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['95 GRAPHIC]
Nationwide(R) Variable Account - II
June 30, 1995
[THE BEST OF AMERICA LOGO]
SEMI-ANNUAL REPORT
In cooperation with:
Dreyfus Corporation
Fidelity Investments
Nationwide Financial Services, Inc.
Neuberger & Berman Management Incorporated
Oppenheimer Management Corporation
Strong Funds
Twentieth Century Companies
Van Eck Associates Corporation
[NATIONWIDE LOGO]
Nationwide Life Insurance Company
Home Office: Columbus, Ohio
APO-725-S (6/95)
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[NATIONWIDE LOGO]
[PHOTO]
PRESIDENT'S MESSAGE
We are pleased to present the 1995 semi-annual report of the Nationwide
Variable Account-II.
The first half of 1995 proved rewarding for both stock and bond fund investors.
During this period, stock funds as a group scored a gain of almost 17 percent
while bond funds were ahead by over 9 percent, as measured by Lipper Analytical
Services, Inc.
The economy slowed during the second quarter in deference to the Federal
Reserve's goal of a "soft landing". In early July the Fed trimmed the federal
funds rate 25 basis points, the first easing by the Fed in almost three years.
This move provided additional fuel to the markets in the current quarter.
Continued low inflation, favorable corporate earnings and slow but sustainable
economic growth should support further advances in the equity and fixed income
markets for the remainder of the year and into 1996.
We extend our thanks that you have selected our investment products to help
you meet your financial planning and retirement needs.
/s/ PETER F. FRENZER
----------------------------
Peter F. Frenzer, President
Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
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CONTENTS
HOW TO READ THE SEMI-ANNUAL REPORT.........................................4
Explanation on how to read and understand
the various financial reports
A FEW WORDS ABOUT OUR FUNDS................................................6
Fund Objectives and Narratives
written by the fund managers*
FUND PERFORMANCES..........................................................26
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY...............30
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY.................................................31
NOTES TO FINANCIAL STATEMENTS..............................................32
SCHEDULES OF CHANGES IN UNIT VALUE.........................................37
* The discussions refer to two stock market indexes. The Standard & Poor's 500
Index (S&P 500) is an unmanaged index of 500 U.S. common stocks and the
historical performance assumes the reinvestment of dividends. The Morgan Stanley
Capital International Europe, Australia, Far East (EAFE) index is an unmanaged
index of more than 900 companies from these regions. The EAFE Index reflects the
prices of these common stocks translated into U.S. dollars with dividends
reinvested net of any foreign taxes.
The performance figures quoted by the fund managers may not include the annual
mortality, expense and administration charges of the annuity contract.
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HOW TO READ THE SEMI-ANNUAL REPORT
This Semi-Annual Report is sent to all customers who own a Nationwide annuity
with all or some of the funds in the Nationwide Variable Account-II (the
Account). The Account is a separate account trust which invests in twenty-seven
mutual funds* from nine mutual fund houses. An explanation of the funds and
their objectives can be found on pages 6 through 25.
The Semi-Annual Report has three major financial sections.
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
This statement, found on page 30, lists all the funds in the Account, the number
of shares owned, the amount paid for the shares (i.e., cost) and their market
value on June 30, 1995. The funds are presented in alphabetical order by
investment company. The market value of the assets change as the underlying
mutual fund shares change in value. As contract owners make exchanges between
the funds, the number of shares in each fund increases and decreases. When money
is deposited by contract owners, shares of the mutual funds are bought by the
Account. The total market value of the funds is equal to the Total investments.
Accounts receivable, if applicable, is an asset of the Account for money market
fund shares added to the contract owners' accounts, but not yet added to Total
investments. Total investments plus Accounts receivable equals Total assets.
Accounts payable, if applicable, is a liability of the Account for money market
fund shares deducted from the contract owners' accounts, but not yet deducted
from Total investments.
Total assets minus Accounts payable equals Contract owners' equity. For a
summary of Contract owners' equity by fund series turn to page 34.
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
These statements, found on page 31, show the activity in the Account from
January 1 to June 30, 1995, 1994 and 1993.
The Investment activity section shows the changes in unrealized gain or loss of
the mutual funds in the Account, realized gain or loss as shares of the funds
are bought and sold, and dividends and capital gains earnings from the
underlying mutual funds.
The Equity transactions section illustrates the purchase payments received by
the Account as new contracts are sold, existing contract owners deposit
additional funds, contracts are canceled and annuity benefits are paid.
Expenses are the charges associated with the contract. Note 2 on page 33
outlines these charges.
Net change in contract owners' equity equals Investment activity plus Equity
transactions minus Expenses.
The Contract owners' equity at the beginning of the period plus the Net change
in contract owners' equity equals the Contract owners' equity at the end of the
period. Contract owners' equity at the end of the calendar year will equal the
Contract owners' equity at the beginning of the next year.
* The three American Variable Insurance Series funds are not available for new
contracts.
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SCHEDULES OF CHANGES IN UNIT VALUE
As a contract owner, you invest in the mutual funds offered in your annuity
contract. However, you do not buy shares of the mutual fund. Instead, the
Account buys shares of the fund and you in turn purchase units of the Account.
Except for the units surrendered for the annual contract maintenance charge, the
number of units you own will not change unless you contribute to or withdraw
money from your account. The value of your contract can change based on the
value of the units you own. For example, if you purchase 100 units at $10 per
unit, the value of your contract is $1,000. If the value of the units increases
to $12 per unit, your contract value increases to $1,200. Therefore, to
determine the value of your account, multiply the number of units of each fund
you own by the fund's unit value.
The Schedules of Changes in Unit Value show you the unit value at the beginning
of the period and at the end of the period. The percentage increase (decrease)
in unit value shows how it changed in value. This is computed by subtracting the
beginning unit value from the ending unit value and dividing the difference by
the beginning unit value. This can be used as a measure of the performance of
the funds over the three semi-annual periods reported.
As you review the following pages of the Semi-Annual Report, the Notes to
Financial Statements on page 32 will also help explain and clarify the various
statements and schedules.
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A FEW WORDS ABOUT OUR FUNDS
[DREYFUS LOGO]
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
OBJECTIVE - To attain long term superior growth through investment in companies
that are socially responsible in several aspects: employee relations, the
environment, product liability, weapons manufacturing, community relations,
women and minority hiring.
NARRATIVE BY DREYFUS CORPORATION
The first six months of 1995 have represented a period of new directions for
the Socially Responsible Growth Fund. Our firm, NCM Capital Management Group
was retained as sub-advisor August of 1994 and the fund was fully-transitioned
to our portfolio management style by December of 1994. In our letter to the
shareholders at that time we outlined our growth-oriented investment style and
the specific changes that the fund had undergone in the first half of the
fiscal year. Many of those changes are beginning to bear fruit as the returns
for the portfolio have begun an upward trend that we believe is indicative of
the fund's longer term prospects. In fact on a calendar year basis (since
12/31/94), the Socially Responsible Growth Fund has been a top-rated
socially-responsible fund in terms of performance among actively-managed funds.
However, the fund does still trail the S&P 500 index for the calendar
year-to-date (17.76% vs. 20.19% for the S&P 500), as would be expected, because
of the broad transitioning of the portfolio. Additionally, it is important to
note that 1994 and the first half of 1995 has been a period of much stock
market volatility, making it a particularly difficult time to transition a
portfolio. However, we feel that shareholders will be pleased with the recent
improvement in performance.
The most salient issue confronting the equity markets in 1994 was the Federal
Reserve's vigilance in fighting inflation and overly expansive economic growth.
The Fed did this by raising interest rates an unprecedented seven times in a
12-month period. The hope was that by doing so businesses would seek to grow
their bottom lines via productivity enhancements and market share growth rather
than simply raising prices, as has been the case in previous economic cycles.
The volatility that ensued made for a difficult environment for money managers.
Despite this environment our management team made several portfolio changes
that have contributed to the fund's status as a top-rated socially-responsible
fund on a year-to-date basis. In other words, the recent positive trends are
indicative of the longer term prospects for the Socially Responsible Growth
Fund.
In terms of the economic sectors of the fund, we changed many of the
weightings. We cut the Basics sector weighting in half. Basics include
chemicals, paper and forest products, and metals. The pricing environment for
these companies became more negative as the Fed made it clear that inflation
was going to be controlled in this economic cycle. We reorganized our weighting
in the Consumer Cyclical sector as it became obvious that the consumer's high
debt position was preventing their participation in the economic expansion. We
moved into names that would be less sensitive to consumer spending. The most
strategic change we made was to further increase our weightings in the more
traditional growth sectors of the economy, namely Consumer Staples (which
include foods and health care) and Technology. These moves, in combination with
the others did the most to dramatically improve the fund's performance. Our
weightings went from significantly underweighted to market weighted in the
Consumer Staples and from market weighted to overweighted in Technology.
Consequently, the average growth rate of securities in the portfolio rose
significantly, as did the trade-off of average value for average unit of
growth. In other words, we greatly improved the risk/return trade-off of the
average security in the portfolio.
+ "Standard & Poor's 500", "S&P 500(R)" are trademarks of the
Standard & Poor's Corporation and have been licensed for use. The fund is
not sponsored, endorsed, sold or promoted by Standard & Poor's Corporation.
++ Formerly the Dreyfus Life and Annuity Index Fund.
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SOCIALLY RESPONSIBLE GROWTH FUND (CONT'D)
Other secondary sector adjustments we made were in the Financials and
Utilities. We feel that it is appropriate to focus the portfolio into areas
that will provide above average growth relative to the broad market averages
and therefore chose to reduce the weightings in these two areas. However, we
did concentrate the weightings into the stocks of aggressively growing stocks
in both sectors. In the Financial area we focused on fee-oriented businesses,
which are less likely to be impacted by changes in interest rates and in
Utilities we are focused on names that should experience good long term secular
growth because of technological or new product advancements.
Year-to-date there are many individual securities that have contributed nicely
to the positive performance trends of the fund. In the Consumer Cyclical
sector, Capital Cities ABC, Walt Disney, Nike, and Phillips Electronics have
had superior performance. These names represent secular growth stocks that will
grow regardless of the economic environment because of globally-oriented,
diversified operations. Among Consumer Staple stocks in the portfolio that have
contributed to performance, Coca-Cola, Colgate-Palmolive, IBP, Inc., Amgen,
Medtronic, and Merck are a few standouts. The food, beverage and household
products companies have benefited from more positive investor sentiment toward
their long term, globally-driven growth rates. The health care stocks benefited
from an improved outlook for their operations due to the collapse of the
Clinton health care reform initiative.
Stock selection in the Financial area contributed mightily to the fund's
positive results as did a more benign interest rate outlook. Advanta, a credit
card company, and banks such as Citicorp, Bank of New York, and Midlantic, and
specialty financial services companies such as Green Tree Financial, a provider
of mobile home financing, and Federal National Mortgage Corp. have performed
beautifully for the year-to-date period.
Our focus in the Technology sector was in stocks of companies with fairly
established market positions, superior technology, and outstanding management
teams. Individual issues such as 3Com, Applied Materials, Hewlett Packard,
Linear Technology, and Sun Microsystems, were all stellar performers. Each of
these companies stand to benefit not just from demand for a single product, but
a broad, diversified product offering with multiple down-stream beneficiaries.
These qualities lower the risk profile of the fund's technology weighting
relative to the typical technology stock and lowers the general level of
volatility in that sector.
Going forward we feel that the Federal Reserve's hold on the market will
persist; however, this time we expect that the Fed's action will benefit stocks
because rates will actually be reduced rather than raised, as the economy shows
signs of slowing. The Socially Responsible Growth Fund is well positioned to
benefit from such a trend. For the calendar year-to-date the fund is outpacing
most socially-responsible funds by an average of 4.0%. Additionally, the fund
is performing in-line with the average growth fund. Both relative performances
are notable given the strength of the overall market. We are confident that the
fund is positioned to achieve performance superior to funds that do not have
our socially-responsible charter. Now that the transition of fiscal 1995 is
over, we can get down to the business of providing superior returns to our
shareholders while honoring your socially-responsible investment objectives. We
are confident in the outlook for the fund and appreciative of the demonstrated
confidence of our shareholders. We take your socially-responsible directives
seriously as we endeavor to provide the maximum return on and return of
shareholder capital.
DREYFUS STOCK INDEX FUND++
OBJECTIVE - To provide investment results that correspond to the price and yield
performance of the S&P 500.
NARRATIVE BY DREYFUS CORPORATION
The objective of the Stock Index Fund is to provide investment results that
correspond to the price and yield performance of publicly traded common stocks
in the aggregate, as represented by the Standard & Poor's 500 Composite Price
Index, better known as the S&P 500.
The manager generally selects stocks for the Fund's portfolio in the order of
their weightings in the S&P 500, beginning with the heaviest weighted stocks.
With respect to the Fund's assets invested in the stocks in the S&P 500, the
percentage of such assets invested in each stock is approximately the same as
the percentage it represents in the S&P 500.
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DREYFUS STOCK INDEX FUND (CONT'D)
The Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the S&P 500 of at least 0.95, without taking into account
expenses. The Fund's ability to correlate its performance with the S&P 500 may
be affected by, among other things, changes in securities markets, the manner
in which the S&P 500 is calculated by Standard & Poor's Corporation, the timing
of purchases and redemptions, the size of the Fund's portfolio, and the size of
cash flow into and out of the Fund. There can be no assurance that the Fund's
investment objective will be achieved and an investment in the Fund involves
risks similar to those of investing in common stocks.
[FIDELITY INVESTMENTS LOGO]
VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
OBJECTIVE - To seek reasonable income by investing primarily in income-producing
equity securities.
AN INTERVIEW WITH BETTINA DOULTON, PORTFOLIO MANAGER
Q. BETTINA, HOW DID THE FUND PERFORM?
A. Although the fund did well relative to its peers, it slightly trailed the
performance of the Standard & Poor's 500 stock index for the six and 12-month
periods ended June 30, 1995. The index had total returns of 20.21% and 26.07%
for those periods, respectively. Because this recent stock market rally was
quite narrow -- led by a few sectors, namely technology, financials and the
large-cap and blue-chip stocks -- relatively few stock mutual funds have topped
the performance of the index thus far in 1995.
Q. THE STOCK MARKET SHOWED A RENEWED VIGOR OVER THE PAST SIX MONTHS. WHAT
ACCOUNTED FOR THIS?
A. The market's strength was driven by investors' belief that the Federal
Reserve Board would manage the economy to a soft landing -- steady, albeit
slower, economic growth and continued low inflation. If achieved, those
conditions are ideal for Corporate America to sustain strong profit growth.
During the six-month period, corporate earnings reports were excellent, which
provided the fuel for stock prices to move higher. Excluding the consistently
outstanding performance of the technology and financial sectors, the market has
been characterized by rapid industry rotation. Investors have spent the past
six months racing from one industry to the next, trying to stay one step ahead
of the crowd. Sometimes, the fund was in the right place at the right time, and
sometimes it wasn't.
Q. WHAT CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. Several of the fund's largest holdings have driven returns recently.
Highlights include Philip Morris. The stock has been rewarded for the company's
strong profit growth and free cash flow; both are attributable to terrific
results in the company's domestic and international tobacco businesses, which
more than offset mediocre results in its food division. Second in line is the
Federal National Mortgage Association (Fannie Mae). Although its stock price
suffered a significant setback last fall, it has since recovered as conditions
in the secondary mortgage market have turned more favorable. IBM was another
strong performer. The company has done an excellent job cutting costs and
cleaning up its balance sheet. In addition, global economic growth and wide
acceptance of the company's new products have contributed to accelerating
revenue growth. Finally, in the energy sector, energy service companies
Schlumberger and Halliburton performed well. Both benefited from improving
worldwide supply/demand dynamics for oil and corporate restructuring efforts.
