031 0.00% 18.47% 2003 ................. 0.80% 26,396 13.796198 364,164 0.00% 37.96% 05/01/03
(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 Multiple Strategies Fund/VA - Initial Class 2004 ................. 0.80% 325,990 $ 32.435047 $ 10,573,501 1.01% 9.22% 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% Putnam VT - Growth & Income Fund - IB Shares 2004 ................. 0.80% 3,926 13.622923 53,484 1.66% 10.23% 2003 ................. 0.80% 1,210 12.359054 14,954 0.00% 23.59% 05/01/03 Putnam VT - International Equity Fund - IB Shares 2004 ................. 0.80% 8,052 14.674512 118,159 1.61% 15.27% 2003 ................. 0.80% 4,931 12.730633 62,775 0.00% 27.31% 05/01/03 Putnam VT - Voyager II Fund - IB Shares 2004 ................. 0.80% 1,378 12.285483 16,929 0.19% 4.20% 2003 ................. 0.80% 1,238 11.790763 14,597 0.00% 17.91% 05/01/03 Strong Opportunity Fund II, Inc. 2004 ................. 0.80% 515,136 47.318990 24,375,715 0.00% 17.28% 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% Strong VIF - Strong Discovery Fund II 2004 ................. 0.80% 194,396 30.000581 5,831,993 0.00% 14.80% 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% 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% Van Eck WIT - Worldwide Bond Fund 2004 ................. 0.80% 94,458 20.409871 1,927,876 8.78% 8.28% 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% Van Eck WIT - Worldwide Emerging Markets Fund 2004 ................. 0.80% 322,338 11.861162 3,823,303 0.59% 24.89% 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% Van Eck WIT - Worldwide Hard Assets Fund 2004 ................. 0.80% 134,666 24.559747 3,307,363 0.37% 23.24% 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% Van Kampen UIF - Core Plus Fixed Income Portfolio - Class A 2004 ................. 0.80% 15,460 10.539104 162,935 4.78% 3.54% 2003 ................. 0.80% 2,958 10.179170 30,110 0.00% 1.79% 05/01/03 Van Kampen UIF - Emerging Markets Debt Portfolio 2004 ................. 0.80% 74,670 16.240956 1,212,712 6.41% 9.19% 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%
(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*** --------- --------- ----------- -------------- ---------- --------- Van Kampen UIF - U.S.Real Estate Portfolio - Class A 2004 ............... 0.80% 332,014 $ 38.319214 $ 12,722,516 1.55% 35.31% 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% Single Premium contracts issued on or after April 16, 1990 American Century VP - Balanced Fund - Class I 2004 ............... 1.30% 35,358 21.184881 749,055 1.68% 8.36% 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% American Century VP - Capital Appreciation Fund - Class I 2004 ............... 1.30% 66,996 18.171733 1,217,433 0.00% 6.19% 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% American Century VP - Income & Growth Fund - Class I 2004 ............... 1.30% 31,276 11.409408 356,841 1.44% 11.53% 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% American Century VP - International Fund - Class I 2004 ............... 1.30% 55,662 16.424915 914,244 0.58% 13.44% 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% American Century VP - Ultra/(R)/ Fund - Class I 2004 ............... 1.30% 8,076 10.732849 86,678 0.00% 9.25% 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% 05/01/02 American Century VP - Value Fund - Class I 2004 ............... 1.30% 92,778 20.567340 1,908,197 1.01% 12.86% 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% Credit Suisse Trust - Global Post-Venture Capital Portfolio 2004 ............... 1.30% 4,110 11.996474 49,306 0.00% 16.47% 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% Credit Suisse Trust - International Focus Portfolio 2004 ............... 1.30% 41,378 11.609376 480,373 0.99% 13.26% 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% Credit Suisse Trust - Small Cap Growth Portfolio 2004 ............... 1.30% 42,546 17.970297 764,564 0.00% 9.44% 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%
(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 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% 05/01/00 Dreyfus IP - Small Cap Stock Index Portfolio - Service Class 2004 ................. 1.30% 21,594 12.449758 268,840 0.50% 20.31% 2003 ................. 1.30% 14,581 10.347973 150,884 0.33% 36.00% Dreyfus Socially Responsible Growth Fund, Inc., The 2004 ................. 1.30% 9,240 21.745234 200,926 0.38% 4.84% 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% Dreyfus Stock Index Fund, Inc.- Initial Shares 2004 ................. 1.30% 166,174 26.815353 4,456,014 1.80% 9.21% 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% Dreyfus VIF - Appreciation Portfolio - Initial Shares 2004 ................. 1.30% 69,410 12.900329 895,412 1.63% 3.69% 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% Dreyfus VIF - Growth and Income Portfolio - Initial Shares 2004 ................. 1.30% 20,464 12.578597 257,408 1.23% 6.08% 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% Federated IS - Quality Bond Fund II - Primary Shares 2004 ................. 1.30% 5,244 11.293463 59,223 4.98% 2.28% 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% 05/01/02 Fidelity/(R)/ VIP - Equity-Income Portfolio - Initial Class 2004 ................. 1.30% 197,270 41.630375 8,212,424 1.56% 10.09% 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% Fidelity/(R)/ VIP - Growth Portfolio - Initial Class 2004 ................. 1.30% 195,692 35.692511 6,984,739 0.27% 2.04% 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% Fidelity/(R)/ VIP - High Income Portfolio - Initial Class 2004 ................. 1.30% 106,760 27.298414 2,914,379 8.82% 8.18% 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% Fidelity/(R)/ VIP - Overseas Portfolio - Initial Class 2004 ................. 1.30% 95,424 18.954713 1,808,735 1.14% 12.17% 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%
(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*** --------- --------- ----------- -------------- ---------- --------- Fidelity/(R)/ VIP II - Asset Manager Portfolio - Initial Class 2004 ................. 1.30% 121,996 $ 29.152937 $ 3,556,542 2.76% 4.11% 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% Fidelity/(R)/ VIP II - Contrafund/(R)/ Portfolio - Initial Class 2004 ................. 1.30% 167,594 26.396331 4,423,867 0.34% 13.99% 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% Fidelity/(R)/ VIP III - Growth Opportunities Portfolio - Initial Class 2004 ................. 1.30% 18,258 10.015165 182,857 0.53% 5.81% 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% Fidelity/(R)/ VIP III - Value Strategies Portfolio - Service Class 2004 ................. 1.30% 23,932 13.046144 312,220 0.00% 12.52% 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% 05/01/02 Gartmore GVIT Dreyfus Mid Cap Index Fund - Class I 2004 ................. 1.30% 77,226 12.893433 995,708 0.54% 14.24% 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% 05/01/00 Gartmore GVIT Emerging Markets Fund - Class I 2004 ................. 1.30% 13,996 13.222981 185,069 0.93% 19.18% 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 2004 ................. 1.30% 9,204 14.322458 131,824 1.45% 19.43% 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% 05/01/02 Gartmore GVIT Global Health Sciences Fund - Class I 2004 ................. 1.30% 21,374 11.877203 253,863 0.00% 6.47% 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% 05/01/02 Gartmore GVIT Global Technology and Communications Fund - Class I 2004 ................. 1.30% 29,678 3.021716 89,678 0.00% 2.97% 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% 10/02/00 Gartmore GVIT Global Utilities Fund - Class I 2004 ................. 1.30% 21,056 13.523265 284,746 1.92% 28.29% 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% 05/01/02 Gartmore GVIT Government Bond Fund - Class I 2004 ................. 1.30% 87,934 24.397010 2,145,327 5.48% 1.93% 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%
(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 Growth Fund - Class I 2004 ................. 1.30% 20,390 $ 15.960562 $ 325,436 0.33% 6.76% 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% Gartmore GVIT ID Conservative Fund - Class II 2004 ................. 1.30% 2,914 10.925221 31,836 2.46% 3.30% 2003 ................. 1.30% 2,945 10.576130 31,147 2.37% 6.51% Gartmore GVIT ID Moderate Fund - Class II 2004 ................. 1.30% 35,746 11.569914 413,578 2.27% 8.12% 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% 01/25/02 Gartmore GVIT ID Moderately Aggressive Fund - Class II 2004 ................. 1.30% 24,178 11.871734 287,035 1.97% 10.65% Gartmore GVIT ID Moderately Conservative Fund - Class II 2004 ................. 1.30% 78,358 11.308888 886,142 2.48% 5.78% 2003 ................. 1.30% 3,555 10.691448 38,008 2.34% 12.23% 2002 ................. 1.30% 99 9.526311 943 2.35% -4.74% 01/25/02 Gartmore GVIT International Growth Fund - Class I 2004 ................. 1.30% 15,442 7.340515 113,352 1.40% 12.72% 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 Mid Cap Growth Fund - Class I 2004 ................. 1.30% 19,586 5.442251 106,592 0.00% 13.85% 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% 05/01/00 Gartmore GVIT Money Market Fund - Class I 2004 ................. 1.30% 380,556 14.726229 5,604,155 0.78% -0.50% 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% Gartmore GVIT Nationwide/(R)/ Fund:Class I 2004 ................. 1.30% 50,156 33.871221 1,698,845 1.28% 8.33% 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% Gartmore GVIT Nationwide/(R)/ Leaders Fund - Class I 2004 ................. 1.30% 5,346 12.160621 65,011 0.52% 17.26% 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% 05/01/02 Gartmore GVIT Small Cap Growth Fund - Class I 2004 ................. 1.30% 27,028 6.920939 187,059 0.00% 11.95% 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% 05/01/00 Gartmore GVIT Small Cap Value Fund - Class I 2004 ................. 1.30% 109,740 19.279280 2,115,708 0.00% 15.78% 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%
(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 Company Fund - Class I 2004 ................. 1.30% 27,688 $ 30.001771 $ 830,689 0.00% 17.49% 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% Gartmore GVIT Turner 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% Gartmore GVIT U.S.Growth Leaders Fund - Class I 2004 ................. 1.30% 11,128 13.588665 151,215 0.00% 10.96% 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% 05/01/02 Gartmore GVIT Van Kampen Multi Sector Bond Fund - Class I 2004 ................. 1.30% 8,078 13.174974 106,427 4.85% 5.16% 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% 05/01/00 Janus AS - Capital Appreciation Portfolio - Service Shares 2004 ................. 1.30% 10,144 6.959531 70,597 0.02% 16.44% 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% 05/01/00 Janus AS - Global Technology Portfolio - Service Shares 2004 ................. 1.30% 21,408 3.479325 74,485 0.00% -0.73% 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% 05/01/00 Janus AS - International Growth Portfolio - Service Shares 2004 ................. 1.30% 29,924 6.792762 203,267 0.83% 17.15% 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% 05/01/00 Neuberger Berman AMT - Growth Portfolio 2004 ................. 1.30% 58,460 22.964403 1,342,499 0.00% 15.10% 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% Neuberger Berman AMT - Guardian Portfolio - I Class Shares 2004 ................. 1.30% 4,968 11.032769 54,811 0.12% 14.32% 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% Neuberger Berman AMT - Limited Maturity Bond Portfolio 2004 ................. 1.30% 43,950 18.134220 796,999 3.64% -0.52% 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% Neuberger Berman AMT - Partners Portfolio 2004 ................. 1.30% 35,560 27.252721 969,107 0.01% 17.44% 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%
(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 Aggressive Growth Fund/VA - Initial Class 2004 ................. 1.30% 38,774 $ 5.497394 $ 213,156 0.00% 18.23% 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% 05/01/00 Oppenheimer Bond Fund/VA - Initial Class 2004 ................. 1.30% 31,218 24.168614 754,496 4.80% 4.13% 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% Oppenheimer Capital Appreciation Fund/VA - Initial Class 2004 ................. 1.30% 74,904 14.939657 1,119,040 0.33% 5.56% 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% Oppenheimer Global Securities Fund/VA - Initial Class 2004 ................. 1.30% 74,314 32.480314 2,413,742 1.25% 17.62% 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% Oppenheimer Main Street/(R)/ Fund/VA - Initial Class 2004 ................. 1.30% 25,380 8.622799 218,847 0.84% 8.05% 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% 05/01/00 Oppenheimer Multiple Strategies Fund/VA - Initial Class 2004 ................. 1.30% 59,420 31.593672 1,877,296 1.01% 8.68% 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% Strong Opportunity Fund II, Inc. 2004 ................. 1.30% 58,418 44.414552 2,594,609 0.00% 16.69% 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% Strong VIF - Strong Discovery Fund II 2004 ................. 1.30% 20,844 28.158423 586,934 0.00% 14.22% 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% 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% Van Eck WIT - Worldwide Bond Fund 2004 ................. 1.30% 41,310 20.861514 861,789 8.78% 7.74% 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%
(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*** --------- --------- ----------- -------------- ---------- --------- Van Eck WIT - Worldwide Emerging Markets Fund 2004 ................. 1.30% 55,514 $ 11.394604 $ 632,560 0.59% 24.27% 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% Van Eck WIT - Worldwide Hard Assets Fund 2004 ................. 1.30% 60,654 21.400584 1,298,031 0.37% 22.63% 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% Van Kampen UIF - Emerging Markets Debt Portfolio 2004 ................. 1.30% 12,540 15.645892 196,199 6.41% 8.64% 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% Van Kampen UIF - U.S.Real Estate Portfolio - Class A 2004 ................. 1.30% 39,270 36.542922 1,435,041 1.55% 34.63% 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% -------------- 2004 $ 915,627,476 ============== 2003 $ 881,562,186 ============== 2002 $ 727,023,336 ============== 2001 $ 933,404,977 ============== 2000 $1,071,884,297 ==============
* This represents the annual 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 mutual funds 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, including changes in the value of the underlying mutual fund, which reflects the reduction of unit value for expenses assessed. 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. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders 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, 2004 and 2003, and the related consolidated statements of income, shareholder's equity, and cash flows for each of the years in the three-year period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. As discussed in note 3 to the consolidated financial statements, the Company adopted the American Institute of Certified Public Accountants' Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts, in 2004. /s/KPMG LLP Columbus, Ohio March 1, 2005 NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS)
YEARS ENDED DECEMBER 31, ---------------------------------------------------- ---------------------------------------------------- 2004 2003 2002 ================================================================================================================================== ================================================================================================================================== REVENUES: Policy charges $ 1,025.2 $ 924.1 $ 973.8 Life insurance premiums 270.4 279.8 259.9 Net investment income 2,000.5 1,973.1 1,832.9 Net realized losses on investments, hedging instruments and hedged items (36.4) (85.2) (75.5) Other 9.8 12.8 8.7 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues 3,269.5 3,104.6 2,999.8 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Interest credited to policyholder account values 1,277.2 1,309.2 1,244.4 Other benefits and claims 347.2 361.8 326.1 Policyholder dividends on participating policies 36.2 41.2 45.2 Amortization of deferred policy acquisition costs 410.1 375.9 670.1 Interest expense on debt, primarily with Nationwide Financial Services, Inc. (NFS) 59.3 48.4 36.0 Other operating expenses 604.5 533.7 508.5 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Total benefits and expenses 2,734.5 2,670.2 2,830.3 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before federal income tax expense 535.0 434.4 169.5 Federal income tax expense 120.0 96.2 8.7 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 415.0 338.2 160.8 Discontinued operations, net of tax - - 0.7 Cumulative effect of adoption of accounting principles, net of tax (3.3) (0.6) - - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 411.7 $ 337.6 $ 161.5 ================================================================================================================================== ==================================================================================================================================