Elsewhere in the energy sector, however, British Petroleum (BP) and Amerada
Hess have been somewhat disappointing in terms of stock performance. Both are
restructuring stories; BP's stock may just be taking a breather after making
significant gains, while Amerada Hess' turnaround may be just taking a bit
longer than investors had expected.
Q. YOU MORE THAN DOUBLED THE FUND'S STAKE IN FINANCIAL STOCKS; THEY WENT FROM
7.3% OF THE FUND SIX MONTHS AGO TO 17.9% ON JUNE 30 . . .
A. Recent purchases of bank stocks made up most of that increase. Along with the
diversified financial services companies such as American Express and Fannie
Mae, banks had a strong, if volatile, run. My only regret is not owning more of
them early in the period, when they began to outperform. Prices did fall in the
spring, however, which allowed me to buy stocks such as Chemical Banking and
BankAmerica off their highs. In the coming months, I expect the market to drive
bank stock valuations -- prices
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EQUITY-INCOME PORTFOLIO (CONT'D)
relative to earnings -- higher. That's because earnings are becoming more
consistent, the industry is consolidating, and companies are using excess
capital to repurchase shares of their own stocks.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. When interest rates fall, as they've done over the past few months, the
market usually rewards stocks with higher valuations. However, we have to keep
in mind that the economy has slowed, which could negatively affect corporate
earnings going forward. The 64-thousand-dollar question then becomes:will the
market's willingness to drive up valuations and look toward an economic
resurgence be enough to offset the negative effects of potential short-term
earnings disappointments? I'm afraid not. Companies that report
less-than-expected earnings growth in the coming months will most likely pay
dearly with falling stock prices. In light of this, I plan to focus intensely
on owning companies that trade at attractive valuations, offer good prospects
for higher earnings through 1996, and are working to enhance shareholder value.
GROWTH PORTFOLIO
OBJECTIVE - Seeks to achieve capital appreciation.
AN INTERVIEW WITH LAWRENCE GREENBERG,PORTFOLIO MANAGER
Q. LARRY, HOW HAS THE FUND DONE OVER THE PAST SIX MONTHS?
A. Quite well. From December 31, 1994, through June 30, 1995, the fund beat the
Standard & Poor's 500 index, which returned 20.21%.
Q. WHAT MADE THE DIFFERENCE?
A. In the second half of 1994, growth stocks began outperforming cyclicals --
stocks in sectors like autos and steel that tend to rise or fall with the
economy. Since then, the economy has slowed and interest rates have been flat
or falling -- a perfect environment for growth stocks. My strategy was to
concentrate on those companies with the fastest earnings growth opportunities
for '95 and '96. This aggressive position, especially in technology, paid off
handsomely when growth stocks rebounded.
Q. IN FACT, OVER 50% OF THE FUND WAS IN TECHNOLOGY AT THE END OF JUNE. WHY SUCH
A HUGE BET?
A. Because on a stock-by-stock basis that's where I'm still finding what I
believe are the best growth opportunities. Technology stocks are benefiting from
strong corporate and consumer demand. Business is booming across all segments
-from PCs and software to semiconductors and networking. Plus, unlike a
retailer, which can only grow as fast as it can build bricks and mortar, a
technology company can grow at any rate. The fund has dozens of companies that
are growing sales well over 100% per year. Finally, despite the fastest sales
and earnings growth of any stocks in the market, many of these companies still
have attractive prices compared to other measures like earnings.
Q. WHERE DID YOU FIND THE BEST OPPORTUNITIES?
A. Across the board, I added new technology names, but I also made bigger
investments in the companies I have the most confidence in. For example, I
significantly boosted the fund's stake in both Intel, which makes
microprocessors like the Pentium chip that are the brains of PCs, and Micron
Technology, one of the few manufacturers of memory chips called DRAMs that go
inside PCs and other electronic equipment. Both stocks posted sizable gains for
the period. I also added to our stake in Applied Materials, the leading
supplier of semiconductor manufacturing equipment, whose sales grew more than
60% this year. Our biggest investment is still Oracle, the leading provider of
software for client-server set-ups; it continued to benefit as more companies
moved away from mainframes toward PCs linked through networks.
Q. WERE THERE DISAPPOINTMENTS?
A. Sure. The stock price of Sybase, a competitor to Oracle, fell nearly 50% in
the last six months as it ran into problems launching a new product. One of our
biggest positions six months ago was Motorola; it started having some near-term
problems related to oversupply on its cellular handsets, so I cut back even
though the stock's long-term outlook remained attractive. Finally, some
retailers like Home Depot and Lowe's turned in disappointing short-term results
as heavy rains in California and the Southeast hurt business. But many of the
"hard good category killers"(or superstores) I focused on continued to grow
despite the slowdown in overall retail sales that we saw this spring.
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GROWTH PORTFOLIO (CONT'D)
Q. WHY DID YOU CUT BACK IN HEALTH CARE?
A. The fund's health care stake was 3.0% at the end of June, down from 7.7% six
months earlier. During the first half of 1994, uncertainty surrounding
President Clinton's plans for health care reform had hurt the sector. Then,
last fall, the stocks rallied as it became apparent that health care
legislation wouldn't pass anytime soon. But once the Republicans took charge in
January, they cast another cloud over the sector as they promised to re-examine
programs like Medicare. So I decided to watch from the sidelines.
Q. LOOKING AHEAD, WHAT SHOULD SHAREHOLDERS EXPECT?
A. In the past, technology stocks haven't done as well over the summer, as
European demand dries up and new product launches disappear. But this year,
since demand has been so strong, we may see no summer slowdown or one that's
much less pronounced. Nevertheless, shareholders should expect volatility
because the fund is aggressively invested in the fastest growing companies. If
either the technology sector or the market declines, the fund will suffer more
than other stock funds. But it's also in a good position to benefit more than
its peers from a long-term up market, which I believe is more likely.
HIGH INCOME PORTFOLIO
OBJECTIVE - Seeks to obtain a high level of current income by investing
primarily in high risk, lower-rated, high-yielding, fixed income securities,
while also considering growth of capital.
AN INTERVIEW WITH BARRY COFFMAN, PORTFOLIO MANAGER
Q. HOW HAS THE FUND PERFORMED, BARRY?
A. Although the fund did well relative to its peers, it trailed the performance
of the Merrill Lynch High Yield Index, which returned 12.75% and 14.88%,
respectively, for the six and 12-month periods ended June 30, 1995. The index
has a larger percentage of Ba-rated bonds than most high-yield mutual funds,
which tend to be more concentrated in B-rated bonds. Generally speaking,
Ba-rated bonds are more sensitive to changing interest rates, and therefore,
benefited more from the recent decline in interest rates than B-rated bonds. As
a result, very few high yield funds outperformed the index.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. As I already mentioned, the fund's relatively low weighting in Ba-rated
securities was the primary reason for its underperformance relative to its
benchmark during the most recent period. On the positive side, we have
maintained a high weighting, compared to the benchmark, in deferred coupon
securities. These bonds sell at a deep discount because they do not pay current
interest for some period, usually three to five years. They generally have
longer durations -- which measures how sensitive their price is to changes in
interest rates -- and therefore, their prices are more volatile. We also
avoided most of the credit disasters that occurred in the market.
Q. WHAT INVESTMENTS HAVE DONE WELL IN THE PAST SIX MONTHS?
A. Revlon continued to benefit from an operational restructuring and the very
successful launch of two key new products: Color Stay lipstick and Age Defying
Makeup. Our Revlon position is concentrated in the most junior securities which
are most sensitive to changes in credit quality, which has been a recent plus.
Another strong performer was Big Flower Press, a large commercial printer of
advertising inserts, comics and television guides. The company was helped by
the strong growth in advertising and the synergies it gained from some recent
acquisitions. Finally, our concentration in casinos and hotels did relatively
well during the period.
Q. GIVEN THE MARKET'S STRENGTH SO FAR IN 1995, WAS IT DIFFICULT TO FIND
OPPORTUNITIES?
A. Not particularly. The new issues market was active and provided ample
opportunity to selectively add new names to the fund. One example was PanAmSat
Corp., which operates an international satellite communications system and
provides satellite services to the broadcasting and business communications
markets. It currently has two satellites operating and also has a large backlog
of contracted time from companies including ESPN and Viacom for two new
satellites it will be
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HIGH INCOME PORTFOLIO (CONT'D)
launching later this year. The company is participating
in a joint venture to provide Direct to Home (DTH) television broadcasting
service to Latin America, similar to the Direct TV service in the United
States. Another new issue we purchased was Stratosphere Corp., a Las
Vegas-based casino owned by industry-leader Grand Casino. These bonds are
attractive in part, because in addition to their 14.25% coupon, they pay
additional interest based on a percentage of the company's cash flow.
Q. WHAT INVESTMENTS DIDN'T FARE AS WELL?
A. The high-yield restaurant sector, in general, did not perform well during
the period due to competitive pressures and a slowing economy. One of our
largest holdings is Flagstar, the parent of Denny's and the largest franchisee
of Hardees. Although Denny's has benefited from an aggressive remodeling
program, Hardees has suffered due to aggressive price promotions from the major
burger chains. Another restaurant chain, American Restaurant Group, also
underperformed partly due to the concentration of its chains in California,
where the economy continues to be weaker than the rest of the country.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. The probability of the soft landing scenario is increasing, which could
provide a favorable backdrop for the high-yield bond market. Slow economic
growth and low inflation could allow many companies in the high-yield market to
improve their credit quality. Absolute yields remain attractive, and absent a
sharp drop in interest rates from current levels, high-yield bonds could
perform well relative to other fixed-income investments. In my view, the key is
to be selective. I'm focusing on companies that are less cyclical, or sensitive
to the economy, and choosing companies that I think can perform well in a
slow-growth environment. In my view, the uncertainty in the marketplace should
provide some attractive opportunities.
OVERSEAS PORTFOLIO
OBJECTIVE - To seek long term growth of capital primarily through investments
in foreign securities.
AN INTERVIEW WITH JOHN HICKLING, PORTFOLIO MANAGER
Q. JOHN, HOW HAS THE FUND PERFORMED?
A. For the six months and one year ended June 30, 1995, the fund's performance
topped that of the Morgan Stanley EAFE index -- a broad measure of stocks in
Europe, Australia and the Far East. The index had total returns of 2.60% and
1.65% for the six and 12-month periods, respectively.
Q. WHAT WERE THE KEYS TO THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS?
A. First, I kept the fund fully invested through much of the period. Second,
some of the stocks I picked in Japan and Europe fared well. And finally, the
fund was able to benefit from new investments in emerging markets.
Q. WHY DID THE EAFE INDEX OFFER RELATIVELY LOW RETURNS?
A. While European markets have performed relatively well -- though not as well
as the U.S. market -- emerging markets and Japan have not. Japan was affected
by a number of factors that dampened investor enthusiasm: the Barings debacle,
the Kobe earthquake and the subway gas attack. The Japanese market also was
hurt by the strength of the yen versus the dollar. On the heels of Mexico's
devaluation of the peso in late 1994, emerging markets also struggled, although
they appear to have pretty much bottomed out.
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OVERSEAS PORTFOLIO (CONT'D)
Q. WHAT'S THE STORY BEHIND THE FUND'S INVESTMENTS IN JAPAN?
A. Even though Japan has the highest country representation in the fund, I've
kept the fund underweighted there, relative to the index. I've focused much of
the fund's Japanese investments in technology, including consumer electronic
companies Toshiba and Hitachi, and other manufacturers and exporters that are
poised to take advantage of economic activity both in Japan and globally. While
the technology sector has done well in the U.S., it has been weak in Japan, so
I found valuations to be attractive. The sector recently has shown some strong
gains. In addition, I've targeted some financial stocks. The Japanese market
has started to pick up a bit lately, and brokerage house Nomura Securities is
poised to take advantage because it has been cutting costs aggressively. In
addition, it appears trust banks such as Sumitomo Trust will be able to improve
interest margins -- the difference between what they charge for loans and what
they pay to depositors because of changing regulations.
Q. THE FUND IS OVERWEIGHTED IN EUROPE, RELATIVE TO THE INDEX. WHERE HAVE YOU
FOUND OPPORTUNITIES THERE?
A. Mainly in financial and consumer nondurable stocks, as well as interest
rate-sensitive issues -- because European bond markets have been rallying --
and cyclicals -- those that tend to rise and fall with the economy. European
stocks have rallied lately, mainly on the strength of the technology sector. In
the short run, I've missed some opportunity there, because I found the tech
stocks to be too expensive and risky. Some of the appealing consumer
non-durable names have been Guinness, Cadbury-Schweppes, Bass and Nestle.
Barclay's, National Westminster, Swiss Bank and C.S. Holdings were among the
fund's financial stock investments. I've added investments in cyclical stocks
because they became cheap, such as paper companies Mo Och Domsjoe and Svenska
Cellulosa; auto stocks Volvo and Peugeot; and tire companies such as Michelin.
Q. WHAT ABOUT THE FUND'S EMERGING MARKET INVESTMENTS?
A. I've been more active there, because, as I said, I felt they had hit bottom,
and there were a lot of very interesting stocks. Among the stocks that have
caught my eye have been Hong Kong/ Shanghai Bank and Hong Kong Land Holdings;
Philippine Long Distance Telephone; the department store Mata Hari and
cigarette manufacturer Gudang Garam in Indonesia; Krung Thai Bank; Telecom
Argentina; and Mexican companies Bancomer, Telmex, Cemex and Grupo Carso.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD?
A. Several factors are important to consider. First of all, it seems most stock
markets reflect the sentiment that any worldwide recession will stay pretty
shallow and that growth will resume. Of course, this is the best possible
scenario. At the same time, if the U.S. market stumbles, one would expect there
to be a drop in foreign markets. In such a scenario, I believe overseas markets
wouldn't drop as far as the U.S. because they haven't gained as much recently,
but it's impossible to say for sure. How the dollar does also will be important.
Going forward, I'll stay with my usual game plan, looking for opportunities in
any markets that appear to have excellent value.
VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
OBJECTIVE - To seek high total return with reduced risk over the long-term by
allocating its assets among stocks, bonds and short term fixed income
securities.
AN INTERVIEW WITH ANDY OFFIT, PORTFOLIO MANAGER
Q. ANDY, HOW DID THE FUND PERFORM?
A. Asset Manager performed much better during the first half of 1995 than it
did during 1994, finishing the period with a solidly positive total return.
That said, the best place to be during the past six months would have been 100%
in the U.S. markets. Because Asset Manager invests a portion of its assets in
foreign stocks and bonds, and nearly all foreign markets trailed their domestic
counterparts, the fund's performance was no doubt disappointing to some
shareholders. Japan, with about 10% of the fund's assets, probably hurt the
fund most.
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<PAGE> 13
ASSET MANAGER PORTFOLIO (CONT'D)
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. On June 30, 1995, about 55% of the fund's assets was stocks, 30% bonds and
16% cash. That's a more aggressive asset allocation than the fund had six
months ago, when it was 37% stocks, 37% bonds and 26% cash. Having so much of
the fund tied up in bonds and cash early in the period was undoubtedly another
factor contributing to the fund's sluggish performance. Foreign holdings rose
slightly during the period from 27% of the fund's investments to about 30%.
Investments in emerging markets declined sharply to almost nothing, compared to
18% six months ago.
Q. YOU TOOK OVER MANAGEMENT OF THE FUND FROM BOB BECKWITT IN FEBRUARY. HOW DOES
YOUR INVESTMENT STYLE DIFFER FROM HIS?
A. The similarities are much stronger than the differences, but differences do
exist. Number one, I'm more of a bottom-up investor than Bob is. In other
words, I'm more interested in finding individual companies that meet my
investment criteria than uncovering broad economic trends and trying to
capitalize on them. Number two, when I find an investment I like, I'm more apt
to make a larger bet. There's nothing worse than choosing a good security,
watching it go up, and not owning enough of it. These past several months, I've
been concentrating more of the fund's assets in the investments I believe in
most. When I took over, there were approximately 1,000 different companies
represented in the fund; at the end of June, there were only about 430. This
has resulted in a higher turnover ratio than the fund has had in the past.
Q. WHAT WERE SOME OF YOUR FAVORITE STOCKS?
A. IBM represents the fund's largest holding at about 2.5% of total assets, and
represents about one third of the fund's total investment in technology. IBM's
stock price has more than doubled since it bottomed out almost two years ago
but is still cheap at about nine times earnings. Chrysler and General Motors
are two more of the fund's largest investments. Both stocks have
under-performed over the past 18 months. Wall Street expectations are very low,
and the stocks represent excellent opportunities in a recovering U.S. economy.
Among the newer names at the top of the fund were several promising mid-cap
stocks. They included defense contractor Northrop Grumman, a cash-rich company
in a consolidating industry; U.S. Surgical, a former high-flying medical-supply
company currently undergoing an internal restructuring; and W.R. Grace, which
is in the process of shedding its health-care interests and refocusing on its
core specialty-chemical business.
Q. HOW DID YOU DISTRIBUTE THE FUND'S FIXED INCOME INVESTMENTS?
A. Overall, about 20% of the fund was made up of bonds with maturities of three
years or longer on June 30. About half of those were 10-year U.S. Treasury
bonds, in the current environment, they seem to offer the best balance between
yield and the potential for price gain, without the added risk of longer, term
bonds. Junk bonds, which carry Moody's or S&P credit ratings of BA or BB or
lower and offer a higher yield to compensate for the extra credit risk, were 7%
of the funds assets. I've reduced the fund's exposure recently as prices have
strengthened.
Q. WHAT'S THE OUTLOOK?
A. Domestic stocks had a terrific run during the first half of 1995, ending
June at an all time high; to assume they'll do as well in the second half would
be unreasonable. Foreign stocks, on the other hand, lagged their domestic
counterparts during the period, but could do better in the second half. Japan
looks especially promising. Among the positive signs are a more stable yen; a
high personal savings rate, which represents a vast reservoir of bottled up
consumer demand; and a market full of cheap stocks with attractive earnings.
Accordingly, I'll probably continue reducing exposure of U.S. stocks while
gradually adding more Japanese stocks. In fact, I expect to increase the fund's
overall investments in foreign stocks as long as underperforming overseas
markets remain attractive values.
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[NATIONWIDE FINANCIAL SERVICES, INC. LOGO]
NATIONWIDE(R) SEPARATE ACCOUNT TRUST
CAPITAL APPRECIATION FUND
OBJECTIVE - To obtain long-term growth.
NARRATIVE BY CHARLES BATH, FUND MANAGER
Warner-Lambert is currently the largest holding in the Capital Appreciation
Fund. Warner-Lambert is a very successful consumer products company with a
pharmaceutical division which has been struggling recently due to an important
patent expiration. However, the company has several new pharmaceutical products
which may be available in the next two to three years. For long-term
shareholders the current low valuation is an attractive opportunity to own an
improving diversified consumer products and health care company.
Chrysler Corporation is a large holding of the Fund which has recently been
involved in considerable controversy. The company's largest shareholder has
made and withdrawn an offer to buy the entire company. While somewhat unusual,
these events have highlighted the undervaluation of Chrysler's shares in the
marketplace. I have been baffled by the low valuation accorded Chrysler's
shares. The vastly improved balance sheet and strong competitive position as
one of the world's low cost producers of automobiles should lead to higher
valuation of the shares. Chrysler's management has taken several steps to
reward shareholders by repurchasing shares and raising the dividend. Hopefully,
long-term shareholders will benefit more by continued investment in Chrysler's
shares than is possible through the short-term opportunity provided by a
buy-out.
GOVERNMENT BOND FUND
OBJECTIVE - To provide as high a level of income as is consistent with the
preservation of capital.
NARRATIVE BY WAYNE FRISBEE, FUND MANAGER
In our Annual Report six months ago, we discussed the unusual fundamental value
then available in the bond market. During the first half of 1995 that value was
largely realized as bond market investors were rewarded for their patience
after what had been a very difficult prior year. Long-term interest rates
dropped by 125 basis points during this period while rates on intermediate-term
assets dropped by even more. The rates on the five-year U.S. Treasury note, for
instance, fell from 7.83 percent to 5.97 percent.
The rally in the fixed-income markets was largely due to the perception in the
markets that the U.S. Federal Reserve would move away from a policy of
increasing short-term interest rates to slow an economy that had been growing
too fast and would begin to reduce rates to support an economy that was
obviously slowing. Continued reports of subdued inflation has also added
critical support to the market.
The Government Bond Fund reduced market exposure slightly as bond prices rose
while continuing to be invested in sectors of the government, agency, and
mortgage-backed markets perceived to be undervalued. Approximately one-third of
portfolio assets continue to be invested in the Collateralized Mortgage
Obligation (CMO) market. The additional yield on these
conservatively-structured investments continue to make them attractive
portfolio holdings. The portfolio will avoid the risks inherent in the
more-risky "derivative" structures that have received so much negative press
coverage.
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<PAGE> 15
MONEY MARKET FUND
OBJECTIVE - To seek as high a level of current income as is considered
consistent with the preservation of capital and liquidity by investing
primarily in money market instruments.
NARRATIVE BY KAREN MADER, FUND MANAGER
On July 6, 1995, the Federal Reserve changed its previous course and lowered
the Federal Funds rate by 25 basis points to 5.75% from 6.00%. In doing so, the
Federal Reserve was expressing concern over a possible slowdown in the economy.
The last time such a cut was done was nearly three years ago in September of
1992. The Fed Funds rate is used to price money market instruments. As a result
yields on money market instruments are also lower. For example, in February
1995, the three month treasury bill had a yield of 6.13%. The current yield is
5.61%.
The Separate Account Money Market Fund continues to invest in only the highest
rated instruments. An internal credit review is completed on every company we
invest in. The Fund's yield remains competitive with the other funds included
in Donoghue's Taxable First Tier Money Market Group.
TOTAL RETURN FUND
OBJECTIVE - To obtain a reasonable long term total return (i.e., earnings
growth plus potential dividend yield) on invested capital from a flexible
combination of current return and capital gains through investments in common
stocks, convertible issues, money market instruments and bonds with a primary
emphasis on common stocks.
NARRATIVE BY JOHN M. SCHAFFNER, FUND MANAGER
Technology stocks have had very strong performance so far this year. Due to
high price volatility, above-average business risk, and generally low dividend
yields, the Total Return Fund's philosophy is to limit investments in this
sector. These limits involve buying only the strongest, best positioned
companies, buying only when the capital gain potential is well in excess of the
risk of loss, and to keep total exposure to a low percentage of Fund assets.
The Fund currently has about a 5% asset weighting in technology, after some
recent sales. The stocks held by the Fund have increased by such large
percentages in the first half of 1995 that even the relatively modest amount
held by the Fund has significantly helped performance. The Fund has more
substantial asset weightings in the Financial sector (about 12%) and
Telecommunications (about 10%), both of which have had generally good
performance in the first half. While some individual issues have had negative
results, there does not appear to be any significant sector weaknesses in the
Fund's holdings.
A number of attractive buying opportunities appeared during the first quarter,
and the Fund was able to establish new positions in Columbia/ HCA Healthcare,
Magna International and Premark International. The current level of cash
remains at 15%.
The Fund's strategy continues to be one of purchasing companies with clearly
visible business opportunities, at valuation levels that allow for future
improvement. Sales are being made when the fundamental outlook becomes less
clear than is satisfactory, or when valuation levels become uncomfortably high.
15
<PAGE> 16
[NEUBERGER & BERMAN MANAGEMENT INC. LOGO]
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
GROWTH PORTFOLIO
OBJECTIVE - The portfolio seeks capital growth through investments in common
stocks of companies that the investment adviser believes will have above
average potential for capital appreciation.
NARRATIVE BY MARK GOLDSTEIN, PORTFOLIO MANAGER
During the first half of 1995, the patience and discipline we displayed
throughout 1994 was rewarded. The stock selection philosophy and buy/sell
decision making created a Portfolio poised to take advantage of any coming
market strengths. Because many of the Portfolio's holdings are sensitive to
interest rates, in order to get the "pop" we felt this fund could achieve, we
looked for any one of the following market changes in 1995 ... 1) inflation
fears to steady, 2) bond yields to fall, 3) the economy's growth rate to slow,
or 4) corporate earnings growth to fall to single digits. All four occurred and
our returns have raced ahead of the market.
However, even with this favorable backdrop, it will still be the earnings
growth characteristics of the companies we own that will continue to drive
stock appreciation in the Portfolio. We are consistent in our commitment to
crafting our Portfolio with a growth rate ahead of the market and a
price-to-earnings ratio at the market. We will not overpay and believe strongly
in our "growth at a reasonable price" approach.
The strongest industry groups in the Portfolio for the first half of the year
were Technology, Financial Services, and Gaming. An example of an excellent
technology stock is Intel. It has positively affected the Portfolio's
performance as strong PC demand, coupled with greater processing demand for the
individual units, led to strong overall need for microprocessors.
One of our Financial Services holdings, Citicorp, has continued to show growth
as it built upon the strength of its global consumer franchise. Furthermore,
the company announced a stock buyback in the second quarter showing its renewed
interest in enhancing shareholder value.
The Promus Companies responded favorably to the announcement of a breakup
between its gaming division, Harrah's Entertainment, and its hotel business,
Promus Hotels. This creates two premier management teams in their respective
businesses with clearly focused incentives. Additionally, Circus Circus
benefited from its decision to purchase Goldstrike Resorts.
Overall, we have been pleased with the quality and returns of our holdings this
year. Further, there is no shortage of buying opportunities, even in this
record high equity market. By investing in fast growing companies with
entrepreneurial managements and pristine balance sheets we hope to be able to
continue to provide the shareholder with excellent long-term returns.
LIMITED MATURITY BOND PORTFOLIO
OBJECTIVE - To provide the highest level of total return, consistent with
preservation of capital.
NARRATIVE BY THERESA HAVELL & DIDI WEINBLATT, PORTFOLIO MANAGERS
The last two years have seen extremely volatile interest rate swings in the
Fixed Income markets. The "bulls" ran away in the first three quarters of 1993
only to have the "bears" take over in 1994. By the beginning of 1995, the
"bears" were in full control. Specifically, yields on 2-year Treasury notes
were at 7.7%, while 30-year Treasury bonds stood at 7.9%. With economic growth,
and the threat of rising interest rates, many people predicted 1995 would be a
continuation of the weak 1994 bond market.
Instead, the bond market rallied, with 2-year Treasury note yields falling by
200 basis points from January, 1995 until June 30, 1995 and 30-year Treasury
bond yields declining by 135 basis points during this same time period. During
the last six months, the major question debated was not a matter of if the
Federal Reserve Board (Fed) would lower rates, but when. By the end of June,
the Fixed Income Market had anticipated a cut in interest rates by the Fed, and
have since received it. Fixed income markets in 1995 have had generous total
returns, year-to-date.
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LIMITED MATURITY BOND PORTFOLIO (CONT'D)
During the last few months, we have also seen the widening of corporate bond
spreads. By the end of 1994, with the economy at full-steam, corporate bond
spreads had narrowed to historically tight levels. But with the change of
market sentiment associated with a slower economy, we finally saw this
alleviating and corporate bond spreads widened. We took advantage of this
buying opportunity, and purchased bonds issued by General Motors, Xerox,
International Paper and AT&T, to name a few. We also continued to purchase
mortgage-backed securities issued by agencies of the U.S. Government.
Coming off the bear market of 1994, we entered 1995 at a relatively short
maturity of 2.0 years. Given the uncertainty of the environment, we felt it
prudent to stay close to neutral and kept the Portfolio maturity in the 2.0 to
2.4 year range. This conservative maturity generally detracted from portfolio
performance, while the sector and security selection added value. The net
result was to keep the portfolio return in-line with the generous return of the
Merrill Lynch 1-3 year Treasury Index.
By staying true to our discipline of only having high quality credits and not
attempting to predict the direction of rates we have protected shareholders
from the potential risks of fixed income investing. Our philosophy stresses the
preservation of principal and steady income production. Since inception, the
AMT Limited Maturity Bond Portfolio has provided these advantages as well as
competitive total returns.
PARTNERS PORTFOLIO
OBJECTIVE - The portfolio seeks capital growth through an investment approach
that is designed to increase capital with reasonable risk.
NARRATIVE BY MICHAEL KASSEN, PORTFOLIO MANAGER
The cautious optimism we showed for equity markets coming into 1994 has been
met by one of the greatest short term rallies in market history. We, like other
managers, have benefitted from this run-up, but we did it with selections we
made for the portfolio during last year. We have not been chasing the market,
but rather watching the value selections we made in months past become
recognized by the marketplace.
Two sectors of the market in particular led to our strong positive performance
over the first six months of 1995: Technology and Financial Services. While the
Portfolio was not overweighted in Technology, we maintained a significant
position in a number of excellent stocks; Semiconductors in particular were a
strong industry group. For example, our Portfolio did well with Texas
Instruments, National Semiconductor and Intel. The other notable stock in this
sector was Komag, the leading independent merchant of thin-film storage media
to the disk drive industry. Fundamentals throughout the Technology Industry
remain excellent, but we have cut back our exposure here given the
extraordinary strength of many of the stocks.
In the Financial Services sector, leading equities included the following: Exel
Ltd., a specialty property casualty writer based in Bermuda; First USA, a very
rapidly growing credit card issuer and processor; Countrywide Credit, the
leading mortgage originator; and Citicorp, whose international positioning and
growth prospects distinguish it from the average bank. While Financial Services
stocks have obviously benefitted from the strong bond market, we continue to
believe that this is an area that offers many interesting and reasonably priced
securities.
With broad market values spiraling upwards, one may wonder if true value equity
opportunities are still available. As it turns out, the price-to-earnings
multiple of the market has actually fallen from a year ago from 19.65 to 16.68.
This was made possible by earnings on the S&P 500 skyrocketing 44% over that
same period. As such, our fund managers continue to find excellent long-term
values.
For the coming quarter, we look for continuing strength from the equity markets
thanks to strong earnings reports and falling interest rates. Market sentiment
is very positive and we hope to continue to share in the rally.
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<PAGE> 18
[OPPENHEIMER FUNDS LOGO]
OPPENHEIMER VARIABLE ACCOUNT FUNDS
OPPENHEIMER BOND FUND
OBJECTIVE - Primarily seeks a high level of current income from investments in
high yield fixed income securities rated "Baa" or better by Moody's or "BBB" or
better by Standard & Poor's. Secondarily, the Fund seeks capital growth when
consistent with its primary objective of high current income.
NARRATIVE BY DAVID NEGRI, FUND MANAGER
In 1994, as the U.S. Federal Reserve undertook the most aggressive moves in its
history to raise interest rates, bond prices and bond mutual funds, including
this one, declined across the board. Over the past six months, however, U.S.
bond markets have improved greatly. And foreign markets although affected by the
devaluation of the Mexican peso in December, are starting to show signs of
recovery this year.
Although we don't anticipate a recession, a slower growth environment may cause
corporate issuers' earnings and cash flows to come under more pressure. As a
result, your manager has been taking a more defensive approach in this sector
and has increased investments in bonds with higher credit quality.
Attractive income opportunities in developed markets such as the U. K.,
Germany, and Canada now offer good relative value compared with the U.S
Government market. Long-term, our outlook for selected high growth investment
grade emerging markets remains positive. We especially favor countries without
the financial imbalances that plagued Mexico prior to its devaluation -- for
example, Indonesia, Thailand and Poland.