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 per share amounts)
DECEMBER 31, --------------------------------------- --------------------------------------- 2004 2003 =================================================================================================================================== =================================================================================================================================== ASSETS Investments: Securities available-for-sale, at fair value: Fixed maturity securities (cost $26,708.7 in 2004; $25,850.2 in 2003) $ 27,652.0 $ 26,946.8 Equity securities (cost $37.7 in 2004; $74.0 in 2003) 48.1 85.6 Mortgage loans on real estate, net 8,649.2 8,345.8 Real estate, net 83.9 96.5 Policy loans 644.5 618.3 Other long-term investments 539.6 130.6 Short-term investments, including amounts managed by a related party 1,645.8 1,860.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total investments 39,263.1 38,084.4 Cash 15.5 0.1 Accrued investment income 364.2 367.1 Deferred policy acquisition costs 3,416.6 3,219.3 Other assets 2,099.8 1,872.3 Assets held in separate accounts 60,798.7 57,084.5 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $ 105,957.9 $ 100,627.7 =================================================================================================================================== LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Future policy benefits and claims $ 36,383.1 $ 35,379.1 Short-term debt 215.0 199.8 Long-term debt, payable to NFS 700.0 700.0 Other liabilities 3,645.2 3,264.7 Liabilities related to separate accounts 60,798.7 57,084.5 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 101,742.0 96,628.1 - ----------------------------------------------------------------------------------------------------------------------------------- Shareholder's equity: Common stock, $1 par value; authorized - 5.0 shares; issued and outstanding - 3.8 shares 3.8 3.8 Additional paid-in capital 274.4 271.3 Retained earnings 3,543.9 3,257.2 Accumulated other comprehensive income 393.8 467.3 - ----------------------------------------------------------------------------------------------------------------------------------- Total shareholder's equity 4,215.9 3,999.6 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholder's equity $ 105,957.9 $ 100,627.7 ===================================================================================================================================
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, 2004, 2003 and 2002 (in millions)
Accumulated Additional Other Total Capital paid-in Retained Comprehensive Shareholder's Shares capital earnings income equity =================================================================================================================================== 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 - - - 178.6 178.6 arising during the period, net of tax Accumulated net gains on cash flow hedges, net - - - 11.0 11.0 of tax ---------------- ---------------- Total comprehensive income 351.1 ---------------- ---------------- Capital returned 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 - - - 99.6 99.6 arising during the period, net of tax Accumulated net losses on cash flow hedges, net - - - (26.6) (26.6) of tax ---------------- Total comprehensive income 410.6 ---------------- Capital contributed by NFS - 200.2 - - 200.2 Capital returned 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 - ----------------------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net income - - 411.7 - 411.7 Net unrealized losses on securities available-for-sale - - - (42.7) (42.7) arising during the period, net of tax Accumulated net losses on cash flow hedges, net - - - (30.8) (30.8) of tax ---------------- Total comprehensive income 338.2 ---------------- Capital contributed by NFS - 3.1 - - 3.1 Dividend to NFS - - (125.0) - (125.0) - ----------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2004 $ 3.8 $ 274.4 $3,543.9 $ 393.8 $ 4,215.9 ===================================================================================================================================
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 Cash Flows For the Years Ended December 31, 2004, 2003 and 2002 (in millions)
2004 2003 2002 =================================================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 411.7 $ 337.6 $ 161.5 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account values 1,277.2 1,309.2 1,244.4 Capitalization of deferred policy acquisition costs (496.4) (567.2) (648.2) Amortization of deferred policy acquisition costs 410.1 375.9 670.1 Amortization and depreciation 73.0 69.3 (0.7) Net realized losses on investments, hedging instruments and 36.4 85.2 75.5 hedged items Decrease (increase) in accrued investment income 2.9 (38.4) (22.0) Increase in other assets (306.4) (697.5) (606.1) Increase in policy and other liabilities 324.4 342.3 463.1 Income from discontinued operations - - (0.7) Other, net 1.5 45.4 38.7 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by continuing operations 1,734.4 1,261.8 1,375.6 Net cash provided by discontinued operations - - 0.7 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,734.4 1,261.8 1,376.3 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity of securities available-for-sale 3,099.4 4,101.6 3,887.7 Proceeds from sale of securities available-for-sale 2,485.5 2,220.5 1,534.9 Proceeds from repayments of mortgage loans on real estate 1,920.9 1,478.3 1,009.0 Cost of securities available-for-sale acquired (6,291.4) (9,366.7) (9,874.5) Cost of mortgage loans on real estate acquired (2,169.9) (1,914.4) (1,810.2) Net change in short-term investments 205.9 (639.9) (193.1) Disposal of subsidiary, net of cash - - (20.0) Collateral received (paid) - securities lending, net 89.4 (26.1) 158.9 Other, net (357.2) 280.3 (136.2) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (1,017.4) (3,866.4) (5,443.5) - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of long-term debt to NFS - 100.0 300.0 Net change in short-term debt 15.2 199.8 (100.0) Capital contributed by NFS 3.1 200.2 - Capital returned to NFS - (100.0) (475.0) Cash dividends paid to NFS (125.0) (60.0) (35.0) Investment and universal life insurance product deposits 3,561.6 5,116.1 6,278.9 Investment and universal life insurance product withdrawals (4,156.5) (2,852.3) (1,923.4) Other, net - - - ----------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (701.6) 2,603.8 4,045.5 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 15.4 (0.8) (21.7) Cash, beginning of period 0.1 0.9 22.6 - ----------------------------------------------------------------------------------------------------------------------------------- Cash, end of period $ 15.5 $ 0.1 $ 0.9 ===================================================================================================================================
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, 2004, 2003 AND 2002 (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 group retirement plans, other investment products sold to institutions, life insurance and advisory services. The Company sells its products through a diverse network of distribution channels, including independent broker/dealers, financial institutions, wirehouse and regional firms, financial institutions, pension plan administrators, life insurance specialists and representatives of certain certified public accounting firms. The Company also sells its products through the following affiliated producers: Nationwide Retirement Solutions, Inc. (NRS); TBG Insurance Services Corporation (TBG Financial); Nationwide Financial Network (NFN, formerly referred to as Nationwide Provident) producers; 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 (ODI). The ODI 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 Note 13 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 and universal life insurance products, impairment losses on investments, valuation allowances for mortgage loans on real estate, federal income taxes, and pension and other postretirement employee benefits. Although some variability is inherent in these estimates, the recorded amounts reflect management's best estimates based on facts and circumstances as of the balance sheet date. 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. As discussed in Notes 3 and 11, effective December 31, 2003, the Company applied the provisions of Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities - an interpretation of ARB No. 51 (FIN 46R), issued by the Financial Accounting Standards Board (FASB), to those variable interest entities (VIEs) with which it is associated. This resulted in deconsolidating certain VIEs which the Company previously had consolidated, as of that date. 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, 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 DAC, future policy benefits and claims, and deferred federal income tax, reported as a separate component of accumulated other comprehensive income (AOCI) in shareholder's 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 U.S. 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 U.S. 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, for valuing certain fixed maturity securities with complex cash flows such as certain mortgage-backed and asset-backed securities, a "structured product model" is used. The structured product model uses third party pricing tools. For securities for which quoted market prices are not available and for which the Company's structured product model 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, 2004, 70.0% of the fair values of fixed maturity securities were obtained from independent pricing services, 21.2% from the Company's pricing matrices and 8.8% from other sources. Management regularly reviews each investment in its fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. Under the Company's accounting policy for equity securities and debt securities that can be contractually prepaid or otherwise settled in a way that may limit the Company's ability to fully recover cost, an impairment is deemed to be other-than-temporary unless the Company has both the ability and intent to hold the investment for a reasonable period until the security's forecasted recovery and evidence exists indicating that recovery will occur in a reasonable period of time. Also, for such debt securities the Company estimates cash flows over the life of purchased beneficial interests in securitized financial assets. If the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value based on current information and events, and if there has been an adverse change in estimated cash flows since the last revised estimate, considering both timing and amount, then the Company recognizes an other-than-temporary impairment and writes down the purchased beneficial interest to fair value. For other debt and equity securities, an other-than-temporary impairment charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or if it is no longer probable that the Company will recover all amounts due under the contractual terms of the security. Many 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 amount and length of time a security's fair value has been below amortized cost or cost; specific credit issues and financial prospects related to the issuer; the Company's intent to hold or dispose of the security; and current economic conditions. Other-than-temporary impairment losses result in a permanent reduction to the cost basis of the underlying investment. Impairment losses are recorded on investments in real estate and other 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 amounts. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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 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. In addition to the valuation allowance on specific loans, the Company maintains an unallocated allowance for probable losses inherent in the loan portfolio as of the balance sheet date, but not yet specifically identified by loan. Changes in the valuation allowance are recorded in net realized gains and losses on investments, hedging instruments and hedged items. Loans in foreclosure 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 and reflects the Company's best estimate of probable credit losses, including losses incurred at the balance sheet date, but not yet identified by specific loan. 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 expected to be and, for ongoing hedging relationships, have been highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not, or is not expected to be, 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, CONTINUED 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 U.S. 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 that are 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 recorded in 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 while exposing the Company to acceptable credit risk. The Company may enter into a cross-currency basis swap (pay a variable U.S. 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 (COLI), bank-owned life insurance (BOLI) 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, CONTINUED 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 Company has deferred the costs of acquiring investment products and universal life insurance products 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. 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 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 currently 8% growth per year. If actual net separate account performance varies from the 8% 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 Standard and Poor's (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% 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. The Company evaluates the appropriateness of the individual variable annuity DAC balance within pre-set parameters. These parameters are designed to appropriately reflect the Company's long-term expectations with respect to individual variable annuity contracts while also evaluating the potential impact of short-term experience on the Company's recorded individual variable annuity DAC balance. If the recorded balance of individual variable annuity DAC falls outside of these parameters for a prescribed period of time, or if the recorded balance falls 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 DAC is recalculated using revised best estimate assumptions. Otherwise, DAC is not unlocked to reflect updated assumptions. If DAC assumptions were unlocked and revised, the Company would continue to use the reversion to the mean process. For other investment products and universal life insurance products, DAC is adjusted 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 in the consolidated statements of income. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (f) Separate Accounts Separate account assets and liabilities represent contract holders' 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 contract holders. The activity of the separate accounts is not reflected in the consolidated statements of income except for: (i) the fees the Company receives, which are assessed on a daily or monthly basis and recognized as revenue when assessed and earned; and (ii) the activity related to guaranteed minimum death benefit (GMDB) and guaranteed minimum income benefit (GMIB) contracts, which are riders to existing variable annuity contracts. (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 funding agreements to an unrelated third party trust equals the balance that accrues to the benefit of the contract holder, including interest credited. The funding agreements constitute insurance obligations considered annuity contracts under Ohio insurance law. 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 5.4% to 6.0% 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, 2004 and 2003, the calculated reserve was adjusted to reflect the incremental reserve that would be required if unrealized gains and losses had been realized and the proceeds reinvested at lower rates, which would have resulted in the use of a lower discount rate, as discussed in Note 2(b). (h) Participating Business Participating business represented approximately 11% in 2004 (13% in 2003 and 15% in 2002) of the Company's life insurance in force, 55% of the number of life insurance policies in force in 2004 (56% in 2003 and 59% in 2002) and 7% of life insurance statutory premiums in 2004 (11% in 2003 and 9% in 2002). 