The Fund's short average maturity helped relative performance last year, but
has slightly hindered performance so far this year as U.S. Treasuries rallied
for the first half of 1995. The average maturity of the Fund has been
increased, but the manager remains cautious as economic growth is expected to
continue and will likely push interest rates higher.
Looking back as demonstrated last year, the bond markets are subject to
fluctuations, and these shifts may sometimes be sharp. For the long term,
however, we believe that the outlook is excellent.
We thank you for your trust in allowing us to manage a portion of your
investments and we look forward to continuing to do our best to help you reach
your investment goals.
OPPENHEIMER GLOBAL SECURITIES FUND
OBJECTIVE - Seeks capital growth by investing in a diversified portfolio of
foreign and domestic stocks.
NARRATIVE BY GEORGE EVANS, FUND MANAGER
As the weakness of emerging markets in 1994 continued into the first half of
this year, the Fund's manager continued to reduce investments in these markets
and increase investments in areas that he feels present superior opportunities,
such as Europe and the U.S.
Your manager believes economic recovery is gaining steam across the continent
and the restructuring of European industry for global competitiveness has
proceeded at a remarkable pace. While many companies are dealing with the
pressures of the declining U.S. dollar, which makes U.S. goods cheaper abroad,
they are dealing with those pressures well. And as the dollar rises -- as your
manager believes it will as the U.S. trade deficit lessens and the need to
support the Mexican peso abates -- the strength of European industry should be
reflected in solid gains in sales, earnings, and stock prices of European
companies.
Elsewhere as capital inflows to many emerging markets diminish, offshore
markets should return to their historic pattern of differentiated performance,
based on the fundamentals of their economies, markets and individual companies.
And in your manager's view, based on extensive global investing experience,
this development has created outstanding opportunities for the Fund to find
value at attractive prices across many markets.
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<PAGE> 19
OPPENHEIMER GLOBAL SECURITIES FUND (CONT'D)
For example, stock prices in most markets across Latin America have been
affected by the devaluation of the Mexican peso. In many of these countries,
your manager believes the downturn simply isn't justified. Chile and Argentina,
for instance, have well-managed economies with strong currencies. As that
becomes clear to investors, we expect these markets to rebound strongly. Of
course, foreign investments subject the Fund to greater expenses and risks such
as adverse currency fluctuation.
Looking ahead, your Fund manager believes that the potential for foreign
markets to outperform the U.S. over the long term remains intact even though
holdings in emerging markets are currently being reduced in favor of the larger
more developed markets of North America and Europe.
We appreciate your trust in the Oppenheimer Variable Account Funds' Global
Securities Fund, and we will continue to do our best to help meet your
investment objectives in the future.
OPPENHEIMER MULTIPLE STRATEGIES FUND
OBJECTIVE - Seeks a total investment return (including current income and
capital appreciation in the value of its shares) from investments in a
combination of stocks, bonds and "money market" securities. The current
allocation of the Fund's portfolio aims to take advantage of current economic
conditions while managing risk.
NARRATIVE BY RICHARD RUBINSTEIN, FUND MANAGER
The percentage of the Fund committed to stocks has remained constant. However,
there has been a slight reduction in the bond portion of the Fund's portfolio
in favor of cash.
In the equity portion of the portfolio, the manager's emphasis has been on
diversification, not so much by industry sector as by investment style. Because
the market is difficult to predict, your manager's approach allows for
investments in a broad range of stock styles including value, growth and
contrarian classifications that offer capital appreciation potential. Your
manager also invests in dividend paying and foreign stocks that offer the
possibility to reduce overall risk to the portfolio.
In bonds, as in stocks, your manager invests in a number of different bond
categories and is currently using a combination of U.S. government, foreign
government and high yield corporate bonds. While each category has certain
inherent risks and rewards, our diversified approach has allowed us to improve
yields and reduce risk.
Looking forward your manager expects stocks to continue to provide long-term
returns approaching their historical averages and feels the portfolio is
positioned to participate in those gains while relying on the bonds and cash in
the portfolio to temper any short-term volatility in the market.
We appreciate the confidence you have placed in Oppenheimer Variable Account
Funds' Multiple Strategies Fund, and we will continue to do our best to help
you reach your investment goals.
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<PAGE> 20
[STRONG FUNDS LOGO]
STRONG VARIABLE INSURANCE PRODUCTS FUNDS
STRONG DISCOVERY FUND II, INC.
OBJECTIVE - To seek maximum capital appreciation through investments in a
diversified portfolio of securities.
NARRATIVE BY RICHARD STRONG, FUND MANAGER
The Strong Discovery Fund II is all about growth. We believe that investing in
the common stock of companies that are growing considerably faster than the
overall economy -- companies with a special product run by enlightened and
dedicated management -- will produce superior investment returns over time for
our shareholders.
Our task is to find those growth companies and own their stock at the most
opportune time. That, in a nutshell, is what drives our investment decisions.
MARKET SUMMARY
The first half of 1995 was a good period for equity investors. The benchmark
S&P 500 Index rose a robust 20.21% during the first six months of the year,
while Strong Discovery II increased by 16.62%. While our Fund was a little slow
out of the blocks -- finishing the first quarter up a modest 4.60% -- the
second quarter saw a much more attractive gain of 11.49%.
As of June 30, 1995, the Fund was "fully invested." Of the Fund's $156.5
million in net assets, nearly all were invested in stocks. The Fund was
aggressively positioned to take advantage of the bull market. At mid-year, the
Fund's diversified portfolio owned stock in a wide variety of domestic and
foreign concerns, from computer software (SAP AG) to copier dealers (Danka
Business Systems) to motorcycles (Harley-Davidson).
PREVAILING THEMES
While our team of investment professionals monitors economic trends across the
nation and world, four investment themes dominated our portfolio during the
first half of 1995:technology, consolidation, the continued deregulation of
radio and television, and financial services.
TECHNOLOGY. The worldwide technological revolution is having a dramatic effect
on the productivity and efficiency of business and industry. Consequently,
technology stocks were the biggest winners in the market's stellar performance
through the first half of 1995. We believe the advance of technology and its
positive impact on industry will persist. In our portfolio, computer software
manufacturers like the German firm SAP AG and McAfee Associations, a Santa
Clara, California firm that specializes in computer virus software, have
positioned their companies and products for prosperity.
CONSOLIDATION. Across a variety of individual industries, companies are
consolidating to increase efficiency and market share. This is a trend we see
in businesses as different as medical services and video rental. In the former
category, we particularly like Medpartners, of Birmingham, Alabama, and PhyCor,
of Nashville, Tennessee, operators of multi-specialty medical clinics. In the
latter category, the Movie Gallery, based in Dothan, Alabama, has been
strategically acquiring video stores from Texas to Illinois at a steady and
impressive clip.
DEREGULATION IN RADIO AND TELEVISION. Thanks to the continuing pro-deregulation
mood in Washington, some well-positioned and ambitious media companies have
been expanding their operations and growing their earnings at a convincing rate.
Evergreen Media, an Irving, Texas, radio station complex, and SFX Broadcasting
are two such properties that have made a contribution to the Fund's performance.
FINANCIAL SERVICES. Lower interest rates -- a concept that the Federal Reserve
has now embraced -- have benefited a number of our holdings in the financial
services sector. A good example of a company poised to capitalize on this trend
is Mercury Finance Co., of Northbrook, Illinois, which, among other credit
operations, purchases installment contracts from automobile dealers and retail
vendors.
OUR OUTLOOK
As the second half of the year began, the Federal Reserve, inspired by a general
slowdown in the nation's economy, cut short-term rates by one-quarter of a
percentage point (0.25%). The market responded favorably.
Our portfolio management team believes that inflation will remain under control,
that the Federal
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STRONG DISCOVERY FUND II (CONT'D)
Reserve will likely continue to ratchet down interest rates through the second
half of 1995, and that the financial climate -- allowing for an occasional
correction -- will continue to be hospitable to investors.
And one final, personal note: I think U.S. industry, pretty much across the
board, is in the best shape I've seen in the nearly 30 years since I graduated
from business school. Overall, American companies are more efficient, more
productive, and more competitive than at any moment in my professional lifetime.
Which, at the risk of sounding repetitious, is good news for growth stocks.
Thank you for your continued confidence in the Strong Discovery Fund II. We look
forward to making your investment grow.
STRONG SPECIAL FUND II, INC.
OBJECTIVE - To seek capital appreciation through investments in a diversified
portfolio of equity securities.
NARRATIVE BY RICHARD WEISS & MARINA CARLSON, FUND MANAGERS
In pursuit of capital growth, the Strong Special Fund II invests at least 70% of
its total assets in equity securities. It currently emphasizes medium-sized
companies that the Fund's Advisor believes are under-researched and attractively
valued.
STOCKS PRICES RALLY IN FIRST HALF OF 1995
The first six months of 1995 brought good news for investors in U.S. stocks
despite the dollar's slide versus several global currencies and Mexico's
devaluation of the peso. Continued healthy corporate earnings and the explosive
rally in long bonds helped catapult stocks to record highs. Ironically, the
dollar's weakness -- and the turmoil in emerging markets that followed the
peso's devaluation -- led to a shift in global capital flows back to the U.S.
Investors in the U.S. market particularly favored traditional large-cap growth
stocks. As a result, while mid-cap stocks -- as measured by the S&P MidCap 400
-- did well (up 17.62%), they tended to slightly lag the stocks of big
companies, as reflected in the S&P 500's 20.21% gain for the first six months of
1995.
A STRATEGY EMPHASIZING VALUE
Throughout the first half of 1995, we continued to stringently evaluate existing
and prospective holdings according to our analysis of their "private value,"
which is a fancy term for a simple concept ... basically, it means evaluating
companies as if we were a private buyer. We seek to determine how much we'd be
willing to pay to own the entire company. This gives us a disciplined way to
view the company's value and helps us impartially evaluate potential winners and
losers.
If we get an accurate private value, we generally have a good idea of where the
stock's going to trade for the year. We've discovered that most stocks usually
do not trade below 50% of private value, nor do they trade above the 80% mark.
Clearly, when we have a good idea of a company's trading range, we have a
tremendous advantage in determining the most appropriate time to buy or sell.
This analysis helped us identify several key additions to the portfolio, such as
Gaylord Entertainment (up 15.91%), and Toys `R' Us (up 11.43%). Stocks sold
because we believed they had become fully valued included Eli Lilly and Circus
Circus.
A FAVORABLE ENVIRONMENT FOR MID-CAP STOCKS
In the Fund's 1994 Annual Report, we stated, "should the Federal Reserve's
repeated rate hikes successfully curtail inflation without drastically slowing
economic growth, the market might then focus on the improving earnings picture,
especially for growth companies."
This appeared to be exactly what happened in early 1995. Weaker-than-expected
economic figures indicated a slowing economy and fueled a powerful long-bond
rally. While large-cap stocks felt the positive effects first, we believe the
focus may now shift to mid-cap stocks. Mid-caps were laggards through most of
the 1980s, and are currently attractive based on their relative value and their
expected growth rates. The increased valuations of large-cap issues given the
1995 rally simply makes the argument for mid-cap stocks even more compelling.
Therefore, we believe the stage may be set for a longer-term cycle, during which
mid-cap stocks should outperform large-cap issues. Currently, the
21
<PAGE> 22
STRONG SPECIAL FUND II (CONT'D)
market remains vulnerable if the economy slips into a recession. However,
given that many American companies presently possess fairly healthy balance
sheets, and the Federal Reserve's growing bias toward easing credit, we believe
any downturn would be relatively minor in comparison to the recessions of the
early 1980s.
Long term, we believe the market holds opportunity for investors with the
discipline to demand value as well as strong growth.
[TWENTIETH CENTURY MUTUAL FUNDS LOGO]
A MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS.
TCI BALANCED
OBJECTIVE - To seek capital growth and current income.
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
TCI Balanced compiled the second best result for a single six-month reporting
period in the fund's history. These gains reflected the strength of a powerful
market rally. TCI Balanced's benchmark index, a combination of the S&P 500 and
the Lehman Brothers Intermediate Government/ Corporate Index, turned in an
especially high 15.95% gain for the period.
The first six months of 1995 were remarkably good for investors, as the equity
and fixed income markets surged following a weak showing in 1994. TCI Balanced's
strategy, which combines an approximate 60% stake in growth stocks with a 40%
stake in high-quality government and corporate bonds, was able to benefit from
both markets. While the rally was tentative at first, the market eventually came
to favor growth stocks with evident earnings and revenue acceleration. These are
the type of companies that Twentieth Century routinely seeks for its equity
portfolios. The market was especially kind to stocks in a number of
technology-related industries during the last half of the period. With a
near-20% stake in technology stocks, TCI Balanced was able to participate in
this market trend.
The fund's underperformance of its benchmark owes to the fact that, over the
early part of the period, the market favored more conservative stocks and longer
maturity bonds. Many investors at that time gravitated toward more-seasoned
stocks in the face of uncertainty about the state of the economy. Responding to
rapidly falling interest rates, however, the fixed-income markets especially
favored bonds with aggressive interest-rate postures. The long-term government
bonds that posted one of their worst declines this century in 1994 rebounded
with 30% gains in the first six months of 1995. This trend did little to benefit
your fund: Seeking to avoid such extremes of performance, TCI Balanced focuses
on less-volatile short- and intermediate-term bonds. It therefore did not fully
share in either the highs or the lows of the bond market's recent gyrations.
Currently, we are investigating a number of investment opportunities abroad.
Many overseas stock markets have performed listlessly since 1993, and therefore
we believe the prices for a few firms are now fairly low relative to their
growth prospects. Among bonds, we expect to favor higher yielding and
credit-worthy corporate bonds, especially utilities and banking issues, over
government agency bonds. In the main, however, TCI Balanced will continue to
target accelerating growth in earnings and revenues for our stock holdings,
while limiting our bond holdings to straightforward, investment-grade issues
that offer reasonably good yields.
TCI Balanced continues to pursue the goal originally planned for it. This is to
provide investors with the opportunity to invest in a portfolio of growing
companies while using bonds to reduce share-price fluctuations along the way. We
remain confident that the fund has the potential to provide shareholders with a
long-term rate of return that will comfortably outpace the rate of inflation.
22
<PAGE> 23
TCI GROWTH
OBJECTIVE - To seek capital growth by investing in common stocks (including
securities convertible into common stocks) that meet certain fundamental and
technical standards of selection and, in the opinion of the fund's management,
have better than average potential for appreciation.
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
Responding to a potent rally in many different equity markets, TCI Growth posted
the second best performance for a six-month reporting period in the fund's
history. These results closely tracked the 20.14% return for the S&P 500, and
also outpaced the 17.46% gain for the average growth mutual fund over the
period, as measured by Lipper Analytical Services.
While the fund's ending performance was similar to that of the S&P 500, its path
to success was quite different. The S&P is a collection of 500 of the largest
U.S. companies from a broad variety of industries. TCI Growth, on the other
hand, is designed to single out stocks with earnings and revenue acceleration.
Sometimes, this acceleration can be found in many different industries. At other
times, the most impressive acceleration occurs in specific areas of the economy.
Recently, the management team has found the most compelling investment choices
in a broad range of stocks that come together under the umbrella heading of
technology. TCI Growth is currently more than 50% invested in this sector. The
remarkable growth posted by many of the stocks that fall under the technology
banner presents extraordinary long-term investment opportunity. When earnings
and revenue statements begin to show deceleration, these stocks immediately
become candidates to be sold.
The fund's exposure to technology stocks dictated the course of its performance
over the period. The fund's returns were crimped by a brief decline in the
prices of technology shares in early 1995. Weak economic numbers at that time
led some investors to believe that the growth of technology firms would slow.
The ensuing sell-off hurt fund performance, especially in comparison with a
surging S&P 500. As the year progressed, however, impressive earnings reports
for numerous technology issues sparked an industry-wide rally -- allowing the
fund to nearly catch up with the index in a relatively brief span at the end of
the period.
That sharp increase came despite flat performance for the fund's 10% or 11%
stake in international stocks. The fund is continuing to investigate global
investment opportunities, however, as improving interest-rate environments
should be beneficial for these issues in the future.
TCI Growth's return for the six-month period, while unusually strong, reaffirms
to us the potential of combining growth-oriented stocks with a disciplined
buying and selling process. We strongly believe that this strategy has the
potential to provide significant benefits to those investors investing to
achieve long-term financial goals.
TCI INTERNATIONAL
OBJECTIVE - To seek capital growth by investing primarily in an internationally
diversified portfolio of common stocks that are considered by management to have
prospects for appreciation.
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
The six-month period ended June 30, 1995 was a sluggish time for international
stocks. TCI International came through the period with a slight outperformance
of the fund's benchmark index, EAFE, which notched only a 2.6% gain.
For the past six months, international markets have produced some dramatic
swings in performance but little in the way of positive investment return. A
number of newsworthy events, including the devaluation of the Mexican peso, the
collapse of Barings Bank, and the Kobe earthquake in Japan combined to create
negative investor sentiment toward global investing in the year's first half.
Japan's market, which represented the fund's largest country weighting at the
beginning of the period, had to contend with economic weakness, natural
disasters, and a poor export climate. TCI International's emerging market
holdings also struggled to advance in the wake of the early year devaluation of
the peso.
Not all the news was bad, however. Many major European markets posted gains for
the period, which boosted fund performance. Further, some gains in these markets
were amplified when translated into dollar terms. This is because the dollar
weakened considerably over the period, making foreign holdings worth more in
dollars. These gains were possible for the fund because it typically engages in
minimal currency hedging, a practice that can limit international fund losses
when the dollar rises but also mutes gains when the dollar falls.
23
<PAGE> 24
TCI INTERNATIONAL (CONT'D)
The fund's most important feature, however, is its disciplined focus on stocks
that show accelerating growth in earnings and revenues. Especially if interest
rates stay flat or fall further, many superb foreign companies may be able to
achieve significant revenue and earnings acceleration. We are excited by these
opportunities, and we like to believe that, over the long term, the exporting of
Twentieth Century's long-held growth investing philosophy carries significant
investment potential.
[VAN ECK GLOBAL LOGO]
GOLD AND NATURAL RESOURCES FUND
OBJECTIVE - To seek long-term capital appreciation by investing in equity and
debt securities of companies engaged in the exploration, development, production
and distribution of gold and other natural resources, such as strategic and
other metals, minerals, forest products, oil, natural gas and coal.
NARRATIVE BY HARRY J. BINGHAM, FUND MANAGER
During the first half of the year, the gold price traded in a fairly narrow
range of $371-$398. During the early months of the year the principal monetary
focus was on the relationship of the dollar to the world's stronger currencies,
primarily the German mark and the Japanese yen. A renewed easing of U.S.
monetary policy to ensure a "soft landing" for a weakening economy and an
outpouring of U.S. dollars to support the Mexican peso combined to drive the
dollar sharply lower. On March 30th, however, the German Central Bank, in the
face of what were then rising inflationary pressures and general expectations of
a tightening of monetary policy, lowered short-term interest rates in an
apparent attempt to stabilize the dollar. Two weeks later Japan cut its discount
rate almost in half, and subsequently has further loosened monetary policy to
ease the pressure on Japanese financial institutions as well as to support the
dollar.
The early moves toward more expansionary monetary policies by Germany and Japan
were each followed by a rise in the gold price to over $390 an ounce. Gold sales
by producers, some calming of the currency markets and option expiration-related
trading appear to have capped the rally in late June. Longer term, however, the
deliberate weakening of the mark and the yen to support the dollar may have made
these currencies less attractive alternatives to gold as a hedge against dollar
holdings. Rising physical demand for both jewelry and investment from the Far
East and gradually rising European and North American demand, appear to have
established a higher trading range for gold in dollar terms even prior to
reassessment of global economic and monetary conditions.
North American gold shares were generally the best performers of the gold sector
during the first half of the year. Several companies representing the larger
North American holdings of your fund, including Placer Dome, Newmont Mining and
Barrick Gold, have expansion plans underway which should add significantly to
future gold and potential profitability. On average, as measured by the XAU
index, North American gold shares rose 9.9% during this period. North American
shares are currently over 60% of total net assets.
Australian shares, which account for about 17% of total net assets, fell on
average .48% during the first six months of the year. Several Australian
companies are adding underground operations at higher capital costs to their
open pit operations. Recent new discoveries, however, have benefited several of
the Fund's larger holdings, particularly Plutonic Resources and Newcrest Mining.
South African gold shares (a recent addition to the portfolio), which generally
are more sensitive to the effects of gold price changes on the quantity and
valuation of their reserves than to corporate developments, declined 19% in U.S.
dollar terms during the first six months of '95, as measured by the Johannesberg
Gold Shares Index. During the second quarter alone, however, these shares
stabilized more in line to the gold market and the increased probability that
labor contracts now being negotiated will be productivity oriented, thereby
enhancing the future profitability prospects of the mines. South African shares
currently comprise 10.6% of total portfolio holdings.
Demand for industrial metals by emerging markets has contributed to firm prices
for copper, nickel and other metals which are important to the diversified
mining holdings of the Fund. Despite weakening of crude oil prices, generally
favorable operating conditions led to good performance by the major integrated
oil companies in the portfolio. Rising demand for food products and low
stockpiles benefited the agricultural component of the Fund.
24
<PAGE> 25
GOLD AND NATURAL RESOURCES FUND (CONT'D)
Rising infrastructure and industrial production growth in many areas of the
world are likely to maintain high demand for natural resources in general. In
our opinion, continued turbulence in the foreign exchange markets and the
likelihood of rising inflationary pressures as credit use shifts to commodities
may well increase the investment demand and the price of gold.
WORLDWIDE BOND FUND+++
OBJECTIVE - To seek high total return through a flexible policy of investing
globally, primarily in debt securities.
NARRATIVE BY MADIS SENNER, FUND MANAGER
World bond markets achieved unusually strong performance during the first six
months of 1995. Returns were augmented for U.S. investors as the dollar declined
to post-World War II lows during the first six months. We are pleased to report
that the Van Eck Worldwide Bond Fund achieved exceptional performance
year-to-date for the period ended June 30.
Caution prevailed in the beginning of 1995 after a year of U.S. federal funds
rate increases, a resulting decline in world bond markets in 1994, and the
Mexican peso debacle in December 1994. Reflecting that caution, your portfolio
was weighted toward the stronger foreign bond markets and currencies such as the
German mark, the Japanese yen, and the Swiss franc, and durations were
temporarily lowered. We also bought U.S.-dollar denominated issues to benefit
from the post-November election rally in U.S. securities. Soon, investor
uncertainty began to recede as slowing economic growth in the U.S., Europe and
Japan suggested that the interest rate hikes may be coming to an end. At the end
of March, European rates began to decline, led by the German Bundesbank's
lowering of the discount rate from 4.5% to 4.0%, and the bond markets rallied
further. In local currency terms, virtually every major bond market worldwide
was up for the first six months of the year, led by the U.S. and Japan.
Meanwhile, embattled by uncertainty over U.S. fiscal policy, rising deficits and
the U.S.'s recent $20 billion support package for the Mexican peso, the dollar
rapidly declined against most foreign currencies, hitting post-World War II lows
in April, and ending the second quarter down over 10% versus the German mark and
approximately 15% against the Japanese yen. Expecting a dramatic fall in the
dollar, and given both strong deflationary pressures and a falling stock market
in Japan, we doubled the portfolio's Japanese position from approximately 6% of
total assets to almost 12%, purchasing long-term, 20-year bonds. We also
maintained a fairly heavy weighting toward Europe at over one-third of assets.
This positioning benefited the Fund as already solid returns were substantially
boosted by strong foreign currencies, and U.S. investors in foreign bonds reaped
the rewards. The Japanese bond market, up over 11% in local currency terms, rose
an almost unprecedented 31.6% in U.S. dollar terms. German bonds (6.9% of your
portfolio) gained 7.2% in marks, and over 20% in dollars, and French bonds (6.7%
of assets), up approximately 7% in local currency terms, rose almost 18% in
dollar terms.
THE OUTLOOK
Given a continued slowdown in economic growth and declining interest rates
throughout much of the world, (on July 6, the U.S. Federal Reserve Board lowered
the federal funds rate by .25% to 5.75%), bond markets overall should continue
to rally for several months. To position the portfolio to take full advantage,
we have been steadily increasing the average duration of the portfolio, which is
currently at 4.10 years. Our current outlook on the dollar has changed markedly,
and despite continuing negative pressures longer-term, we expect the dollar to
be steady-to-up near-term as it reaches a more equitable level against foreign
currencies. At this writing, we are approximately 50% invested in U.S.
dollar-denominated securities, with a total U.S. dollar exposure of almost 70%,
and we have decreased exposure to the "hard" or core foreign currencies. The
"peripheral" European markets, which had been battered in '94 and early '95,
have been rebounding and should continue to witness relative strength short-term
-- we currently hold small positions in both Italy and Spain. Japan is
experiencing weak economic growth while its real interest rates are at very high
levels. These circumstances bode well for near-term performance and we are thus
maintaining the Japanese position.
Bond markets tend to perform well in periods of slowing economic growth. The
next several months should be positive for your Fund as the bond markets respond
to resulting lower interest rates. We continue to actively manage both the
portfolio's bond and currency (which plays a key role in global bond returns)
allocations, and maintain our policy of flexible management in an effort to
further take advantage of market fluctuations.
+++ Formerly Global Bond Fund.
25
<PAGE> 26
FUND PERFORMANCES--THE BEST OF AMERICA(R)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN: ASSUMING CONTRACT NOT SURRENDERED** (NON-STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
-----------------------------------------------------------------------------------------------------------------------------------
NON-ANNUALIZED PERCENT CHANGE*** ANNUALIZED PERCENT CHANGE***
INCEPTION 1 YR. TO 5 YR. TO INCEPTION TO 5 YR. TO INCEPTION
FUNDS++ DATE*+ 6/30/95 6/30/95+ 6/30/95+ 6/30/95 TO 6/30/95
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Socially Responsible Growth Fund 10/06/93 18.86% NA* 25.43% NA* 13.99%
Stock Index Fund 09/29/89 23.72% 61.63% 68.12% 10.08% 9.46%
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 22.39% 88.95% 145.78% 13.57% 10.86%
Growth Portfolio 10/09/86 35.20% 87.07% 192.48% 13.34% 13.09%
High Income Portfolio 09/19/85 10.44% 104.15% 157.11% 15.34% 10.14%
Overseas Portfolio 01/28/87 1.50% 17.93% 59.66% 3.35% 5.72%
Asset Manager Portfolio 09/06/89 4.38% 59.00% 64.97% 9.72% 8.99%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 13.31% NA* 21.26% NA* 6.20%
Government Bond Fund 11/08/82 11.28% 49.27% 181.24% 8.34% 8.52%
Money Market Fund 11/10/81 3.79% 16.93% 120.29% 3.18% 5.96%
Total Return Fund 11/08/82 16.03% 69.71% 372.05% 11.16% 13.06%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 26.83% 48.75% 224.90% 8.27% 11.53%
Limited Maturity Bond Portfolio 09/10/84 6.01% 30.20% 113.05% 5.42% 7.25%
Partners Portfolio 03/22/94 26.25% NA* 16.36% NA* 12.64%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 9.11% 50.12% 134.79% 8.47% 8.76%
Global Securities Fund 11/12/90 - 0.95% NA* 47.80% NA* 8.80%
Multiple Strategies Fund 02/09/87 14.50% 53.58% 113.50% 8.96% 9.47%
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. 05/08/92 21.73% NA* 40.70% NA* 11.48%
Strong Special Fund II, Inc. 05/08/92 14.70% NA* 63.54% NA* 16.94%
TCI PORTFOLIOS, INC.
TCI Balanced 05/01/91 14.72% NA* 36.25% NA* 7.71%
TCI Growth 11/20/87 25.40% 53.12% 119.79% 8.89% 10.90%
TCI International 05/01/94 - 0.29% NA* - 2.69% NA* - 2.32%
VAN ECK WORLDWIDE INVESTMENT TRUST
Gold and Natural Resources Fund 09/01/89 2.78% 38.35% 30.80% 6.71% 4.72%
Worldwide Bond Fund+++ 09/01/89 17.00% 37.08% 41.92% 6.51% 6.19%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance information is not available for all or part of the period
indicated (See Fund Inception Date).
** SEC and NASD regulations require that any reporting of product performance
be accompanied by standardized data and the disclosures are on the
following page. Please review this information and a product prospectus
before investing.
*** Percent change in unit value price represents total return after the
deduction of a 1.3% annual asset fee.
+ Numbers in this column represent the total percentage change in the unit
value for the period indicated. This is not an annual return figure.
++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the
fund was actually available in the separate account. That hypothetical
performance is calculated by imposing contract charges on actual fund
performance, to determine how the fund would have performed if it had
been available in the separate account.
+++ Formerly Global Bond Fund.
26
<PAGE> 27
FUND PERFORMANCES--THE BEST OF AMERICA(R)(CONT'D)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:ASSUMING CONTRACT SURRENDERED (STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
-----------------------------------------------------------------------------------------------------------------------------------
INCEPTION 1 YR. TO 5 YR. TO 10 YR. TO INCEPTION
FUNDS++ DATE*+ 6/30/95 6/30/95 6/30/95 TO 6/30/95
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Socially Responsible Growth Fund 10/06/93 10.46% NA* NA* 7.58%
Stock Index Fund 09/29/89 15.32% 7.07% NA* 6.33%
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 13.99% 10.71% NA* 8.34%
Growth Portfolio 10/09/86 26.80% 10.33% NA* 10.76%
High Income Portfolio 09/19/85 2.04% 12.88% NA* 7.78%
Overseas Portfolio 01/28/87 - 6.81% - 0.22% NA* 2.64%
Asset Manager Portfolio 09/06/89 - 4.02% 6.96% NA* 6.11%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 4.91% NA* NA* 1.26%
Government Bond Fund 11/08/82 2.88% 5.43% 6.05% 6.25%
Money Market Fund 11/10/81 - 4.61% - 0.14% 1.95% 3.65%
Total Return Fund 11/08/82 7.63% 8.30% 9.36% 11.44%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 18.43% 5.08% 8.88% 9.65%
Limited Maturity Bond Portfolio 09/10/84 - 2.39% 2.30% 3.88% 4.99%
Partners Portfolio 03/22/94 17.85% NA* NA* 3.26%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 0.71% 5.56% 5.80% 6.23%
Global Securities Fund 11/12/90 - 9.11% NA* NA* 5.17%
Multiple Strategies Fund 02/09/87 6.10% 5.94% NA* 6.86%
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. 05/08/92 13.33% NA* NA* 6.61%
Strong Special Fund II, Inc. 05/08/92 6.30% NA* NA* 12.43%
TCI PORTFOLIOS, INC.
TCI Balanced 05/01/91 6.32% NA* NA* 3.58%
TCI Growth 11/20/87 17.00% 5.75% NA* 8.37%
TCI International 05/01/94 - 8.49% NA* NA* - 11.77%
VAN ECK WORLDWIDE INVESTMENT TRUST
Gold and Natural Resources Fund 09/01/89 - 5.61% 3.47% NA* 1.15%
Worldwide Bond Fund+++ 09/01/89 8.60% 3.39% NA* 3.01%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above illustration represents past fund performance based on a $1,000
hypothetical investment. The performance figures reflect the deduction of
a 1.3% annual asset fee, a $30 annual administrative charge, and a maximum
of a 6.0% contingent deferred sales charge (after one year, declining
thereafter). They also reflect the application of an annual 10% free
withdrawal privilege available after the first year. Investment principal
and investment returns are not guaranteed under these variable options.