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 items or the realization of certain tax credits differs from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated statements of income. 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 (IRS) or the tax courts. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Company utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is determined that it is more likely than not that the deferred tax asset will not be fully 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) Discontinued Operations As described more fully in Note 16, during 2002 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. As such, the results of operations of NSI are reflected as discontinued operations in 2002. (l) Reclassification Certain items in the 2003 and 2002 consolidated financial statements and related notes have been reclassified to conform to the current presentation. (3) RECENTLY ISSUED ACCOUNTING STANDARDS In March 2004, the Emerging Issues Task Force (EITF) reached consensus on further guidance concerning the identification of and accounting for other-than-temporary impairments and disclosures for cost method investments, as required by EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1), which was issued on October 23, 2003. The Company disclosed in its Quarterly Report on Form 10-Q for the period ended June 30, 2004 that this additional guidance would be applied during its third quarter beginning July 1, 2004. Also, effective June 30, 2004, the Company revised its method of evaluating securities to be sold based on additional interpretation of the intent to hold criteria in EITF 03-1. This revision had no impact on the Company's financial position or results of operations. On September 8, 2004, the FASB exposed for comment FASB Staff Position (FSP) EITF Issue 03-1-a, which was intended to provide guidance related to the application of paragraph 16 of EITF 03-1, and proposed FSP EITF Issue 03-1-b, which proposed a delay in the effective date of EITF 03-1 for debt securities that are impaired because of interest rate and/or sector spread increases. Based on comments received on these proposals, on September 30, 2004 the FASB issued FSP EITF 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, which delayed the effectiveness of the guidance in EITF 03-1 in its entirety, with the exception of certain disclosure requirements. The delay had no impact on the Company's financial position or results of operations. The Company continues to actively monitor its portfolio for any securities deemed to be other-than-temporarily impaired, based on the guidance in Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, and the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 59, Accounting for Noncurrent Marketable Equity Securities. Due to uncertainty regarding the ultimate guidance to be issued, the Company cannot reasonably estimate the impact on the Company's financial position or results of operations, if any, of adopting EITF 03-1. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In June 2004, the FASB issued FSP FAS 97-1, Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, Permit or Require Accrual of an Unearned Revenue Liability (FSP FAS 97-1), to clarify the guidance related to unearned revenue reserves (URR). The primary purpose of FSP FAS 97-1 is to address the practice question of whether Statement of Position (SOP) 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1), issued by the American Institute of Certified Public Accountants (AICPA), restricts the application of the URR guidance in SFAS No. 97 to situations in which profits are expected to be followed by losses. Because the Company was computing its URR in accordance with FSP FAS 97-1 at the time SOP 03-1 was adopted, the issuance of FSP FAS 97-1 had no impact on the Company's financial position or results of operations at the time of adoption. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. In accordance with FSP FAS 106-1, Accounting and Disclosure Requirements Related to The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP FAS 106-1), issued in January 2004, the Company elected to defer accounting for the effects of the Act until the FASB issues guidance on how to account for the provisions of the Act. In May 2004, the FASB issued FSP FAS 106-2, Accounting and Disclosure Requirements Related to The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP FAS 106-2), which superceded FSP FAS 106-1 and provided guidance on accounting and disclosures related to the Act. Specifically, measures of the accumulated postretirement benefit obligation and net periodic postretirement benefit cost on or after the date of enactment must reflect the effects of the Act. The Company's adoption of FSP FAS 106-2, effective June 30, 2004, had no impact on the Company's financial position or results of operations due the application of Company maximum contribution caps and because the Company does not apply to the United States government for benefit reimbursements. In December 2003, the FASB issued 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 postretirement benefit plans on both an interim period and annual basis. See Note 15 for required disclosures. The Company adopted SFAS 132R effective December 31, 2003, except for the provisions relating to annual disclosures about estimated benefit payments, which was adopted in the fourth quarter of 2004, as permitted by SFAS 132R. Adoption of this Statement had no impact on the Company's financial position or results of operations. In July 2003, the AICPA issued SOP 03-1 to address many topics. The most significant topic affecting the Company was the accounting for contracts with GMDB. SOP 03-1 requires companies to evaluate the significance of a GMDB to determine whether a 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 effective January 1, 2004, which resulted in a $3.3 million charge, net of tax, as the cumulative effect of adoption of this accounting principle. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes the components of cumulative effect adjustments recorded in the Company's 2004 consolidated statements of income:
(in millions) JANUARY 1, 2004 =================================================================================================================================== Increase in future policy benefits: Ratchet interest crediting $ (12.3) Secondary guarantees - life insurance (2.4) GMDB claim reserves (1.8) GMIB claim reserves (1.0) - ----------------------------------------------------------------------------------------------------------------------------------- Subtotal (17.5) Adjustment to amortization of deferred policy 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) ===================================================================================================================================
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 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 at risk for the entity 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 applied to entities formed after January 31, 2003. In October 2003, the FASB delayed the implementation date of FIN 46 for VIEs formed prior to January 31, 2003 to interim periods ending after December 15, 2003, with earlier adoption permitted. In December 2003, the FASB issued FIN 46R, which 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. At a minimum, public companies were required to apply the provisions of FIN 46R or the unmodified provisions of FIN 46 to entities that were considered "special purpose entities" in practice and under applicable GAAP by the end of the first reporting period ending after December 15, 2003. Companies were permitted to apply either FIN 46 or FIN 46R to special purpose entities at the initial effective date on an entity-by-entity basis. The Company has no variable interests in special purpose entities. The primary difference between FIN 46R and FIN 46 was the criteria to be followed in determining the primary beneficiary. The primary beneficiary could be different based on the two Interpretations. The Company adopted the remaining provisions of FIN 46R effective January 1, 2004. See Note 19 for further discussion. In May 2003, the FASB issued 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 the cumulative effect of a change in accounting principle. In November 2003, the FASB issued FSP No. 150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (FSP 150-3). FSP 150-3 clarified that SFAS 150 does not apply to certain mandatorily redeemable financial instruments issued by limited-life subsidiaries, including those issued by subsidiary trusts of the Company. The adoption of SFAS 150 on July 1, 2003 had no impact on the Company's financial position or results of operations. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 had no impact on the Company's financial position or results of operations 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 (i.e. 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 or 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 the cumulative effect of adoption of this accounting principle. (4) 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; 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. 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 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 underlying 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 generally to 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 $243.7 million extending into 2005 were outstanding as of December 31, 2004. The Company also had $68.1 million of commitments to purchase fixed maturity securities outstanding as of December 31, 2004. 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, 2004, the Company's credit risk from these derivative financial instruments was $46.3 million, net of $415.7 million of cash collateral and $222.5 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, 2004, approximately 82% of separate account assets were invested in equity mutual funds. Gains and losses in the equity markets result in corresponding increases and decreases in the Company's separate account assets and 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 guaranteed minimum accumulation benefit (GMAB) claims, which may require the Company to accelerate the amortization of DAC. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Many of the Company's individual variable annuity contracts offer GMDB features. A 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. This 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 2004. As of December 31, 2004, the net amount at risk, defined as the excess of the death benefit over the account value, was $1.71 billion before reinsurance and $296.5 million net of reinsurance. As of December 31, 2004 and 2003, the Company's reserve for GMDB claims was $23.6 million and $21.8 million, respectively. See Note 3 for discussion of the impact of adopting a new accounting principle regarding GMDB reserves in 2004. The Company also offers certain variable annuity products with a GMAB rider. A 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. A 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, correlations 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 SFAS 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 2004 and 2003. As of December 31, 2004 and 2003, the fair value of the GMAB embedded derivative was valued at $20.6 million and $4.3 million, respectively. The increase in the fair value of the GMAB embedded derivative was driven by the value of new business sold during 2004. 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, 2004, the Company had a diversified portfolio with no more than 25.1% in any geographic region of the U.S. and no more than 1.6% with any one borrower. As of December 31, 2004, 30.0% of the carrying value of the Company's commercial mortgage loan portfolio financed retail properties. Significant Business Concentrations: As of December 31, 2004, 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Guarantee Risk: In connection with the selling of securitized interests in Low-Income-Housing Tax Credit Funds (Tax Credit Funds), 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. See Note 18 for further discussion of Tax Credit Funds. Reinsurance: The Company has entered into reinsurance contracts to cede a portion of its general account life, annuity and health business. Total amounts recoverable under these reinsurance contracts include ceded reserves, paid and unpaid claims, and certain other amounts and totaled $894.3 million as of December 31, 2004. 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 contract holder. 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 contracts. 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 to 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. (5) 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 for financial instruments. For this reason, among others, the aggregate fair value amounts presented do not represent the underlying value of the Company. The fair value of a financial instrument is defined as the amount at which the financial instrument could be bought or sold, or in the case of liabilities incurred or 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Although insurance contracts are specifically exempted from the disclosure requirements (other than those that are classified as investment contracts), 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 available-for-sale: 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 U.S. 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 U.S. 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, for valuing certain fixed maturity securities with complex cash flows such as certain mortgage-backed and asset-backed securities, a "structured product model" is used. The structured product model uses third party pricing tools. For securities for which quoted market prices are not available and for which the Company's structured product model 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, 2004, 70.0% of the fair values of fixed maturity securities were obtained from independent pricing services, 21.2% from the Company's pricing matrices and 8.8% from other sources. Mortgage loans on real estate, net: The fair values of mortgage loans on real estate are estimated using discounted cash flow analyses based on 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 values. Separate account assets and liabilities: The fair values of assets held in separate accounts are based on quoted market prices of the underlying securities. The fair value of liabilities related to separate accounts are the amounts payable on demand, which are net of certain surrender charges. Investment contracts: The fair values of the Company's liabilities under investment type contracts are 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 life insurance, COLI, BOLI, 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 approximate their fair values. Long-term debt, payable to NFS: The fair values for long-term debt are based on estimated market prices. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Commitments to extend credit: Commitments to extend credit have nominal fair values because of the short-term nature of such commitments. See Note 4. Interest rate and cross-currency interest rate swaps: The fair values for interest rate and cross-currency interest rate swaps are calculated with pricing models using current rate assumptions. Futures contracts: The fair values for futures contracts are based on quoted market prices. The following table summarizes the carrying amounts and estimated fair values of financial instruments subject to disclosure requirements and policy reserves on life insurance contracts as of December 31:
2004 2003 ------------------------------- ------------------------------- ------------------------------- ------------------------------- CARRYING ESTIMATED Carrying Estimated (in millions) AMOUNT FAIR VALUE amount fair value =========================================================================================================================== =========================================================================================================================== ASSETS Investments: Securities available-for-sale: Fixed maturity securities $ 27,652.0 $ 27,652.0 $ 26,946.8 $ 26,946.8 Equity securities 48.1 48.1 85.6 85.6 Mortgage loans on real estate, net 8,649.2 8,942.7 8,345.8 8,830.0 Policy loans 644.5 644.5 618.3 618.3 Short-term investments 1,645.8 1,645.8 1,860.8 1,860.8 Cash 15.5 15.5 0.1 0.1 Assets held in separate accounts 60,798.7 60,798.7 57,084.5 57,084.5 LIABILITIES Investment contracts (29,196.6) (26,870.6) (28,663.4) (27,239.8) Policy reserves on life insurance contracts (7,186.5) (7,153.9) (6,715.7) (6,311.3) Short-term debt (215.0) (215.0) (199.8) (199.8) Long-term debt, payable to NFS (700.0) (743.9) (700.0) (803.7) Collateral received - securities lending and derivatives (1,289.9) (1,289.9) (1,521.1) (1,521.1) Liabilities related to separate accounts (60,798.7) (59,651.2) (57,084.5) (56,118.6) Derivative financial instruments Interest rate swaps hedging assets (72.1) (72.1) (99.4) (99.4) Cross-currency interest rate swaps 495.0 495.0 599.1 599.1 Futures contracts (6.5) (6.5) (25.2) (25.2) Other derivatives 36.1 36.1 4.6 4.6 - ---------------------------------------------------------------------------------------------------------------------------
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (6) DERIVATIVE FINANCIAL INSTRUMENTS QUALITATIVE DISCLOSURE Interest Rate Risk Management The Company periodically 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 this mismatch, with fluctuations in the fair values of the derivatives offsetting changes in the fair values of the investments 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 U.S. 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 U.S. Treasury futures during the commitment period. With short U.S. Treasury futures, if interest rates rise (fall), the gains (losses) on the futures will offset the change in fair value of the commitment attributable to the change in interest rates. The Company periodically purchases variable rate investments (i.e. commercial mortgage loans and corporate bonds). As a result, the Company can be exposed 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 may enter 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 (MTN) program, the Company periodically 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 related interest rates. To manage these risks, the Company enters into cross-currency interest rate swaps to convert these liabilities to a U.S. dollar rate. For a fixed rate foreign 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 U.S. 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 U.S. 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Company is exposed to changes in fair value of fixed rate investments denominated in a foreign currency due to changes in foreign currency exchange rates and related interest rates. To manage this risk, the Company uses cross-currency interest rate swaps to convert these assets to variable U.S. dollar rate instruments. 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 U.S. 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. A GMDB generally provides a benefit if the annuitant dies and the contract value is less than a contractually defined amount. Such specified amounts vary from contract to contract based on the date the contract was entered into as well as the GMDB feature elected. A decline in the stock market may cause the contract value to fall below this specified amount and the net amount at risk to increase. The net amount at risk is the amount by which the GMDB exceeds the contract value at any given time and is a primary indicator of potential future GMDB claims. To manage this risk, the Company has implemented a GMDB hedging program for certain new and existing business. The program, which is an economic hedge but does not qualify for hedge accounting under SFAS 133, as discussed in Note 2(c), is designed to offset a specified portion of changes in the value of the GMDB obligation. Currently the program shorts S&P 500 index futures, which in turn provides a partial 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 4 for additional discussion. The Company also offers certain variable annuity products with a GMAB rider. A 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. A GMAB is an embedded derivative, and 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 statements of income. 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 SFAS 133. See Note 2(c). Other Non-Hedging Derivatives The Company periodically enters into basis swaps (receive one variable rate, pay another variable rate) to better match the cash flows received from the specific variable-rate investments with the variable rate paid on a group of liabilities. 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. 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 investments provide 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED QUANTITATIVE DISCLOSURE Fair Value Hedges During the years ended December 31, 2004, 2003 and 2002, a net loss of $11.3 million, a net gain of $4.2 million and a net gain of $7.1 million, respectively, were recognized in net realized gains and losses on investments, hedging instruments and hedged items. This represents the ineffective portion of the fair value hedging relationships. There were no gains or losses attributable to the portion of the derivative 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 years ended December 31, 2004, 2003 and 2002, the ineffective portion of cash flow hedges was a net gain of $1.0 million, a net loss of $5.4 million and a net gain of $1.8 million, respectively. 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 $0.5 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, other than those relating to variable interest on existing financial instruments, 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 2004, 2003 and 2002, 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 due to the probability 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, 2004, 2003 and 2002 included a net gain of $8.1 million, a net gain of $11.8 million and a net loss of $2.2 million, respectively, related to other derivative instruments, including embedded derivatives, not designated in hedging relationships. For the years ended December 31, 2004, 2003 and 2002, a net loss of $5.9 million and net gains of $4.2 million and $120.4 million, respectively, were recorded in net realized gains and losses on investments, hedging instruments and hedged items reflecting the change in fair value of cross-currency interest rate swaps hedging variable rate MTNs denominated in foreign currencies. Additional net gains of $5.9 million and $0.9 million and a net loss of $119.6 million were recorded in net realized gains and 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, 2004, 2003 and 2002, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes the notional amount of derivative financial instruments outstanding as of December 31:
(in millions) 2004 2003 =================================================================================================================================== Interest rate swaps: Pay fixed/receive variable rate swaps hedging investments $ 1,891.5 $ 1,954.7 Pay variable/receive fixed rate swaps hedging investments 152.8 188.2 Pay variable/receive variable rate swaps 145.0 154.0 Pay variable/receive fixed rate swaps hedging liabilities 275.0 500.0 Pay variable/receive variable rate swaps hedging liabilities 280.0 430.0 Pay fixed/receive variable rate swaps hedging liabilities 275.0 - Other contracts hedging investments 43.9 10.0 Cross-currency interest rate swaps: Hedging foreign currency denominated investments 400.9 580.1 Hedging foreign currency denominated liabilities 2,028.8 2,643.9 Credit default swaps and other non-hedging instruments 836.0 832.5 Equity option contracts 190.9 - Futures contracts 387.0 2,615.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total $ 6,906.8 $ 9,909.2 ===================================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (7) INVESTMENTS The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale as of the dates indicated:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED (in millions) COST GAINS LOSSES FAIR VALUE =================================================================================================================================== =================================================================================================================================== December 31, 2004: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations $ 81.1 $ 13.9 $ 0.1 $ 94.9 Agencies not backed by the full faith and credit of the U. S. Government1 1,101.0 81.6 1.0 1,181.6 Obligations of states and political subdivisions 246.8 3.1 2.7 247.2 Debt securities issued by foreign governments 41.6 2.7 0.1 44.2 Corporate securities Public 10,192.0 448.9 26.4 10,614.5 Private 6,633.6 342.9 24.1 6,952.4 Mortgage-backed securities - U.S. Government-backed 4,628.8 59.5 16.3 4,672.0 Asset-backed securities 3,783.8 87.7 26.3 3,845.2 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 26,708.7 1,040.3 97.0 27,652.0 Equity securities 37.7 10.5 0.1 48.1 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total securities available-for-sale $ 26,746.4 $ 1,050.8 $ 97.1 $27,700.1 =================================================================================================================================== =================================================================================================================================== 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 Corporate securities Public 10,000.0 503.7 26.2 10,477.5 Private 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 securities available-for-sale $ 25,924.2 $ 1,251.5 $ 143.3 $ 27,032.4 =================================================================================================================================== ===================================================================================================================================
- --------- 1 During the fourth quarter of 2004, the Company began reporting separately amounts for agencies not backed by the full faith and credit of the U.S. Government. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The table below summarizes the amortized cost and estimated fair value of fixed maturity securities available-for-sale, by maturity, as of December 31, 2004. 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 $ 1,354.4 $ 1,375.3 Due after one year through five years 7,289.8 7,607.0 Due after five years through ten years 6,807.0 7,150.5 Due after ten years 2,844.9 3,002.0 - ------------------------------------------------------------------------------------------------------------------------------------ Subtotal 18,296.1 19,134.8 Mortgage-backed securities - U.S. Government-backed 4,628.8 4,672.0 Asset-backed securities 3,783.8 3,845.2 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 26,708.7 $ 27,652.0 ====================================================================================================================================
The following table presents the components of unrealized gains on securities available-for-sale, net, as of December 31:
(in millions) 2004 2003 ================================================================================================================================== Net unrealized gains, before adjustments and taxes $ 953.7 $ 1,108.2 Adjustment to DAC (144.6) (243.7) Adjustment to future policy benefits and claims (121.6) (110.6) Deferred federal income tax (240.6) (264.2) - ---------------------------------------------------------------------------------------------------------------------------------- Net unrealized gains $ 446.9 $ 489.7 ==================================================================================================================================
The following table presents an analysis of the net (decrease) increase in net unrealized gains on securities available-for-sale for the years ended December 31:
(in millions) 2004 2003 2002 =============================================================================================================================== Fixed maturity securities $ (153.3) $ 61.9 625.5 Equity securities (1.2) 12.4 (11.8) - ------------------------------------------------------------------------------------------------------------------------------- Net change $ (154.5) $ 74.3 613.7 ===============================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes by time the gross unrealized losses on securities available-for-sale in an unrealized loss position as of the dates indicated:
LESS THAN OR EQUAL MORE TOTAL TO 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, 2004: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations $ 5.7 $ 0.1 $ 0.2 $ - $ 5.9 $ 0.1 Agencies not backed by the full faith and credit of the U.S. Government1 179.9 1.0 - - 179.9 1.0 Obligations of states and political subdivisions 68.6 0.5 52.7 2.2 121.3 2.7 Debt securities issued by foreign governments - - 7.5 0.1 7.5 0.1 Corporate securities Public 1,522.3 17.9 291.5 8.5 1,813.8 26.4 Private 994.2 16.3 184.2 7.8 1,178.4 24.1 Mortgage-backed securities - U.S. - Government-backed 1,271.5 10.5 225.1 5.8 1,496.6 16.3 Asset-backed securities 728.0 15.4 229.3 10.9 957.3 26.3 - ----------------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities 4,770.2 61.7 990.5 35.3 5,760.7 97.0 Equity securities 0.7 0.1 - - 0.7 0.1 - ----------------------------------------------------------------------------------------------------------------------------------- Total $4,770.9 $ 61.8 $ 990.5 $ 35.3 $5,761.4 $ 97.1 =================================================================================================================================== % of gross unrealized losses 64% 36% December 31, 2003: Fixed maturity securities: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 154.4 $ 1.9 $ - $ - $ 154.4 $ 1.9 Obligations of states and political subdivisions 123.4 5.2 - - 123.4 5.2 Debt securities issued by foreign governments 19.9 0.8 - - 19.9 0.8 Corporate securities Public 1,236.7 24.5 31.7 1.7 1,268.4 26.2 Private 832.3 21.4 49.1 3.9 881.4 25.3 Mortgage-backed securities - U.S. Government-backed 984.9 21.7 5.3 0.1 990.2 21.8 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 losses 78.0% 22.0%
- --------- 1 During the fourth quarter of 2004, the Company began reporting separately amounts for agencies not backed by the full faith and credit of the U.S. Government. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Proceeds from the sale of securities available-for-sale during 2004, 2003 and 2002 were $2.49 billion, $2.22 billion and $1.53 billion, respectively. During 2004, gross gains of $61.5 million ($104.0 million and $42.0 million in 2003 and 2002, respectively) and gross losses of $8.7 million ($27.6 million and $16.6 million in 2003 and 2002, respectively) were realized on those sales. The Company had $18.0 million and $27.2 million of real estate investments as of December 31, 2004 and 2003, respectively, that were non-income producing during the preceding twelve months. Real estate is presented at cost less accumulated depreciation of $20.9 million as of December 31, 2004 ($22.4 million as of December 31, 2003). The carrying value of real estate held for disposal totaled $2.8 million and $10.5 million as of December 31, 2004 and 2003, respectively. The recorded investment of mortgage loans on real estate considered to be impaired was $30.0 million as of December 31, 2004 ($46.3 million as of December 31, 2003), for which the related valuation allowance was $7.6 million ($3.9 million as of December 31, 2003). 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 2004, the average recorded investment in impaired mortgage loans on real estate was $10.0 million ($15.4 million in 2003). Interest income recognized on those loans, which is recognized when received using the cash basis method of income recognition, totaled $1.6 million in 2004 ($3.3 million in 2003). The following table summarizes activity in the valuation allowance account for mortgage loans on real estate for the years ended December 31:
(in millions) 2004 2003 2002 ========================================================================================================================= Allowance, beginning of period $ 29.1 $ 43.4 $ 42.9 Net additions (reductions) charged (credited) to allowance 4.2 (14.3) 0.5 - ------------------------------------------------------------------------------------------------------------------------- Allowance, end of period $ 33.3 $ 29.1 $ 43.4 =========================================================================================================================
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 probable losses inherent in the loan portfolio 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes net realized losses on investments, hedging instruments and hedged items from continuing operations by source for the years ended December 31:
(in millions) 2004 2003 2002 =================================================================================================================================== =================================================================================================================================== Realized gains on sales, net of hedging losses: Fixed maturity securities available-for-sale $ 57.5 $ 98.5 $ 42.0 Hedging losses on fixed maturity sales (15.2) (42.4) (36.2) Equity securities available-for-sale 4.0 5.5 - Real estate 3.7 4.2 14.0 Mortgage loans on real estate 10.7 3.0 3.2 Mortgage loan hedging losses (4.0) (2.4) (1.2) Other 8.3 - 0.1 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total realized gains on sales 65.0 66.4 21.9 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Realized losses on sales, net of hedging gains: Fixed maturity securities available-for-sale (7.8) (27.2) (15.7) Hedging gains on fixed maturity sales 3.7 9.2 10.7 Equity securities available-for-sale (0.9) (0.4) (0.9) Real estate (1.2) (0.3) (3.0) Mortgage loans on real estate (6.8) (5.0) (3.3) Mortgage loan hedging gains 2.2 0.5 0.9 Other (1.9) (2.0) (1.0) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total realized losses on sales (12.7) (25.2) (12.3) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Other-than-temporary and other investment impairments: Fixed maturity securities available-for-sale (79.7) (159.4) (111.6) Equity securities available-for-sale (0.6) (8.0) - Real estate (3.2) (0.8) (2.4) Mortgage loans on real estate, including valuation allowance adjustment (7.1) 11.7 (6.3) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total other-than-temporary and other investment impairments (90.6) (156.5) (120.3) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Credit default swaps 0.3 13.3 (6.4) Periodic net coupon settlements on non-qualifying derivatives 6.6 15.6 8.9 Other derivatives (5.0) 1.2 9.5 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total unrelated parties (36.4) (85.2) (98.7) Gain on sale of limited partnership - related parties - - 23.2 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net realized losses on investments, hedging instruments and hedged items $ (36.4) $ (85.2) $ (75.5) =================================================================================================================================== ===================================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes net investment income from continuing operations by investment type for the years ended December 31:
(in millions) 2004 2003 2002 =================================================================================================================================== Securities available-for-sale: Fixed maturity securities $1,461.9 $ 1,453.1 $ 1,332.5 Equity securities 1.2 1.4 1.9 Mortgage loans on real estate 577.4 579.7 563.8 Real estate 17.9 21.7 26.8 Short-term investments 8.9 9.3 12.6 Derivatives (94.3) (107.2) (85.2) Other 78.4 64.8 31.0 - ----------------------------------------------------------------------------------------------------------------------------------- Gross investment income 2,051.4 2,022.8 1,883.4 Less investment expenses 50.9 49.7 50.5 - ----------------------------------------------------------------------------------------------------------------------------------- Net investment income $2,000.5 $ 1,973.1 $ 1,832.9 ===================================================================================================================================
Fixed maturity securities with an amortized cost of $52.3 million and $7.8 million as of December 31, 2004 and 2003, respectively, were on deposit with various regulatory agencies as required by law. As of December 31, 2004 and 2003, the Company had pledged fixed maturity securities with a fair value of $51.4 million and $101.2 million, respectively, as collateral to various derivative counterparties. As of December 31, 2004 and 2003, the Company had received $874.2 million and $976.6 million, respectively, of cash collateral on securities lending and $415.7 million and $544.5 million, respectively, of cash for derivative collateral. As of December 31, 2004, the Company had received $191.8 million of non-cash collateral on securities lending. Both the cash and non-cash collateral amounts are included in short-term investments with a corresponding liability recorded in other liabilities. As of December 31, 2004 and 2003, the Company had loaned securities with a fair value of $1.04 billion and $958.1 million, respectively. The Company also held $222.5 million and $163.0 million of securities as off-balance sheet collateral on derivative transactions as of December 31, 2004 and 2003, respectively. (8) 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, in 2002, the Company recorded an acceleration of DAC amortization totaling $347.1 million, before tax, or $225.6 million, net of $121.5 million of tax benefit, which has been reported in the following segments in the amounts indicated, net of tax: Individual Investments - $213.4 million, Retirement Plans - - $7.8 million and Individual Protection - $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, resetting the assumption for annual net separate account growth to 8% during the three-year reversion period for all investment products and variable life insurance products, and increasing the future lapses and costs related to GMDB on individual variable annuity contracts. These adjustments were primarily driven by the sustained downturn in the equity markets. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (9) 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) GMDB; (2) GMAB; and (3) 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. 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. The Company offers six primary GMDB types: 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. 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 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: (1) the benefit expires at age 86, and a credit of 4% of account value is deposited into the contract; and (2) the benefit does not 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 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, CONTINUED The following table summarizes the account values and net amount at risk, net of reinsurance, for variable annuity contracts with guarantees invested in both general and separate accounts as of the dates indicated:
DECEMBER 31, 2004 December 31, 2003 -------------------------------------------- ------------------------------------------- -------------------------------------------- ------------------------------------------- ACCOUNT NET AMOUNT WTD. AVG. Account Net amount Wtd. avg. (in millions) VALUE AT RISK1 ATTAINED AGE value at risk1 attained age ================================================================================================================================== ================================================================================================================================== GMDB: Return of premium $ 9,675.4 $ 54.1 59 $ 9,700.4 $ 199.8 56 Reset 17,315.9 153.2 62 17,021.2 569.4 61 Ratchet 9,621.0 42.3 64 7,793.4 140.9 63 Rollup 638.6 9.7 68 647.7 22.2 68 Combo 2,519.9 19.2 67 2,128.7 39.6 67 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Subtotal 39,770.8 278.5 62 37,291.4 971.9 61 Earnings enhancement 310.1 18.0 60 314.1 10.9 59 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Total - GMDB $40,080.9 $ 296.5 62 $ 37,605.5 $ 982.8 61 ================================================================================================================================== ================================================================================================================================== GMAB: 5 Year $ 460.6 $ 0.1 N/A $ 79.9 $ 0.1 N/A 7 Year 568.4 - N/A 125.5 0.4 N/A 10 Year 304.0 - N/A 43.4 0.1 N/A - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Total - GMAB $ 1,333.0 $ 0.1 N/A $ 248.8 $ 0.6 N/A ================================================================================================================================== ================================================================================================================================== GMIB2: Ratchet $ 437.7 $ - N/A $ 416.6 $ - N/A Rollup 1,188.2 - N/A 1,131.9 - N/A Combo 1.0 - N/A 1.1 - N/A - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Total - GMIB $ 1,626.9 $ - N/A $ 1,549.6 $ - 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. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table is a rollforward of the liabilities for guarantees on variable annuity contracts reflected in the Company's general account for the years indicated:
(in millions) GMDB GMAB GMIB TOTAL ============================================================================================================================== Balance as of December 31, 2002 $ 13.7 $ - $ - $ 13.7 Expense provision 30.0 - - 30.0 Net claims paid (21.9) - - (21.9) Value of new business sold - 4.7 - 4.7 Change in fair value - (0.4) - (0.4) - ------------------------------------------------------------------------------------------------------------------------------ Balance as of December 31, 2003 21.8 4.3 - 26.1 Expense provision 25.0 - 0.8 25.8 Net claims paid (23.2) - - (23.2) Value of new business sold - 24.7 - 24.7 Change in fair value - (8.4) - (8.4) - ------------------------------------------------------------------------------------------------------------------------------ Balance as of December 31, 2004 $ 23.6 $ 20.6 $ 0.8 $ 45.0 ==============================================================================================================================
The following table summarizes account balances of contracts with guarantees that were invested in separate accounts as of the dates indicated:
DECEMBER 31, December 31, (in millions) 2004 2003 ==================================================================================================================================== Mutual funds: Bond $ 4,136.8 $ 4,370.7 Domestic equity 27,402.4 24,612.9 International equity 1,831.3 1,508.4 - ------------------------------------------------------------------------------------------------------------------------------------ Total mutual funds 33,370.5 30,492.0 Money market funds 1,313.6 1,620.3 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 34,684.1 $ 32,112.3 ====================================================================================================================================
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 regularly evaluates estimates used and adjusts the additional liability balance as appropriate, with a related charge or credit to other benefits and claims in the period of evaluation 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 as of December 31, 2004 and December 31, 2003 (except where noted otherwise): o Data used was based on a combination of historical numbers and future projections involving 50 and 250 stochastically generated economic scenarios as of December 31, 2004 and 2003, respectively o Mean gross equity performance - 8.1% o Equity volatility - 18.7% o Mortality - 100% of Annuity 2000 table o Asset fees - equivalent to mutual fund and product loads o Discount rate - 8.0% NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Lapse rate assumptions vary by duration as shown below:
DURATION (YEARS) 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 embedded derivatives under SFAS 133, as amended, resulting in the related liabilities being separated from the host insurance product and recognized at fair value, with changes in fair value reported in earnings, and therefore, excluded from the SOP 03-1 policy benefits. GMIB claim reserves are determined each period by estimating the expected value of 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 regularly evaluates estimates used and adjusts the additional liability balance as appropriate, with a related charge or credit to other benefits and claims in the period of evaluation if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in calculating GMIB claim reserves are consistent with those used for calculating GMDB claim reserves. In addition, the calculation of 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. (10) SHORT-TERM DEBT The following table summarizes short-term debt as of December 31:
(in millions) 2004 2003 =================================================================================================================================== $800.0 million commercial paper program $ 134.7 $ 199.8 $350.0 million securities lending program facility 47.7 - $250.0 million securities lending program facility 32.6 - - ----------------------------------------------------------------------------------------------------------------------------------- Total short-term debt $ 215.0 $ 199.8 ===================================================================================================================================
The Company has available as a source of funds a $1.00 billion revolving credit facility entered into by NFS, NLIC and Nationwide Mutual Insurance Company (NMIC) with a group of national financial institutions. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility provides covenants, including, but not limited to, requirements that the Company maintain consolidated tangible net worth, as defined, in excess of $2.29 billion and NLIC maintain statutory surplus in excess of $1.56 billion. The Company had no amounts outstanding under this agreement as of December 31, 2004. NLIC also has an $800.0 million commercial paper program under which borrowings are unsecured and are issued for terms of 270 days or less. NLIC is required to maintain an available credit facility equal to 50% of any amounts outstanding under the commercial paper program. Therefore, borrowing capacity under the aggregate $1.00 billion revolving credit facility is reduced by 50% of any amounts outstanding under the commercial paper program. NLIC had $134.7 million and $199.8 million in commercial paper outstanding as of December 31, 2004 and 2003, respectively, at a weighted average effective interest rate of 2.14% in 2004 and 1.07% in 2003. NLIC 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 borrowing facility was established to fund commercial mortgage loans that were originated with the intent of sale through securitization. These loans are collateral for the facility. The maximum amount available under the agreement is $350.0 million. The borrowing rate on this program is equal to one-month U.S. LIBOR. NLIC had $47.7 million outstanding under this agreement as of December 31, 2004. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In addition to the agreement described above, NMIC 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 borrowing facility was established to fund commercial mortgage loans that were originated with the intent of sale through securitization. These loans are collateral for the facility. Because NLIC has a variable interest in the profits from the securitization of these loans, NLIC consolidates the assets and liabilities associated with these loans and the corresponding borrowings in accordance with FIN 46R. The maximum amount available under the agreement is $250.0 million. The borrowing rate on this program is equal to one-month U.S. LIBOR. NMIC had $32.6 million outstanding under this agreement as of December 31, 2004. The Company paid interest on short-term debt totaling $3.6 million, $1.3 million and $0.7 million in 2004, 2003 and 2002, respectively, including less than $0.1 million, $0.1 million and $0.5 million to NFS in 2004, 2003 and 2002, respectively. (11) LONG-TERM DEBT The following table summarizes surplus notes payable to NFS as of December 31:
(in millions) 2004 2003 ==================================================================================================================================== 8.15% surplus note, due June 27, 2032 $ 300.0 $ 300.0 7.50% surplus note, due December 17, 2031 300.0 300.0 6.75% surplus note, due December 23, 2033 100.0 100.0 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Total long-term debt $ 700.0 $ 700.0 ====================================================================================================================================
The Company made interest payments to NFS on surplus notes totaling $50.7 million in 2004, $47.1 million in 2003 and $30.1 million in 2002. Payments of interest and principal under the notes require the prior approval of the ODI. (12) FEDERAL INCOME TAX Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, the ultimate majority shareholder of NFS. Effective October 1, 2002, Nationwide Corporation's ownership in NFS decreased from 79.8% to 63.0%. Therefore, 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 (IRC) 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; and the direct non-life insurance companies under NLIC will file separate federal income tax returns, until 2008, when NFS becomes eligible to file a single life/non-life consolidated federal income tax return with all of its subsidiaries. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes the tax effects of temporary differences that give rise to significant components of the net deferred tax liability as of December 31:
(in millions) 2004 2003 ============================================================================================================================== DEFERRED TAX ASSETS: Future policy benefits $ 715.5 $ 594.8 Derivatives - 11.7 Other 117.0 104.4 - ------------------------------------------------------------------------------------------------------------------------------ Gross deferred tax assets 832.5 710.9 Less valuation allowance (7.0) (7.0) - ------------------------------------------------------------------------------------------------------------------------------ Deferred tax assets, net of valuation allowance 825.5 703.9 - ------------------------------------------------------------------------------------------------------------------------------ DEFERRED TAX LIABILITIES: Fixed maturity securities 318.2 390.0 Equity securities and other investments 20.9 42.7 Deferred policy acquisition costs 908.1 840.8 Derivatives 31.2 - Other 101.9 88.1 - ------------------------------------------------------------------------------------------------------------------------------ Gross deferred tax liabilities 1,380.3 1,361.6 - --------------------------------------------------------------------------------------------------------- ------------------- Net deferred tax liability $ 554.8 $ 657.7 ==============================================================================================================================
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 during 2004, 2003 and 2002. The Company's current federal income tax liability was $145.3 million and $106.3 million as of December 31, 2004 and 2003, respectively. The following table summarizes federal income tax expense attributable to income from continuing operations before the cumulative effect of adoption of accounting principles for the years ended December 31:
(in millions) 2004 2003 2002 ========================================================================================================================= Current $ 181.5 $ 106.7 $ 63.7 Deferred (61.5) (10.5) (55.0) - ------------------------------------------------------------------------------------------------------------------------- Federal income tax expense $ 120.0 $ 96.2 $ 8.7 =========================================================================================================================
The customary relationship between federal income tax expense and pre-tax income from continuing operations before the cumulative effect of adoption of accounting principles did not exist in 2002. This was because 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 8), which was 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, CONTINUED Total federal income tax expense for the years ended December 31, 2004, 2003 and 2002 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 the cumulative effect of adoption of accounting principles as follows:
2004 2003 2002 ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- (in millions) AMOUNT % Amount % Amount % ==================================================================================================================================== ==================================================================================================================================== Computed (expected) tax expense $ 187.2 35.0 $ 152.0 35.0 $ 59.3 35.0 Tax exempt interest and dividends (47.2) (8.8) (45.7) (10.5) (38.9) (22.9) received deduction Income tax credits (9.7) (1.8) (10.8) (2.5) (12.7) (7.5) Release of Phase III tax liability (5.1) (1.0) - - - - Other, net (5.2) (1.0) 0.7 0.1 1.0 0.5 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 120.0 22.4 $ 96.2 22.1 $ 8.7 5.1 ==================================================================================================================================== ====================================================================================================================================
The Jobs Creation Act of 2004 suspends policyholder surplus accounts (PSA) during 2005 and 2006 and provides that direct and indirect distributions from the PSA during any taxable year beginning after 2004 and before 2007 be treated as zero. Because NLIC has the ability and intent to distribute this PSA balance to its shareholder during the noted period, the potential tax liability was eliminated as of December 31, 2004 (see "Release of Phase III tax liability" above). The Jobs Creation Act of 2004 had no other significant impact on the Company's tax position. Total federal income tax paid was $142.3 million, $176.2 million and $71.0 million during the years ended December 31, 2004, 2003 and 2002, respectively. The 2002 amount includes $56.0 million for previously deferred intercompany gains for tax purposes that became due when NFS no longer qualified for inclusion in the NMIC consolidated federal income tax return. (13) SHAREHOLDERS' 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 exceeded the minimum risk-based capital requirements for all periods presented herein. The statutory capital and surplus of NLIC as of December 31, 2004 and 2003 was $2.39 billion and $2.23 billion, respectively. The statutory net income of NLIC for the years ended December 31, 2004, 2003 and 2002 was $317.7 million, $444.4 million and $92.5 million, respectively. The Company is limited in the amount of shareholder dividends it may pay without prior approval by the ODI. As of January 1, 2005, based on statutory financial results as of and for the year ended December 31, 2004, NLIC could pay dividends totaling $192.7 million without obtaining prior approval. On March 1, 2005, NLIC paid a $25.0 million dividend to NFS. 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 shareholder. The Company currently does not expect such regulatory requirements to impair its ability to pay future operating expenses, interest and shareholder dividends. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (14) COMPREHENSIVE INCOME Comprehensive income includes net income and certain items that are reported directly within separate components of shareholder's equity that bypass net income (other comprehensive income or loss). The following table summarizes the Company's other comprehensive (loss) income, before and after federal income tax benefit (expense), for the years ended December 31:
(in millions) 2004 2003 2002 ==================================================================================================================================== Net unrealized (losses) gains on securities available-for-sale arising during the period: Gross unrealized (losses) gains $ (182.0) $ (16.7) $ 527.5 Adjustment to deferred policy acquisition costs 99.1 56.9 (205.7) Adjustment to future policy benefits and claims (11.0) 22.6 (133.2) Related federal income tax benefit (expense) 33.3 (22.4) (66.0) - ------------------------------------------------------------------------------------------------------------------------------------ Net unrealized (losses) gains (60.6) 40.4 122.6 - ------------------------------------------------------------------------------------------------------------------------------------ Reclassification adjustment for net realized losses on securities available-for-sale realized during the period: Gross unrealized losses 27.5 91.0 86.2 Related federal income tax benefit (9.6) (31.8) (30.2) - ------------------------------------------------------------------------------------------------------------------------------------ Net reclassification adjustment 17.9 59.2 56.0 - ------------------------------------------------------------------------------------------------------------------------------------ Other comprehensive (loss) income on securities available-for- (42.7) 99.6 178.6 sale - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated net holding (losses) gains on cash flow hedges: Gross unrealized holding (losses) gains (47.4) (40.9) 16.9 Related federal income tax benefit (expense) 16.6 14.3 (5.9) - ------------------------------------------------------------------------------------------------------------------------------------ Other comprehensive (loss) income on cash flow hedges (30.8) (26.6) 11.0 - ------------------------------------------------------------------------------------------------------------------------------------ Total other comprehensive (loss) income $ (73.5) $ 73.0 $ 189.6 ====================================================================================================================================
Adjustments for net realized gains and losses on the ineffective portion of cash flow hedges were immaterial during the years ended December 31, 2004, 2003 and 2002, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (15) PENSION PLAN, POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND RETIREMENT SAVINGS PLAN The Company, together with other 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 issued by NLIC. All participants are eligible for benefits based on an account balance feature. Most participants are eligible for benefits based on the highest average annual salary of a specified number of consecutive years of the last ten years of service, if it is of greater value than the account balance feature. 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, 2004, 2003 and 2002 were $13.7 million, $13.2 million and $10.0 million, respectively. The Company recorded prepaid pension assets of $14.6 million and $7.7 million as of December 31, 2004 and 2003, respectively. 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 are 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 3% 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 Company's accrued postretirement benefit expense as of December 31, 2004 and 2003 was $49.3 million and $50.5 million, respectively. The net periodic benefit cost for the Company's postretirement benefit plan as a whole was $1.1 million, $1.1 million and $3.5 million for 2004, 2003 and 2002, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following tables summarizes information regarding the funded status of the Company's pension plan as a whole and the postretirement benefit plan as a whole, both of which are U.S. plans, as of the years ended December 31:
PENSION BENEFITS POSTRETIREMENT BENEFITS ----------------------------- ------------------------------ ----------------------------- ------------------------------ (in millions) 2004 2003 2004 2003 ==================================================================================================================================== CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 2,457.0 $ 2,236.2 $ 306.8 $ 269.7 Service cost 121.8 104.0 9.2 9.9 Interest cost 134.0 131.7 17.5 19.5 Participant contributions - - 4.1 4.2 Plan amendment - 1.6 (13.3) - Actuarial loss (gain) 125.7 85.1 (10.1) (2.8) Benefits paid (105.4) (101.6) (22.3) (20.4) Impact of plan merger - - - 26.7 - ------------------------------------------------------------------------------------------------------------------------------------ Benefit obligation at end of year 2,733.1 2,457.0 291.9 306.8 - ------------------------------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year 2,242.4 1,965.0 127.5 106.9 Actual return on plan assets 187.3 265.4 6.2 16.5 Employer contributions1 130.0 113.6 20.1 20.3 Participant contributions - - 4.1 4.2 Benefits paid1 (105.4) (101.6) (22.3) (20.4) - ------------------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 2,454.3 2,242.4 135.6 127.5 - ------------------------------------------------------------------------------------------------------------------------------------ Funded status (278.8) (214.6) (156.3) (179.3) Unrecognized prior service cost 25.8 30.3 (103.0) (103.3) Unrecognized net loss 298.2 192.1 48.0 56.9 Unrecognized net asset at transition (1.2) (2.5) - - - ------------------------------------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit cost, net $ 44.0 $ 5.3 $ (211.3) $ (225.7) ==================================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated benefit obligation $ 2,271.6 $ 2,020.2 N/A N/A ====================================================================================================================================
1 Employer contributions and benefits paid include only those amounts contributed directly to or paid directly from plan assets. As a result of the 2004 postretirement health plan change, the effect of a 1% increase or decrease in the assumed health care cost trend rate on the accumulated postretirement benefit obligation (APBO) as a whole as of December 31, 2004 is $1.7 million. There is no effect on the service and interest cost for the year because health care cost trend had no material effect on plan liabilities or expense prior to the plan change at the end of 2004. Prior to 2004, the postretirement health plan costs approximated the employer dollar caps, and the health care cost trend had an immaterial effect on plan obligations and expense for the postretirement benefit plan as a whole. For this reason, the effect of a 1% increase or decrease in the assumed health care cost trend rate on the APBO as of December 31, 2003 and on the net periodic benefit cost 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, CONTINUED 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% 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 all participating employers, including the Company, expect to contribute $125.0 million to the pension plan and $18.0 million to the postretirement benefit plan in 2005. The following table summarizes benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter:
PENSION POSTRETIREMENT (in millions) BENEFITS BENEFITS - ------------------------------------------------------------------------------------------------------------------------------ 2005 $ 110.2 $ 23.7 2006 112.0 20.6 2007 114.4 20.1 2008 117.6 19.6 2009 125.1 19.1 2010-2014 761.5 107.7 - ------------------------------------------------------------------------------------------------------------------------------
The following table summarizes the weighted average assumptions used to calculate the benefit obligations and funded status of the Company's pension plan as a whole and the postretirement benefit plan as a whole as of the December 31 measurement date for all plans:
PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------------------- ----------------------------- ---------------------------- ----------------------------- 2004 2003 2004 2003 =================================================================================================================================== =================================================================================================================================== Discount rate 5.00% 5.50% 5.70% 6.10% Rate of increase in future compensation levels 3.50% 4.00% - - Assumed health care cost trend rate: Initial rate - - 10%1 11.00%1 Ultimate rate - - 5.2%1 5.20%1 Declining period - - 10 YEARS 11 Years - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
- ------------ 1 The 2004 initial rate was 11.0% for participants over age 65, with an ultimate rate of 5.7%, and the 2003 initial rate was 12.0% for participants over age 65, with an ultimate rate of 5.6%. The pension plan employs a total return investment approach using a mix of equities and fixed income investments to maximize the long-term return on plan assets in exchange 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 liabilities 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 U.S. investment grade bonds, diversified high-yield U.S. securities, 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 continually 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, CONTINUED The following table summarizes the asset allocation for the Company's pension plan as a whole at the end of 2004 and 2003 and the target allocation for 2005, by asset category:
TARGET ALLOCATION PERCENTAGE PERCENTAGE OF PLAN ASSETS AT END OF ------------------------- ------------------------------- ------------------------- ------------------------------- Asset Category 2005 2004 2003 ================================================================================================================================== ================================================================================================================================== Equity securities 40 - 65% 48% 45% Debt securities 25 - 50% 52% 55% Real estate 0 - 10% - - - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Total - 100% 100% ================================================================================================================================== ==================================================================================================================================