Account values at the time of redemption may be more or less than the
purchase payment, due to market fluctuations and any specific charges that
may apply. This is neither an offer to sell nor a solicitation to buy
securities. The results shown are not a representation of future investment
performance. Any comparisons should be made only after a recognition of
the differences in the investment policies and objectives of the funds'
investments. This report is authorized for distribution to prospective
investors only when preceded or accompanied by prospectuses containing more
complete information, which should be read carefully before investing or
sending money.
* Performance information is not available for all or part of the period
indicated (See Fund Inception Date).
++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used to
calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the fund
was actually available in the separate account. That hypothetical
performance is calculated by imposing contract charges on actual fund
performance, to determine how the fund would have performed if it had been
available in the separate account.
+++ Formerly Global Bond Fund.
27
<PAGE> 28
FUND PERFORMANCES--THE BEST OF AMERICA(R) NON-QUALIFIED/IRA
ROLLOVER ANNUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:ASSUMING CONTRACT NOT SURRENDERED** (NON-STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
-----------------------------------------------------------------------------------------------------------------------------------
NON-ANNUALIZED PERCENT CHANGE*** ANNUALIZED PERCENT CHANGE***
INCEPTION 1 YR. TO 5 YR. TO INCEPTION TO 5 YR. TO INCEPTION
FUNDS++ DATE*+ 6/30/95 6/30/95+ 6/30/95+ 6/30/95 TO 6/30/95
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Socially Responsible Growth Fund 10/06/93 18.74% NA* 25.21% NA* 13.88%
Stock Index Fund 09/29/89 23.60% 60.81% 67.14% 9.97% 9.35%
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 22.27% 87.98% 143.58% 13.45% 10.75%
Growth Portfolio 10/09/86 35.06% 86.11% 189.86% 13.23% 12.98%
High Income Portfolio 09/19/85 10.33% 103.10% 154.46% 15.22% 10.02%
Overseas Portfolio 01/28/87 1.39% 17.33% 58.29% 3.25% 5.61%
Asset Manager Portfolio 09/06/89 4.27% 58.19% 63.95% 9.61% 8.88%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 13.20% NA* 20.86% NA* 6.09%
Government Bond Fund 11/08/82 11.16% 48.51% 177.40% 8.23% 8.41%
Money Market Fund 11/10/81 3.69% 16.34% 117.66% 3.07% 5.87%
Total Return Fund 11/08/82 15.92% 68.84% 365.51% 11.04% 12.94%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 26.70% 47.99% 221.30% 8.15% 11.41%
Limited Maturity Bond Portfolio 09/10/84 5.90% 29.53% 110.68% 5.31% 7.14%
Partners Portfolio 03/22/94 26.12% NA* 16.21% NA* 12.52%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 9.00% 49.35% 132.34% 8.35% 8.65%
Global Securities Fund 11/12/90 - 1.05% NA* 47.10% NA* 8.69%
Multiple Strategies Fund 02/09/87 14.38% 52.79% 111.67% 8.85% 9.35%
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. 05/08/92 21.61% NA* 40.25% NA* 11.36%
Strong Special Fund II, Inc. 05/08/92 14.58% NA* 63.02% NA* 16.82%
TCI PORTFOLIOS, INC.
TCI Balanced 05/01/91 14.60% NA* 35.67% NA* 7.60%
TCI Growth 11/20/87 25.28% 52.33% 118.07% 8.78% 10.79%
TCI International 05/01/94 - 0.39% NA* - 2.81% NA* - 2.42%
VAN ECK WORLDWIDE INVESTMENT TRUST
Gold and Natural Resources Fund 09/01/89 2.67% 37.65% 30.02% 6.60% 4.61%
Worldwide Bond Fund+++ 09/01/89 16.88% 36.38% 41.07% 6.40% 6.08%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance information is not available for all or part of the period
indicated (See Fund Inception Date).
** SEC and NASD regulations require that any reporting of product
performance be accompanied by standardized data and the disclosures are
on the following page. Please review this information and a product
prospectus before investing.
*** Percent change in unit value price represents total return after the
deduction of a 1.4% annual asset fee.
+ Numbers in this column represent the total percentage change in the unit
value for the period indicated. This is not an annual return figure.
++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the
fund was actually available in the separate account. That hypothetical
performance is calculated by imposing contract charges on actual fund
performance, to determine how the fund would have performed if it had
been available in the separate account.
+++ Formerly Global Bond Fund.
28
<PAGE> 29
FUND PERFORMANCES--THE BEST OF AMERICA(R) NON-QUALIFIED/IRA
ROLLOVER ANNUITY (CONT'D)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:ASSUMING CONTRACT SURRENDERED (STANDARDIZED)
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
-----------------------------------------------------------------------------------------------------------------------------------
INCEPTION 1 YR. TO 5 YR. TO 10 YR. TO INCEPTION
FUNDS++ DATE*+ 6/30/95 6/30/95 6/30/95 TO 6/30/95
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Socially Responsible Growth Fund 10/06/93 13.34% NA* NA* 11.01%
Stock Index Fund 09/29/89 18.20% 9.72% NA* 9.14%
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 16.87% 13.24% NA* 10.75%
Growth Portfolio 10/09/86 29.66% 13.01% NA* 12.98%
High Income Portfolio 09/19/85 4.93% 15.02% NA* 10.02%
Overseas Portfolio 01/28/87 - 4.01% 2.93% NA* 5.61%
Asset Manager Portfolio 09/06/89 - 1.13% 9.36% NA* 8.67%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 7.80% NA* NA* 5.09%
Government Bond Fund 11/08/82 5.76% 7.97% 8.23% 8.41%
Money Market Fund 11/10/81 - 1.71% 2.75% 4.51% 5.87%
Total Return Fund 11/08/82 10.52% 10.81% 11.18% 12.94%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 21.30% 7.89% 10.73% 11.41%
Limited Maturity Bond Portfolio 09/10/84 0.50% 5.02% 6.21% 7.14%
Partners Portfolio 03/22/94 20.72% NA* NA* 8.40%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 3.60% 8.09% 8.05% 8.65%
Global Securities Fund 11/12/90 - 6.38% NA* NA* 8.26%
Multiple Strategies Fund 02/09/87 8.98% 8.59% NA* 9.35%
STRONG VIP FUNDS
Strong Discovery Fund II, Inc. 05/08/92 16.21% NA* NA* 10.44%
Strong Special Fund II, Inc. 05/08/92 9.18% NA* NA* 15.99%
TCI PORTFOLIOS, INC.
TCI Balanced 05/01/91 9.20% NA* NA* 7.08%
TCI Growth 11/20/87 19.88% 8.52% NA* 10.79%
TCI International 05/01/94 - 5.77% NA* NA* - 6.95%
VAN ECK WORLDWIDE INVESTMENT TRUST
Gold and Natural Resources Fund 09/01/89 - 2.73% 6.32% NA* 4.36%
Worldwide Bond Fund+++ 09/01/89 11.48% 6.12% NA* 5.85%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above illustration represents past fund performance based on a $1,000
hypothetical investment. The performance figures reflect the deduction of
a 1.4% annual asset fee and a maximum of a 6.0% contingent deferred sales
charge (after one year, declining thereafter). They also reflect the
application of an annual 10% free withdrawal privilege available after the
first year. Investment principal and investment returns are not guaranteed
under these variable options. Account values at the time of redemption may
be more or less than the purchase payment, due to market fluctuations and
any specific charges that may apply. This is neither an offer to sell nor
a solicitation to buy securities. The results shown are not a
representation of future investment performance. Any comparisons should be
made only after a recognition of the differences in the investment
policies and objectives of the funds' investments. This report is
authorized for distribution to prospective investors only when preceded or
accompanied by prospectuses containing more complete information, which
should be read carefully before investing or sending money.
* Performance information is not available for all or part of the period
indicated (See Fund Inception Date).
++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
*+ Performance for some funds reflects performance for periods before the
fund was actually available in the separate account. That hypothetical
performance is calculated by imposing contract charges on actual fund
performance, to determine how the fund would have performed if it had been
available in the separate account.
+++ Formerly Global Bond Fund.
29
<PAGE> 30
NATIONWIDE VARIABLE ACCOUNT -- II
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value:
American VI Series -- Growth Fund (AVISGro)
591,836 shares (cost $15,343,722)........................................... $ 22,655,472
American VI Series-- High-Yield Bond Fund (AVISHiYld)
216,365 shares (cost $3,000,691)............................................ 2,942,559
American VI Series -- U.S. Government/AAA-Rated
Securities Fund (AVISGvt)
912,320 shares (cost $10,205,811)........................................... 10,245,351
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
799,473 shares (cost $11,015,347)........................................... 12,455,794
Dreyfus Stock Index Fund (DryStkIx)
4,279,431 shares (cost $60,707,242)......................................... 65,646,475
Fidelity VIP-- Equity-Income Portfolio (FidEqInc)
58,154,412 shares (cost $874,126,817)....................................... 982,228,022
Fidelity VIP-- Growth Portfolio (FidGro)
34,870,010 shares (cost $763,782,806)....................................... 931,029,256
Fidelity VIP-- High Income Portfolio (FidHiInc)
29,257,949 shares (cost $313,787,582)....................................... 327,396,448
Fidelity VIP-- Overseas Portfolio (FidOSeas)
31,319,784 shares (cost $498,141,016)....................................... 507,067,311
Fidelity VIP-II-- Asset Manager Portfolio (FidAsMgr)
55,494,668 shares (cost $782,157,940)....................................... 795,238,882
Nationwide SAT-- Capital Appreciation Fund (NWCapApp)
1,872,174 shares (cost $20,897,305)......................................... 22,297,597
Nationwide SAT-- Government Bond Fund (NWGvtBd)
20,932,513 shares (cost $229,128,179)....................................... 231,304,269
Nationwide SAT-- Money Market Fund (NWMyMkt)
614,727,181 shares (cost $614,727,181)...................................... 614,727,181
Nationwide SAT-- Total Return Fund (NWTotRet)
24,128,191 shares (cost $237,010,280)....................................... 267,822,919
Neuberger & Berman-- Growth Portfolio (NBGro)
12,925,105 shares (cost $283,713,378)....................................... 309,039,264
Neuberger & Berman-- Limited Maturity Bond Portfolio (NBLtdMat)
12,509,582 shares (cost $177,831,943)....................................... 176,385,100
Neuberger & Berman-- Partners Portfolio (NBPart)
4,537,390 shares (cost $49,832,659)......................................... 53,268,960
Oppenheimer-- Bond Fund (OppBdFd)
10,317,350 shares (cost $116,921,727)....................................... 118,855,867
Oppenheimer-- Global Securities Fund (OppGlSec)
13,555,562 shares (cost $211,814,543)....................................... 201,706,766
Oppenheimer-- Multiple Strategies Fund (OppMult)
10,564,805 shares (cost $139,553,591)....................................... 146,850,784
Strong VIP-- Strong Discovery Fund II, Inc. (StDisc2)
12,585,798 shares (cost $135,971,748)....................................... 147,757,268
Strong VIP-- Strong Special Fund II, Inc. (StSpec2)
23,597,102 shares (cost $341,002,391)....................................... 363,159,397
TCI Portfolios-- TCI Balanced (TCIBal)
10,785,904 shares (cost $64,236,396)........................................ 71,618,405
TCI Portfolios-- TCI Growth (TCIGro)
38,858,023 shares (cost $344,213,399)....................................... 427,049,675
TCI Portfolios-- TCI International (TCIInt)
8,532,177 shares (cost $40,247,621)......................................... 42,148,953
Van Eck-- Gold and Natural Resources Fund (VEGoldNR)
8,934,467 shares (cost $115,765,082)........................................ 120,704,648
Van Eck-- Worldwide Bond Fund (VEWrldBd)
10,400,469 shares (cost $111,091,498)....................................... 115,341,196
-------------
Total assets............................................................. 7,086,943,819
ACCOUNTS PAYABLE..................................................................... 1,723,222
-------------
CONTRACT OWNERS' EQUITY (NOTE 4)..................................................... $ 7,085,220,597
=============
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 31
<TABLE>
NATIONWIDE VARIABLE ACCOUNT -- II
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
Six Month Periods Ended June 30, 1995, 1994 and 1993
(UNAUDITED)
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends...................... $ 170,525,233 158,339,492 57,230,522
--------------- -------------- -------------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares.......... 1,211,633,108 1,087,466,532 462,362,190
Cost of mutual fund shares sold.......................... (1,181,005,197) (1,004,808,655) (428,032,387)
--------------- -------------- -------------
Realized gain on investments............................. 30,627,911 82,657,877 34,329,803
Change in unrealized gain (loss) on investments.......... 535,928,728 (403,595,018) 96,033,546
--------------- -------------- -------------
Net gain (loss) on investments..................... 566,556,639 (320,937,141) 130,363,349
--------------- -------------- -------------
Net investment activity.................... 737,081,872 (162,597,649) 187,593,871
--------------- -------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners............. 922,253,557 1,128,419,582 606,437,509
Redemptions................................................. (236,286,576) (95,904,811) (66,946,221)
Annuity benefits............................................ (165,324) (81,598) (61,457)
Adjustments to maintain reserves............................ (131,372) (22,380) (26,752)
--------------- -------------- -------------
Net equity transactions.................... 685,670,285 1,032,410,793 539,403,079
--------------- -------------- -------------
EXPENSES (NOTE 2):
Contract charges............................................ (44,196,040) (30,535,787) (18,135,030)
Contingent deferred sales charges........................... (4,140,173) (1,775,071) (1,236,474)
--------------- -------------- -------------
Total expenses............................. (48,336,213) (32,310,858) (19,371,504)
--------------- -------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.......................... 1,374,415,944 837,502,286 707,625,446
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD.................... 5,710,804,653 3,940,796,154 2,264,040,219
--------------- -------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD.......................... $ 7,085,220,597 4,778,298,440 2,971,665,665
=============== ============== =============
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 32
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Nationwide Variable Account--II (the Account) was established pursuant
to a resolution of the Board of Directors of Nationwide Life Insurance Company
(the Company) on October 7, 1981. The Account has been registered as a unit
investment trust under the Investment Company Act of 1940.
(b) The Contracts
Only flexible purchase payment contracts without a front-end sales charge,
but with a contingent deferred sales charge and certain other fees, are offered
for purchase. See note 2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or the
payout phase may invest in the following:
Funds of the American Variable Insurance Series (American VI Series)
(available only for contracts issued on or after May 1, 1987 and before
September 1, 1989);
American VI Series -- Growth Fund (AVISGro)
American VI Series -- High-Yield Bond Fund (AVISHiYld)
American VI Series -- U.S. Government/AAA-Rated Securities Fund
(AVISGvt)
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)(formerly Dreyfus Life and Annuity
Index Fund, Inc. (DLAI))
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity
VIP);
Fidelity VIP -- Equity-Income Portfolio (FidEqInc)
Fidelity VIP -- Growth Portfolio (FidGro)
Fidelity VIP -- High Income Portfolio (FidHiInc)
Fidelity VIP -- Overseas Portfolio (FidOSeas)
Portfolio of the Fidelity Variable Insurance Products Fund II (Fidelity
VIP-II);
Fidelity VIP-II -- Asset Manager Portfolio (FidAsMgr)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT -- Capital Appreciation Fund (NWCapApp)
Nationwide SAT -- Government Bond Fund (NWGvtBd)
Nationwide SAT -- Money Market Fund (NWMyMkt)
Nationwide SAT -- Total Return Fund (NWTotRet)
Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger
& Berman);
Neuberger & Berman -- Growth Portfolio (NBGro)
Neuberger & Berman -- Limited Maturity Bond Portfolio (NBLtdMat)
Neuberger & Berman -- Partners Portfolio (NBPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer);
Oppenheimer -- Bond Fund (OppBdFd)
Oppenheimer -- Global Securities Fund (OppGlSec)
Oppenheimer -- Multiple Strategies Fund (OppMult)
Funds of the Strong Variable Insurance Products Funds (Strong VIP);
Strong VIP -- Strong Discovery Fund II, Inc. (StDisc2)
Strong VIP -- Strong Special Fund II, Inc. (StSpec2)
Portfolios of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios -- TCI Balanced (TCIBal)
TCI Portfolios -- TCI Growth (TCIGro)
TCI Portfolios -- TCI International (TCIInt)
32
<PAGE> 33
Funds of the Van Eck Worldwide Insurance Trust (Van Eck) (formerly Van
Eck Investment Trust);
Van Eck -- Gold and Natural Resources Fund (VEGoldNR)
Van Eck -- Worldwide Bond Fund (VEWrldBd)
(formerly Van Eck -- Global Bond Fund (VEGlobBd))
At June 30, 1995, contract owners have invested in all of the above funds.