The postretirement benefit plan employs a total return investment approach using a mix of equities and fixed income investments to maximize the long-term return on plan assets in exchange 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 generally include a retiree life insurance contract issued by NLIC. For retiree medical liabilities, plan investments include both a group annuity contract issued by NLIC backed by fixed investments with an interest rate guarantee and a separate account invested in diversified U.S. equities. Investment mix is measured and monitored continually through regular investment reviews, annual liability measurements and periodic asset/liability studies. The following table summarizes the asset allocation for the Company's postretirement benefit plan as a whole at the end of 2004 and 2003 and the target allocation for 2005, by asset category:
TARGET ALLOCATION PERCENTAGE PERCENTAGE OF PLAN ASSETS AT END OF --------------------------- --------------------------------- --------------------------- --------------------------------- Asset Category 2005 2004 2003 =================================================================================================================================== =================================================================================================================================== Equity securities 50 - 80% 60% 59% Debt securities 20 - 50% 35% 35% Other 0 - 10% 5% 6% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total - 100% 100% =================================================================================================================================== ===================================================================================================================================
The following table summarizes the components of net periodic benefit cost for the Company's pension plan as a whole for the years ended December 31:
(in millions) 2004 2003 2002 =================================================================================================================================== Service cost $ 121.8 $ 104.0 $ 103.3 Interest cost 134.0 131.7 135.6 Expected return on plan assets (167.7) (156.7) (178.6) Recognized net actuarial loss - 0.1 - Amortization of prior service cost 4.5 4.5 4.4 Amortization of unrecognized transition asset (1.3) (1.3) (1.3) - ----------------------------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $ 91.3 $ 82.3 $ 63.4 ===================================================================================================================================
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes the weighted average assumptions used to calculate the Company's net periodic pension cost, set at the beginning of each year, for the pension plan as a whole:
2004 2003 2002 =================================================================================================================================== Discount rate 5.50% 6.00% 6.50% Rate of increase in future compensation levels 4.00% 4.50% 4.75% Expected long-term rate of return on plan assets 7.25% 7.75% 8.25% - -----------------------------------------------------------------------------------------------------------------------------------
The Company employs a prospective building block approach in determining the expected long-term rate of return on 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 investments 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. Historical risk premiums are used to develop expected real rates of return for 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 into the process. 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 historical real rate of return is subtracted from these bonds to generate an assumed inflation rate. The expected long-term rate of return on 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. The following table summarizes the components of net periodic benefit cost for the Company's postretirement benefit plan as a whole for the years ended December 31:
(in millions) 2004 2003 2002 ============================================================================================================================= Service cost $ 9.2 $ 9.9 $ 13.2 Interest cost 17.5 19.5 22.5 Expected return on plan assets (8.9) (8.0) (9.2) Recognized net actuarial loss - - 0.6 Net amortization and deferral (12.1) (9.9) (0.5) - ----------------------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $ 5.7 $ 11.5 $ 26.6 =============================================================================================================================
The following table summarizes the weighted average assumptions used to calculate the Company's net periodic benefit cost, set at the beginning of each year, for the postretirement benefit plan as a whole:
2004 2003 2002 ============================================================================================================================= Discount rate 6.10% 6.60% 7.25% Expected long-term rate of return on plan assets 7.00% 7.50% 7.75% Assumed health care cost trend rate: Initial rate 11%1 11.3%1 11.00% Ultimate rate 5.2%1 5.7%1 5.50% Declining period 11 YEARS 11 Years 4 Years - -----------------------------------------------------------------------------------------------------------------------------
- ---------- 1 The 2004 initial rate was 11.0% for participants over 65, with an ultimate rate of 5.7%, and the 2003 initial rate was 12.0% for participants over age 65, with an ultimate rate of 5.6%. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 80%. Salary deferrals of up to 6% are subject to a 50% Company match. The Company's expense for contributions to these plans totaled $5.8 million, $5.5 million and $5.7 million for 2004, 2003 and 2002, respectively, including $0.5 million related to discontinued operations for 2002. (16) RELATED PARTY TRANSACTIONS The Company has entered into significant, recurring transactions and agreements with NMIC and other affiliates as a part of its ongoing operations. The nature of the transactions and agreements include annuity and life insurance contracts, reinsurance agreements, cost sharing agreements, administration services agreements, marketing agreements, office space leases, intercompany repurchase agreements and cash management services agreements. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, the number of full-time employees, 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 (NSC), 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, 2004, 2003 and 2002, the Company made payments to NMIC and NSC totaling $194.6 million, $170.4 million and $135.6 million, respectively. The Company does not believe that expenses recognized under these agreements are materially different than expenses that would have been recognized had the Company operated on a stand-alone basis. The Company 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 $5.75 billion and $5.22 billion as of December 31, 2004 and 2003, respectively. Total revenues from these contracts were $136.5 million, $138.9 million and $143.3 million for the years ended December 31, 2004, 2003 and 2002, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances was $107.9 million, $111.8 million and $114.8 million for the years ended December 31, 2004, 2003 and 2002, 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 to the Company's customers as investment options in certain of the Company's products. As of December 31, 2004 and 2003, customer allocations to GGI funds totaled $14.06 billion and $12.80 billion, respectively. For the years ended December 31, 2004 and 2003, GGI paid the Company $44.5 million and $38.6 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. 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, 2004, 2003 and 2002 were $335.6 million, $286.7 million and $325.0 million, respectively, while benefits, claims and expenses ceded were $336.0 million, $247.5 million and $328.4 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 $23.2 million, $24.8 million and $24.9 million for the years ended December 31, 2004, 2003 and 2002, respectively. The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 2004, 2003 and 2002, the Company made lease payments to NMIC and its subsidiaries of $18.4 million, $17.5 million and $20.2 million, respectively. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Company also participates in intercompany repurchase agreements with affiliates whereby the seller transfers 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, 2004 and 2003, the Company had no borrowings from affiliated entities under such agreements. During 2004, 2003 and 2002, the most the Company had outstanding at any given time was $227.7 million, $126.0 million and $224.9 million, respectively, and the amounts the Company incurred for interest expense on intercompany repurchase agreements were immaterial. 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 $498.4 million and $688.7 million as of December 31, 2004 and 2003, respectively, and are included in short-term investments on the consolidated balance sheets. For each of the years in the three-year period ending December 31, 2004, the Company paid NCMC fees and totaling less than $0.1 million under this agreement. The Company purchased fixed maturity securities available-for-sale from NFN totaling $829.9 million during the year ended December 31, 2004. NFN recorded gross realized gains of $23.4 million on these transactions. Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the years ended December 31, 2004, 2003 and 2002 were $63.1 million, $62.0 million and $50.3 million, respectively. Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, as discussed in more detail in Note 12. Beginning October 1, 2002, NLIC files a consolidated federal income tax return with NLAIC. Total payments to NMIC were $37.4 million, $2.4 million and $71.0 million in the years ended December 31, 2004, 2003 and 2002, respectively. Payments made in 2004 and 2003 relate to tax years prior to deconsolidation. 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 the first quarter of 2003, NLIC received a $200.0 million capital contribution from NFS for general corporate purposes. On March 1, 2005, NLIC paid a $25.0 million dividend to NFS. In 2004 and 2003, NLIC paid dividends to NFS totaling $125.0 million and $60.0 million, respectively. During 2003, NLIC returned capital totaling $100.0 million 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. Therefore, the results of operations of NSI have been reflected as discontinued operations for all periods presented. This was a related party transaction and thus was recorded at the $10.0 million carrying value of the underlying components of the transaction rather than at fair value. This amount represents a non-cash transaction that is not reflected in the consolidated statement of cash flows. In December 2001, NLIC issued to NFS a 7.50%, $300.0 million surplus note maturing on December 17, 2031. In June 2002, NLIC issued to NFS an 8.15%, $300.0 million surplus note maturing June 27, 2032. In December 2003, NLIC issued to NFS a 6.75%, $100.0 million surplus note maturing December 23, 2033. The Company made interest payments on surplus notes to NFS totaling $50.7 million, $47.1 million and $30.1 million in 2004, 2003 and 2002, respectively. In addition, the Company made interest payments on unsecured notes to NFS totaling less than $0.1 million, $0.1 million and $0.5 million in 2004, 2003 and 2002, respectively. As of December 31, 2004, 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, CONTINUED (17) CONTINGENCIES The Company is a party to litigation and arbitration proceedings in the ordinary course of its business. It is not possible to determine the ultimate outcome of the pending investigations and legal proceedings or to provide reasonable ranges of potential losses. Some of the matters referred to below are in very preliminary stages, and the Company does not have sufficient information to make an assessment of plaintiffs' claims for liability or damages. In some of the cases seeking to be certified as class actions, the court has not yet decided whether a class will be certified or (in the event of certification) the size of the class and class period. In many of the cases, plaintiffs are seeking undefined amounts of damages or other relief, including punitive damages and equitable remedies, that are difficult to quantify and cannot be defined based on the information currently available. The Company does not believe, based on information currently known by the Company's management, that the outcomes of such pending investigations and legal proceedings are likely to have a material adverse effect on the Company's consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could have a material adverse effect on the Company's consolidated financial results in a particular quarterly or annual period. 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. The financial services industry, including mutual fund, variable annuity, life insurance and distribution companies, has also been the subject of increasing scrutiny by regulators, legislators and the media over the past two years. Numerous regulatory agencies, including the SEC, the NASD and the New York State 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 and life insurance companies on those issues. The Company has been contacted by the SEC and the New York State Attorney General, who are investigating market timing in certain mutual funds offered in insurance products sponsored by the Company. The Company is cooperating with this investigation and is responding to information requests. In addition, state and federal regulators have commenced investigations or other proceedings relating to compensation and bidding arrangements and possible anti-competitive activities between insurance producers and brokers and issuers of insurance products, and unsuitable sales by producers on behalf of either the issuer or the purchaser. Also under investigation are compensation arrangements between the issuers of variable insurance contracts and mutual funds or their affiliates. Related investigations and proceedings may be commenced in the future. The Company has been contacted by regulatory agencies and state attorneys general for information relating to investigations into these compensation and bidding arrangements, anti-competitive activities and unsuitable sales practices. The Company is cooperating with regulators in connection with these inquiries. NMIC, NFS' ultimate parent, has been contacted by certain regulators for information on these issues with respect to its operations and the operations of its subsidiaries, including the Company. The Company will cooperate with NMIC in responding to these inquiries to the extent that any inquiries encompass its operations. These proceedings are expected to continue in the future, and could result in legal precedents and new industry-wide legislation, rules and regulations that could significantly affect the financial services industry, including life insurance and annuity companies. These proceedings could also affect the outcome of one or more of the Company's litigation matters. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED On April 13, 2004, NLIC was named in a class action lawsuit filed in Circuit Court, Third Judicial Circuit, Madison County, Illinois, entitled Woodbury v. Nationwide Life Insurance Company. The plaintiff purports to represent a class of persons in the United States who, through their ownership of a Nationwide annuity or insurance product, held units of any Nationwide sub-account invested in mutual funds which included foreign securities in their portfolios and which allegedly experienced market timing trading activity. The complaint contains allegations of negligence, reckless indifference and breach of fiduciary duty. The plaintiff seeks to recover compensatory and punitive damages in an amount not to exceed $75,000 per plaintiff or class member. NLIC removed this case to the United States District Court for the Southern District of Illinois on June 1, 2004. The plaintiffs moved to remand on June 28, 2004. On July 12, 2004, NLIC filed a memorandum opposing remand and requesting a stay pending the resolution of an unrelated case covering similar issues, which is an appeal from a decision of the same District Court remanding a removed market timing case to an Illinois state court. On July 30, 2004, the U.S. District Court granted NLIC's request for a stay pending a decision by the Seventh Circuit on the unrelated case mentioned above. On December 27, 2004, the case was transferred to the United States District Court for the District of Maryland and included in the multi-district proceeding there entitled In Re Mutual Funds Investment Litigation. This lawsuit is in a preliminary stage, and NLIC intends to defend it vigorously. On January 21, 2004, the Company was named in a lawsuit filed in the United States District Court for the Northern District of Mississippi entitled 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, plaintiff United Investors alleges that the Company and/or its affiliated life insurance companies caused the replacement of variable insurance policies and other financial products issued by United Investors with policies issued by the Nationwide defendants. The plaintiff raises claims for (1) violations of the Federal Lanham Act, and common law unfair competition and defamation, (2) tortious interference with the plaintiff's contractual relationship with Waddell & Reed, Inc. and/or its affiliates, Waddell & Reed Financial, Inc., Waddell & Reed Financial Services, Inc. and W&R Insurance Agency, Inc., or with the plaintiff's contractual relationships with its variable policyholders, (3) civil conspiracy, and (4) breach of fiduciary duty. The complaint seeks compensatory damages, punitive damages, pre- and post-judgment interest, a full accounting, a constructive trust, and costs and disbursements, including attorneys' fees. The Company filed a motion to dismiss the complaint on June 1, 2004. On February 8, 2005 the court denied the motion to dismiss. The Company intends to defend this lawsuit vigorously On October 31, 2003, NLIC was named in a lawsuit seeking class action status filed in the United States District Court for the District of Arizona entitled Robert Helman et al v. Nationwide Life Insurance Company et al. The suit challenges the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans. On April 8, 2004, the plaintiff filed an amended class action complaint on behalf of all persons who purchased an individual variable deferred annuity contract or a certificate to a group variable annuity contract issued by NLIC or Nationwide Life and Annuity Insurance Company (NLAIC) which were allegedly used to fund certain tax-deferred retirement plans. The amended class action complaint seeks unspecified compensatory damages. NLIC filed a motion to dismiss the complaint on May 24, 2004. On July 27, 2004, the court granted NLIC's motion to dismiss. The plaintiff has appealed that dismissal to the United States Court of Appeals for the Ninth Circuit. NLIC intends to defend this lawsuit vigorously. On May 1, 2003, NLIC was named in a class action lawsuit filed in the United States District Court for the Eastern District of Louisiana entitled 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. The 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. The 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. The 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. NLIC's motion to dismiss the complaint was granted by the District Court on October 28, 2003. The plaintiff appealed that dismissal to the United States Court of Appeals for the Fifth Circuit. On November 22, 2004, the Fifth Circuit Court of Appeals affirmed the judgment of the District Court dismissing the complaint. The time for further appeal by the plaintiff has expired. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED On August 15, 2001, the Company was named in a lawsuit filed in the United States District Court for the District of Connecticut entitled 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 5, 2001 to include class action allegations and have subsequently amended their complaint three times. As amended, in the current complaint the plaintiffs seek to represent a class of ERISA qualified retirement plans that purchased variable annuities from NLIC. The plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts and that the Company breached ERISA fiduciary duties by allegedly accepting service payments from certain mutual funds. The complaint seeks disgorgement of some or all of the payments allegedly received by the Company, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys' fees. On December 13, 2001, the plaintiffs filed a motion for class certification. The plaintiffs filed a supplement to that motion on September 19, 2003. The Company opposed that motion on December 24, 2003. On July 6, 2004, the Company filed a Revised Memorandum in Support of Summary Judgment. The plaintiffs have opposed that motion. The Company intends to defend this lawsuit vigorously. (18) SECURITIZATION TRANSACTIONS The Company has sold $469.3 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 4.60% to 5.25% over periods ending between 2002 and 2021 and as of December 31, 2004 held guarantee reserves totaling $4.7 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. If 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 $1.27 billion. The Company does not anticipate making any payments related to the guarantees. At the time of the sales, $5.1 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 others. Properties meeting the necessary criteria are considered to have "stabilized." The properties are evaluated regularly, and the collateral is released when stabilized. During 2004 and 2003, $0.1 million and $3.1 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 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) VARIABLE INTEREST ENTITIES As of December 31, 2004, the Company had relationships with 14 VIEs where the Company was 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 Tax Credit Funds to third party investors where the Company provides guaranteed returns (see Note 18). Effective January 1, 2004, the Company began applying the provisions of FIN 46R to these entities. FIN 46R did not require the restatement of any prior periods. As such, for periods subsequent to December 31, 2003, the results of operations and financial position of these VIEs are included along with corresponding minority interest liabilities and related income in the accompanying consolidated financial statements. The net assets of these VIEs totaled $366.4 million as of December 31, 2004. The most significant components of net assets were $32.1 million of mortgage loans on real estate, $401.2 million of other long-term investments, $35.6 million of other assets, $32.6 million of short-term debt, and $116.3 million of other liabilities. The total exposure to loss on these VIEs where the Company is the primary beneficiary was less than $0.1 million as of December 31, 2004. For the mortgage loan VIE, to which the short-term debt relates, 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, CONTINUED In addition to the VIEs described above, the Company holds variable interests, in the form of limited partnerships or similar investments, in a number of Tax Credit Funds where the Company is not the primary beneficiary. These investments have been held by the Company for periods of 1 to 8 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 other securitization transactions that qualify as VIEs, but for which the Company is not the primary beneficiary. The total exposure to loss on these VIEs was $36.3 million as of December 31, 2004. (20) SEGMENT INFORMATION Management of the Company views its business primarily based on the underlying products, and this is the basis used for defining its reportable segments. During the second quarter of 2004, the Company reorganized its segment reporting structure and now reports four segments: Individual Investments, Retirement Plans, Individual Protection, and Corporate and Other. The Company has reclassified segment results for all prior periods presented to be consistent with the new reporting structure. The primary segment profitability measure that management uses is pre-tax operating earnings, which is calculated by adjusting income from continuing operations before federal income taxes and the cumulative effect of adoption of accounting principles, if any, to exclude net realized gains and losses on investments, hedging instruments and hedged items, except for periodic net coupon settlements on non-qualifying derivatives and realized gains and losses related to securitizations, if any. The Individual Investments segment consists of individual The BEST of AMERICA(R) and private label deferred variable annuity products, deferred fixed annuity products, income products, and advisory services program revenues and expenses. This segment differs from the former Individual Annuity segment due to the addition of the advisory services program results. 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, individual 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 individual fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods. The Retirement Plans segment is comprised of the Company's private- and public-sector retirement plans business. This segment differs from the former Institutional Products segment because it no longer includes the results of the structured products and MTN businesses. The private sector includes IRC Section 401(k) business and the public sector includes IRC Section 457 and Section 401(a) business, both in the form of fixed and variable annuities. The Individual Protection segment consists of investment life insurance products, including individual variable, COLI and BOLI products, traditional life insurance products and universal life insurance. This segment is unchanged from the former Life Insurance segment. Life insurance products provide a death benefit and generally allow the customer to build cash value on a tax-advantaged basis. The Corporate and Other segment includes certain structured products business, the MTN program, net investment income not allocated to product segments, periodic net coupon settlements on non-qualifying derivatives, unallocated expenses, interest expense on debt, revenue and expenses of the Company's non-insurance subsidiaries not reported in other segments, and realized gains and losses related to securitizations. This segment differs from the former Corporate segment as it now includes results from the structured products and MTN businesses, but no longer includes results from the advisory services program. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table summarizes the Company's business segment operating results for the years ended December:
INDIVIDUAL RETIREMENT INDIVIDUAL (in millions) INVESTMENTS PLANS PROTECTION ======================================================================================================== 2004 REVENUES: Net investment income $ 824.8 $ 627.9 $ 327.2 Other operating revenue 591.7 157.0 547.5 Net realized losses on investments, hedging instruments and hedged items1 - - - - -------------------------------------------------------------------------------------------------------- Total revenues 1,416.5 784.9 874.7 - -------------------------------------------------------------------------------------------------------- Benefits and expenses: Interest credited to policyholder account values 573.5 435.5 181.5 Amortization of DAC 276.1 39.6 94.4 Interest expense on debt - - - Other benefits and expenses 346.9 184.5 428.2 - -------------------------------------------------------------------------------------------------------- Total benefits and expenses 1,196.5 659.6 704.1 - -------------------------------------------------------------------------------------------------------- Income from continuing operations before federal income tax expense 220.0 125.3 170.6 Net realized losses on investments, hedging instruments and hedged items1 - - - - -------------------------------------------------------------------------------------------------------- Pre-tax operating earnings $ 220.0 $ 125.3 $ 170.6 ======================================================================================================== - -------------------------------------------------------------------------------------------------------- Assets as of period end $ 52,642.5 $ 29,668.7 $ 12,932.4 ======================================================================================================== 2003 REVENUES: Net investment income $ 807.9 $ 640.2 $ 324.3 Other operating revenue 517.7 150.0 536.2 Net realized losses on investments, hedging instruments and hedged items1 - - - - -------------------------------------------------------------------------------------------------------- Total revenues 1,325.6 790.2 860.5 - -------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Interest credited to policyholder account values 602.5 443.2 185.6 Amortization of DAC 228.4 45.6 101.9 Interest expense on debt - - - Other benefits and expenses 328.4 178.9 423.0 - -------------------------------------------------------------------------------------------------------- Total benefits and expenses 1,159.3 667.7 710.5 - -------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before federal income tax expense 166.3 122.5 150.0 Net realized losses on investments, hedging instruments and hedged items1 - - - - -------------------------------------------------------------------------------------------------------- Pre-tax operating earnings $ 166.3 $ 122.5 $ 150.0 ======================================================================================================== - -------------------------------------------------------------------------------------------------------- Assets as of period end $ 49,419.2 $ 29,226.9 $ 11,286.6 ========================================================================================================
CORPORATE AND OTHER TOTAL ================================= $ 220.6 $ 2,000.5 15.8 1,312.0 (43.0) (43.0) - --------------------------------- 193.4 3,269.5 - --------------------------------- 86.7 1,277.2 - 410.1 59.3 59.3 28.3 987.9 - --------------------------------- 174.3 2,734.5 - --------------------------------- 19.1 535.0 =============== 43.0 - ------------------ $ 62.1 ================== - --------------------------------- $ 10,714.3 $105,957.9 ================================= $ 200.7 $ 1,973.1 28.4 1,232.3 (100.8) (100.8) - --------------------------------- 128.3 3,104.6 - --------------------------------- 77.9 1,309.2 - 375.9 48.4 48.4 6.4 936.7 - --------------------------------- 132.7 2,670.2 - --------------------------------- (4.4) $ 434.4 =============== 100.8 - ------------------ $ 96.4 ================== - --------------------------------- $ 10,695.0 $ 100,627.7 ================================= 1 Excluding periodic net coupon settlements on non-qualifying derivatives. NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF NATIONWIDE FINANCIAL SERVICES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
INDIVIDUAL RETIREMENT INDIVIDUAL CORPORATE (in millions) INVESTMENTS PLANS PROTECTION AND OTHER TOTAL ==================================================================================================================================== ==================================================================================================================================== 2002 REVENUES: Net investment income $ 668.5 $ 648.5 $ 328.6 $ 187.3 $ 1,832.9 Other operating revenue 526.2 169.8 537.7 17.6 1,251.3 Net realized losses on investments, hedging instruments and hedged items1 - - - (84.4) (84.4) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues 1,194.7 818.3 866.3 120.5 2,999.8 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES: Interest credited to policyholder account values 505.9 460.7 186.4 91.4 1,244.4 Amortization of DAC 528.2 53.7 88.2 - 670.1 Interest expense on debt - - - 36.0 36.0 Other benefits and expenses 285.6 167.8 420.2 6.2 879.8 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Total benefits and expenses 1,319.7 682.2 694.8 133.6 2,830.3 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before federal income tax expense (125.0) 136.1 171.5 (13.1) $ 169.5 =============== =============== Net realized losses on investments, hedging instruments and hedged items1 - - - 84.4 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Pre-tax operating earnings (loss) $ (125.0) $ 136.1 $ 171.5 $ 71.3 ===================================================================================================================== ===================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Assets as of period end $ 40,994.0 $ 26,182.4 $ 9,704.2 $ 9,142.0 $ 86,022.6 ==================================================================================================================================== ====================================================================================================================================
- ---------- 1 Excluding periodic net coupon settlements on non-qualifying derivatives. -----END PRIVACY-ENHANCED MESSAGE-----