The contract owners' equity is affected by the investment results of each fund
and certain contract expenses (see note 2).
The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their contracts and
exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of investments is based on the closing bid prices at June
30, 1995. The cost of investments sold is determined on a specific
identification basis. Investment transactions are accounted for on the trade
date (date the order to buy or sell is executed) and dividend income is recorded
on the ex-dividend date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with, operations
of the Company which is taxed as a life insurance company under the Internal
Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or withdrawal.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of such
contracts is surrendered, the Company will, with certain exceptions, deduct from
a contract owner's contract value a contingent deferred sales charge. For
contracts issued prior to December 15, 1988, the contingent deferred sales
charge will be equal to 5% of the lesser of the total of all purchase payments
made within 96 months prior to the date of the request for surrender or the
amount surrendered. For contracts issued on or after December 15, 1988, the
Company will deduct a contingent deferred sales charge not to exceed 7% of the
lesser of purchase payments or the amount surrendered, such charge declining 1%
per year, to 0%, after the purchase payment has been held in the contract for 84
months. No sales charges are deducted on redemptions used to purchase units in
the fixed investment options of the Company.
The following administrative charges are deducted by the Company: (a) for
The BEST OF AMERICA(R) contracts an annual contract maintenance charge of $30,
with certain exceptions, which is satisfied by surrendering units; and (b) for
The BEST OF AMERICA(R) contracts issued prior to December 15, 1988, a charge
for mortality and expense risk assessed through the daily unit value calculation
equal to an annual rate of 0.80% and 0.50%, respectively; for The BEST OF
AMERICA(R) contracts issued on or after December 15, 1988, a mortality risk
charge, an expense risk charge and an administration charge assessed through the
daily unit value calculation equal to an annual rate of 0.80%, 0.45% and 0.05%,
respectively, and for The BEST OF AMERICA(R) Non-Qualified/IRA Rollover
Annuity contracts, a mortality risk charge, an expense risk charge and an
administration charge assessed through the daily unit value calculation equal to
an annual rate of 0.80%, 0.45% and 0.15%, respectively.
(3) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented for each
series, as applicable, in the following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to capital
gains and dividend distributions from the underlying mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the fund.)
- Contract charges
(This amount reflects the decrease in the unit value due to the
mortality risk charge, an expense risk charge and an administration
charge discussed in note 2.)
- Ending unit value - June 30
- Percentage increase (decrease) in unit value.
For contracts in the payout phase, an assumed investment return of 3.5%,
used in the calculation of the annuity benefit payment amount, results in a
corresponding reduction in the components of the unit values as shown in
Schedule I.
33
<PAGE> 34
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at June 30, 1995,
for each series, in both the accumulation and payout phases.
<TABLE>
<CAPTION>
Contract owners' equity represented by: Units Unit Value
--------- --------------
<S> <C> <C> <C>
Contracts in accumulation phase:
The BEST OF AMERICA(R) contracts:
American VI Series -- Growth Fund:
Tax qualified.......................................... 557,827 $ 20.359089 $ 11,356,850
Non-tax qualified...................................... 554,740 20.359089 11,294,001
American VI Series -- High-Yield Bond Fund:
Tax qualified.......................................... 85,268 19.442810 1,657,850
Non-tax qualified...................................... 65,591 19.442810 1,275,273
American VI Series -- U.S. Government/AAA-Rated
Securities Fund:
Tax qualified.......................................... 334,343 17.185505 5,745,853
Non-tax qualified...................................... 261,672 17.185505 4,496,965
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified.......................................... 439,458 12.543492 5,512,338
Non-tax qualified...................................... 318,183 12.543492 3,991,126
Dreyfus Stock Index Fund:
Tax qualified.......................................... 1,937,548 12.010785 23,271,472
Non-tax qualified...................................... 1,813,890 12.010785 21,786,243
Fidelity VIP -- Equity-Income Portfolio:
Tax qualified.......................................... 19,289,025 21.701996 418,610,343
Non-tax qualified...................................... 19,010,318 21.701996 412,561,845
Fidelity VIP -- Growth Portfolio:
Tax qualified.......................................... 13,442,203 31.298048 420,714,715
Non-tax qualified...................................... 12,454,020 31.298048 389,786,516
Fidelity VIP -- High Income Portfolio:
Tax qualified.......................................... 5,906,525 20.392550 120,449,106
Non-tax qualified...................................... 7,198,391 20.392550 146,793,548
Fidelity VIP -- Overseas Portfolio:
Tax qualified.......................................... 15,055,683 14.176637 213,438,953
Non-tax qualified...................................... 15,913,123 14.176637 225,594,568
Fidelity VIP-II -- Asset Manager Portfolio:
Tax qualified.......................................... 23,631,356 16.493687 389,768,189
Non-tax qualified...................................... 17,925,710 16.493687 295,661,050
Nationwide SAT -- Capital Appreciation Fund:
Tax qualified.......................................... 752,985 12.367512 9,312,551
Non-tax qualified...................................... 773,840 12.367512 9,570,475
Nationwide SAT -- Government Bond Fund:
Tax qualified.......................................... 4,124,100 28.131753 116,018,163
Non-tax qualified...................................... 3,374,471 28.057443 94,679,028
Nationwide SAT -- Money Market Fund:
Tax qualified.......................................... 9,779,581 20.900382 204,396,979
Non-tax qualified...................................... 12,687,317 20.900382 265,169,772
Nationwide SAT -- Total Return Fund:
Tax qualified.......................................... 2,496,280 47.181423 117,778,043
Non-tax qualified...................................... 2,680,301 45.966497 123,204,048
Neuberger & Berman -- Growth Portfolio:
Tax qualified.......................................... 5,637,430 25.710218 144,939,554
Non-tax qualified...................................... 5,257,152 25.710218 135,162,524
Neuberger &Berman -- Limited Maturity
Bond Portfolio:
Tax qualified.......................................... 4,446,333 15.737379 69,973,628
Non-tax qualified...................................... 4,137,033 15.737379 65,106,056
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
Neuberger & Berman -- Partners Portfolio:
Tax qualified.......................................... 1,459,442 12.052828 17,590,403
Non-tax qualified...................................... 1,528,985 12.052828 18,428,593
Oppenheimer -- Bond Fund:
Tax qualified.......................................... 3,095,661 15.938376 49,339,809
Non-tax qualified...................................... 2,968,399 15.938376 47,311,459
Oppenheimer -- Global Securities Fund:
Tax qualified.......................................... 6,789,762 11.394011 77,362,623
Non-tax qualified...................................... 5,823,925 11.394011 66,357,866
Oppenheimer -- Multiple Strategies Fund:
Tax qualified.......................................... 4,446,439 14.901358 66,257,979
Non-tax qualified...................................... 3,812,548 14.901358 56,812,143
Strong VIP -- Strong Discovery Fund II, Inc.:
Tax qualified.......................................... 4,359,305 14.069841 61,334,728
Non-tax qualified...................................... 4,202,525 14.069841 59,128,859
Strong VIP -- Strong Special Fund II, Inc.:
Tax qualified.......................................... 9,541,464 16.354179 156,042,810
Non-tax qualified...................................... 8,813,560 16.354179 144,138,538
TCI Portfolios -- TCI Balanced:
Tax qualified.......................................... 2,736,391 12.081311 33,059,191
Non-tax qualified...................................... 2,331,531 12.081311 28,167,951
TCI Portfolios -- TCI Growth:
Tax qualified.......................................... 9,595,268 22.999695 220,688,237
Non-tax qualified...................................... 7,589,893 22.999695 174,565,224
TCI Portfolios -- TCI International:
Tax qualified.......................................... 1,718,929 9.704469 16,681,293
Non-tax qualified...................................... 1,544,018 9.704469 14,983,875
Van Eck -- Gold and Natural Resources Fund:
Tax qualified.......................................... 3,363,162 13.079594 43,988,794
Non-tax qualified...................................... 4,398,553 13.079594 57,531,287
Van Eck -- Worldwide Bond Fund:
Tax qualified.......................................... 3,289,935 14.191654 46,689,619
Non-tax qualified...................................... 3,536,671 14.191654 50,191,211
The BEST OF AMERICA(R) Non-Qualified/IRA Rollover
Annuity contracts:
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified.......................................... 84,126 11.865136 998,166
Non-tax qualified...................................... 164,698 11.865136 1,954,164
Dreyfus Stock Index Fund:
Tax qualified.......................................... 745,480 11.955102 8,912,289
Non-tax qualified...................................... 976,702 11.955102 11,676,572
Fidelity VIP -- Equity-Income Portfolio:
Tax qualified.......................................... 5,044,033 12.517360 63,137,977
Non-tax qualified...................................... 7,002,762 12.517360 87,656,093
Fidelity VIP -- Growth Portfolio:
Tax qualified.......................................... 3,758,572 12.392935 46,579,738
Non-tax qualified...................................... 5,956,894 12.392935 73,823,400
Fidelity VIP -- High Income Portfolio:
Tax qualified.......................................... 2,370,668 10.948273 25,954,720
Non-tax qualified...................................... 3,123,035 10.948273 34,191,840
Fidelity VIP -- Overseas Portfolio:
Tax qualified.......................................... 2,601,740 10.895993 28,348,541
Non-tax qualified...................................... 3,620,243 10.895993 39,446,142
Fidelity VIP-II -- Asset Manager Portfolio:
Tax qualified.......................................... 4,679,611 10.088565 47,210,560
Non-tax qualified...................................... 6,182,227 10.088565 62,369,799
Nationwide SAT -- Capital Appreciation Fund:
Tax qualified.......................................... 129,041 10.976059 1,416,362
Non-tax qualified...................................... 182,042 10.976059 1,998,104
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C> <C>
Nationwide SAT -- Government Bond Fund:
Tax qualified.......................................... 737,607 10.623141 7,835,703
Non-tax qualified...................................... 1,190,793 10.623141 12,649,962
Nationwide SAT -- Money Market Fund:
Tax qualified.......................................... 4,857,690 10.471615 50,867,859
Non-tax qualified...................................... 8,830,217 10.471615 92,466,633
Nationwide SAT -- Total Return Fund:
Tax qualified.......................................... 974,304 11.588557 11,290,777
Non-tax qualified...................................... 1,282,406 11.588557 14,861,235
Neuberger &Berman -- Growth Portfolio:
Tax qualified.......................................... 874,234 11.439830 10,001,088
Non-tax qualified...................................... 1,641,769 11.439830 18,781,558
Neuberger &Berman -- Limited Maturity
Bond Portfolio:
Tax qualified.......................................... 2,246,669 10.411844 23,391,967
Non-tax qualified...................................... 1,714,431 10.411844 17,850,388
Neuberger &Berman -- Partners Portfolio:
Tax qualified.......................................... 621,303 12.041684 7,481,534
Non-tax qualified...................................... 811,221 12.041684 9,768,467
Oppenheimer -- Bond Fund:
Tax qualified.......................................... 977,491 10.670218 10,430,042
Non-tax qualified...................................... 1,090,338 10.670218 11,634,144
Oppenheimer -- Global Securities Fund:
Tax qualified.......................................... 2,522,701 10.468880 26,409,854
Non-tax qualified...................................... 3,016,037 10.468880 31,574,529
Oppenheimer -- Multiple Strategies Fund:
Tax qualified.......................................... 935,913 11.078546 10,368,555
Non-tax qualified...................................... 1,210,597 11.078546 13,411,655
Strong VIP -- Strong Discovery Fund II, Inc.:
Tax qualified.......................................... 897,828 11.663390 10,471,718
Non-tax qualified...................................... 1,442,233 11.663390 16,821,326
Strong VIP -- Strong Special Fund II, Inc.:
Tax qualified.......................................... 2,197,714 12.030538 26,439,682
Non-tax qualified...................................... 3,036,183 12.030538 36,526,915
TCI Portfolios -- TCI Balanced:
Tax qualified.......................................... 329,157 11.152555 3,670,942
Non-tax qualified...................................... 602,564 11.152555 6,720,128
TCI Portfolios -- TCI Growth:
Tax qualified.......................................... 1,069,688 11.740145 12,558,292
Non-tax qualified...................................... 1,624,584 11.740145 19,072,852
TCI Portfolios -- TCI International:
Tax qualified.......................................... 463,518 9.695500 4,494,039
Non-tax qualified...................................... 617,760 9.695500 5,989,492
Van Eck -- Gold and Natural Resources Fund:
Tax qualified.......................................... 690,849 10.748299 7,425,452
Non-tax qualified...................................... 1,093,366 10.748299 11,751,825
Van Eck -- Worldwide Bond Fund:
Tax qualified.......................................... 729,219 11.286921 8,230,637
Non-tax qualified...................................... 897,926 11.286921 10,134,820
========= =========
Reserves for annuity contracts in payout phase:
Tax qualified.......................................... 1,261,464
Non-tax qualified...................................... 1,170,479
--------------
$7,085,220,597
==============
</TABLE>
36
<PAGE> 37
SCHEDULE I
NATIONWIDE VARIABLE ACCOUNT -- II
THE BEST OF AMERICA(R) CONTRACTS
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
SIX MONTH PERIODS ENDED JUNE 30, 1995, 1994
AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
AVISGRO+ AVISHIYLD+ AVISGVT+ DRYSRGRO DRYSTKIX
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $16.632869 17.247186 15.872495 10.721141 10.087774
---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .074355 .897922 .611524 .000000 .124481
---------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.770963 1.417507 .809335 1.896930 1.870512
---------------------------------------------------------------------------------------------------
Contract charges (.119098) (.119805) (.107849) (.074579) (.071982)
---------------------------------------------------------------------------------------------------
Ending unit value - June 30 $20.359089 19.442810 17.185505 12.543492 12.010785
---------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 22% 13% 8% 17% 19%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
1994
Beginning unit value - Jan. 1 $16.767635 18.696382 16.810323 10.702195 10.130946
-------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .057260 .775747 .507555 .000000 .053552
-------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.900041) (1.508055) (1.365891) (.078944) (.411473)
-------------------------------------------------------------------------------------------------
Contract charges (.107474) (.118729) (.105856) (.069748) (.065023)
---------------------------------------------------------------------------------------------------
Ending unit value - June 30 $15.817380 17.845345 15.846131 10.553503 9.708002
---------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (6)% (5)% (6)% (1)% (4)%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
1993
Beginning unit value - Jan. 1 $14.603954 16.269615 15.319654 ** **
-------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .060725 .634853 .507808
-------------------------------------------------------------------------------------------------
Unrealized gain (loss) .770177 .928852 .735435
-------------------------------------------------------------------------------------------------
Contract charges (.096668) (.110733) (.103608)
-------------------------------------------------------------------------------------------------
Ending unit value - June 30 $15.338188 17.722587 16.459289
-------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 5% 9% 7%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIDEQINC FIDGRO FIDHIINC FIDOSEAS
-------- ------ -------- --------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 18.646331 25.451479 18.327364 13.701507
---------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.201543 .140639 1.326946 .104797
---------------------------------------------------------------------------------------
Unrealized gain (loss) 1.986096 5.884004 .864880 .459307
---------------------------------------------------------------------------------------
Contract charges (.131974) (.178074) (.126640) (.088974)
---------------------------------------------------------------------------------------
Ending unit value - June 30 21.701996 31.298048 20.392550 14.176637
---------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 16% 23% 11% 3%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
1994
Beginning unit value - Jan. 1 17.644458 25.790764 18.859652 13.646118
---------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.106857 1.551366 1.728139 .070437
---------------------------------------------------------------------------------------
Unrealized gain (loss) (.903868) (4.028170) (1.999862) .342566
---------------------------------------------------------------------------------------
Contract charges (.115606) (.163685) (.122788) (.091421)
---------------------------------------------------------------------------------------
Ending unit value - June 30 17.731841 23.150275 18.465141 13.967700
---------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 0% (10)% (2)% 2%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
1993
Beginning unit value - Jan. 1 15.123262 21.890060 15.855840 10.074553
---------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .225375 .486821 1.303797 .235418
---------------------------------------------------------------------------------------
Unrealized gain (loss) 1.456530 2.033285 .603688 1.679967
---------------------------------------------------------------------------------------
Contract charges (.104211) (.147273) (.108946) (.072668)
---------------------------------------------------------------------------------------
Ending unit value - June 30 16.700956 24.262893 17.654379 11.917270
---------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 10% 11% 11% 18%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
* This is not an annualized rate of return as it is the change for a six
month period and contract charges do not include the annual contract
maintenance charge discussed in note 2.
** This investment option was not being utilized or was not available.
+ See note 1(b).
37
<PAGE> 38
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT -- II
THE BEST OF AMERICA(R) CONTRACTS
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
SIX MONTH PERIODS ENDED JUNE 30, 1995, 1994
AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
NWGVTBD NWGVTBD
FIDASMGR NWCAPAPP QUAL NON-QUAL NWMYMKT
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $15.641016 11.311683 25.309101 25.242252 20.457373
--------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .328525 .108494 .871422 .869121 .578244
--------------------------------------------------------------------------------------------------
Unrealized gain (loss) .628331 1.024511 2.125236 2.119613 .000000
--------------------------------------------------------------------------------------------------
Contract charges (.104185) (.077176) (.174006) (.173543) (.135235)
--------------------------------------------------------------------------------------------------
Ending unit value - June 30 $16.493687 12.367512 28.131753 28.057443 20.900382
--------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 5% 9% 11% 11% 2%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
1994
Beginning unit value - Jan. 1 $16.874276 11.564256 26.497619 26.427634 19.951530
-------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .808805 .072046 .790557 .788468 .315175
-------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.774776) (.647961) (1.839024) (1.834168) .000000
-------------------------------------------------------------------------------------------------
Contract charges (.106828) (.073837) (.168140) (.167694) (.130165)
--------------------------------------------------------------------------------------------------
Ending unit value - June 30 $15.801477 10.914504 25.281012 25.214240 20.136540
--------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (6)% (6)% (5)% (5)% 1%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
1993
Beginning unit value - Jan. 1 $14.123234 10.689287 24.513489 24.448737 19.672720
-------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .655581 .081517 .776675 .774624 .268175
-------------------------------------------------------------------------------------------------
Unrealized gain (loss) .584190 (.020679) 1.014042 1.011362 .000000
-------------------------------------------------------------------------------------------------
Contract charges (.095553) (.068890) (.165067) (.164624) (.128265)
--------------------------------------------------------------------------------------------------
Ending unit value - June 30 $15.267452 10.681235 26.139139 26.070099 19.812630
--------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 8% 0% 7% 7% 1%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NWTOTRET NWTOTRET
QUAL NON-QUAL NBGRO NBLTDMAT NBPART
-------- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 40.926247 39.872391 21.247525 14.896724 10.017795
---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .632087 .615811 .751645 .827026 .081856
---------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.909912 5.757728 3.862638 .113755 2.024505
---------------------------------------------------------------------------------------------------
Contract charges (.286823) (.279433) (.151590) (.100126) (.071328)
---------------------------------------------------------------------------------------------------
Ending unit value - June 30 47.181423 45.966497 25.710218 15.737379 12.052828
---------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 15% 15% 21% 6% 20%
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
1994
Beginning unit value - Jan. 1 41.023082 39.966728 22.656907 15.115753 **
---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .506839 .493789 2.730116 .638336
---------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.601419) (.585928) (4.971793) (.811936)
---------------------------------------------------------------------------------------------------
Contract charges (.266845) (.259972) (.144165) (.097122)
---------------------------------------------------------------------------------------------------
Ending unit value - June 30 40.661657 39.614617 20.271065 14.845031
---------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (1)% (1)% (11)% (2)%
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
1993
Beginning unit value - Jan. 1 37.471598 36.506693 21.495392 14.362908 **
---------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .454644 .442937 .498087 .590488
---------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.624028 1.582214 (.326641) .067204
---------------------------------------------------------------------------------------------------
Contract charges (.248893) (.242484) (.137488) (.095440)
---------------------------------------------------------------------------------------------------
Ending unit value - June 30 39.301377 38.289360 21.529350 14.925160
---------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 5% 5% 0% 4%
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
* This is not an annualized rate of return as it is the change for a six
month period and contract charges do not include the annual contract
maintenance charge discussed in note 2.
** This investment option was not being utilized or was not available.
38
<PAGE> 39
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT -- II
THE BEST OF AMERICA(R) CONTRACTS
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
SIX MONTH PERIODS ENDED JUNE 30, 1995, 1994
AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
OPPBDFD OPPGLSEC OPPMULT STDISC2 STSPEC2
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $14.531774 11.307851 13.216172 12.143604 14.551898
------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .500661 .297358 .732021 .003939 .672317
------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.005228 (.138646) 1.044690 2.005248 1.228926
------------------------------------------------------------------------------------------------
Contract charges (.099287) (.072552) (.091525) (.082950) (.098962)
------------------------------------------------------------------------------------------------
Ending unit value - June 30 $15.938376 11.394011 14.901358 14.069841 16.354179
------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 10% 1% 13% 16% 12%
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
1994
Beginning unit value - Jan. 1 $15.013579 12.151882 13.655607 13.003747 14.230988
------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .307123 .214070 .304003 .015219 .039929
------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.617637) (.784238) (.857279) (1.379808) .081393
------------------------------------------------------------------------------------------------
Contract charges (.096048) (.078745) (.087926) (.081350) (.093796)
------------------------------------------------------------------------------------------------
Ending unit value - June 30 $14.607017 11.502969 13.014405 11.557808 14.258514
------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (3)% (5)% (5)% (11)% 0%
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
1993
Beginning unit value - Jan. 1 $13.456350 ** 11.932236 10.796708 11.519061
------------------------------------------------------------------------------------------------
Reinvested capital gains.
and dividends .405013 .258309 .293737 .034201
------------------------------------------------------------------------------------------------
Unrealized gain (loss) .737263 .633305 .205350 1.480908
------------------------------------------------------------------------------------------------
Contract charges (.091096) (.080330) (.071356) (.079910)
------------------------------------------------------------------------------------------------
Ending unit value - June 30 $14.507530 12.743520 11.224439 12.954260
------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 8% 7% 4% 12%
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TCIBAL TCIGRO TCIINT VEGOLDNR VEWRLDBD
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 10.801286 19.378026 9.392316 12.728311 12.465907
--------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .121391 .022298 .000000 .057905 .740897
--------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.231991 3.733655 .372667 .375296 1.072724
--------------------------------------------------------------------------------------------------
Contract charges (.073357) (.134284) (.060514) (.081918) (.087874)
--------------------------------------------------------------------------------------------------
Ending unit value - June 30 12.081311 22.999695 9.704469 13.079594 14.191654
--------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 12% 19% 3% 3% 14%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
1994
Beginning unit value - Jan. 1 10.876699 19.864882 ** 13.544828 12.798654
--------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .118896 .002124 .038923 .051478
--------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.393386) (1.397747) (.770642) (.639324)
--------------------------------------------------------------------------------------------------
Contract charges (.070972) (.128593) (.086919) (.080745)
--------------------------------------------------------------------------------------------------
Ending unit value - June 30 10.531237 18.340666 12.726190 12.130063
--------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (3)% (8)% (6)% (5)%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
1993
Beginning unit value - Jan. 1 10.232829 18.244594 ** 8.325308 12.031194
--------------------------------------------------------------------------------------------------
Reinvested capital gains.
and dividends .086087 .000000 .009827 .642125
--------------------------------------------------------------------------------------------------
Unrealized gain (loss) .303079 .879410 3.698884 (.317098)
--------------------------------------------------------------------------------------------------
Contract charges (.066883) (.119775) (.062819) (.078996)
--------------------------------------------------------------------------------------------------
Ending unit value - June 30 10.555112 19.004229 11.971200 12.277225
--------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 3% 4% 44% 2%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
* This is not an annualized rate of return as it is the change for a six
month period and contract charges do not include the annual contract
maintenance charge discussed in note 2.
** This investment option was not being utilized or was not available.
39
<PAGE> 40
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT -- II
The BEST OF AMERICA(R) NON QUALIFIED/IRA
ROLLOVER ANNUITY CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Six Month Periods Ended June 30, 1995 and 1994
(UNAUDITED)
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKIX FIDEQINC FIDGRO FIDHIINC FIDOSEAS
-------- -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.146464 10.046079 10.760332 10.082986 9.844496 10.536141
-----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .123919 .693280 .055711 .712698 .080579
-----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.794712 1.862315 1.145789 2.330233 .464359 .352968
-----------------------------------------------------------------------------------------------------------
Contract charges (.076040) (.077211) (.082041) (.075995) (.073280) (.073695)
-----------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $11.865136 11.955102 12.517360 12.392935 10.948273 10.895993
-----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 17% 19% 16% 23% 11% 3%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
1994**
Beginning unit value - Jan. 1 $10.138790 10.099271 10.192462 10.227729 10.140663 10.504149
-----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .053371 .639294 .615160 .929117 .054214
-----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.074722) (.410025) (.522035) (1.596978) (1.075108) .263730
-----------------------------------------------------------------------------------------------------------
Contract charges (.071173) (.069832) (.071926) (.069924) (.071124) (.075803)
-----------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $ 9.992895 9.672785 10.237795 9.175987 9.923548 10.746290
-----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (1)% (4)% 0% (10)% (2)% 2%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIDASMGR NWCAPAPP NWGVTBD NWMYMKT NWTOTRET
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 9.571852 10.044095 9.562079 10.254838 10.057257
--------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .201029 .096301 .329109 .289801 .155272
--------------------------------------------------------------------------------------------
Unrealized gain (loss) .384369 .909480 .802768 .000000 1.451953
--------------------------------------------------------------------------------------------
Contract charges (.068685) (.073817) (.070815) (.073024) (.075925)
--------------------------------------------------------------------------------------------
Ending unit value - June 30 10.088565 10.976059 10.623141 10.471615 11.588557
--------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 5% 9% 11% 2% 15%
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
1994**
Beginning unit value - Jan. 1 10.337032 10.278752 10.021251 10.011385 10.091256
--------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .495420 .064013 .298870 .158124 .124630
--------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.086993) (.575708) (.695301) .000000 (.147854)
--------------------------------------------------------------------------------------------
Contract charges (.070490) (.070701) (.068495) (.070367) (.070710)
--------------------------------------------------------------------------------------------
Ending unit value - June 30 9.674969 9.696356 9.556325 10.099142 9.997322
--------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (6)% (6)% (5)% 1% (1)%
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
* This is not an annualized rate of return as it is the change for a six month
period and contract charges do not include the annual contract maintenance
charge discussed in note 2.
** These investment options were not utilized prior to 1994.
40
<PAGE> 41
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT -- II
The BEST OF AMERICA(R) NON QUALIFIED/IRA
ROLLOVER ANNUITY CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Six Month Periods Ended June 30, 1995 and 1994
(UNAUDITED)
<TABLE>
<CAPTION>
NBGRO NBLTDMAT NBPART OPPBDFD OPPGLSEC OPPMULT STDISC2
----- -------- ------ ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $ 9.458916 9.860649 10.013591 9.733460 10.394970 9.830640 10.071698
----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .334560 .547347 .081808 .335231 .273289 .544345 .003266
----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.719045 .075241 2.023079 .673162 (.127526) .776892 1.662534
----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.072691) (.071393) (.076794) (.071635) (.071853) (.073331) (.074108)
----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $11.439830 10.411844 12.041684 10.670218 10.468880 11.078546 11.663390
----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 21% 6% 20% 10% 1% 13% 16%
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
1994**
Beginning unit value - Jan. 1 $10.096549 10.015749 ** 10.066342 11.182167 10.167774 10.796000
----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.216477 .422915 .205830 .196942 .226267 .012629
----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.215015) (.537925) (.413981) (.721339) (.638050) (1.145149)
----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.069211) (.069317) (.069364) (.078054) (.070516) (.072756)
----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $ 9.028800 9.831422 9.788827 10.579716 9.685475 9.590724
----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* (11)% (2)% (3)% (5)% (5)% (11)%
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This is not an annualized rate of return as it is the change for a six
month period and contract charges do not include the annual contract
maintenance charge discussed in note 2.
** These investment options were not being utilized or were not available
prior to 1994.
41
<PAGE> 42
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT -- II
THE BEST OF AMERICA(R) NON QUALIFIED/IRA
ROLLOVER ANNUITY CONTRACTS
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
STSPEC2 TCIBAL TCIGRO TCIINT VEGOLDNR VEWRLDBD
------- ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.710138 9.975959 9.896469 9.388381 10.464922 9.919400
----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .494692 .112077 .011387 .000000 .047589 .589310
----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .904167 1.137497 1.906163 .372275 .308338 .853532
----------------------------------------------------------------------------------------------------------------------
Contract charges (.078459) (.072978) (.073874) (.065156) (.072550) (.075321)
----------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $12.030538 11.152555 11.740145 9.695500 10.748299 11.286921
----------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 12% 12% 19% 3% 3% 14%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
1994**
Beginning unit value - Jan. 1 $10.484543 10.055760 10.155359 ** 11.147499 10.194477
----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .029407 .109881 .001086 .032021 .040987
----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .060027 (.363481) (.714188) (.633975) (.509118)
----------------------------------------------------------------------------------------------------------------------
Contract charges (.074437) (.070676) (.070817) (.077054) (.069283)
----------------------------------------------------------------------------------------------------------------------
Ending unit value - June 30 $10.499540 9.731484 9.371440 10.468491 9.657063
----------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in
unit value* 0% (3)% (8)% (6)% (5)%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
</TABLE>
* This is not an annualized rate of return as it is the change for a six
month period and contract charges do not include the annual contract
maintenance charge discussed in note 2.
** These investment options were not being utilized or were not available
prior to 1994.
42
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[THIS PAGE LEFT BLANK INTENTIONALLY]
43
<PAGE> 44
This report is for the information of contract owners with funds in the
Nationwide Variable Account-II. It may also be used, from time to time, as
sales literature, but only when accompanied or preceded by the current
prospectus, which contains complete information about the contracts which
invest in the separate account, and their fees, charges and expenses. If this
report is used as sales literature after September 30, 1995, it must be
accompanied by the fund performance report reflecting performances for the most
recently completed calendar quarter. Prospective investors should read the
prospectus carefully before investing.
44
<PAGE> 45
<TABLE>
<S> <C>
NATIONWIDE LIFE INSURANCE COMPANY BULK RATE
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220 U.S. POSTAGE
P A I D
COLUMBUS, OHIO
PERMIT NO. 521
</TABLE>
