<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1997
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY THE NATIONWIDE LIFE INSURANCE COMPANY
THROUGH ITS NATIONWIDE VARIABLE ACCOUNT-II
This Statement of Additional Information is not a prospectus. It contains
information in addition to and in some respects more detailed than set forth in
the prospectus and should be read in conjunction with the prospectus dated
October 1, 1997. The prospectus may be obtained from Nationwide Life Insurance
Company by writing P. O. Box 182356, Columbus, Ohio 43218-2356, or calling 1-
800-243-6295, TDD 1-800-238-3035.
TABLE OF CONTENTS
PAGE
General Information and History. . . . . . . . . . . . . . . . . . . . . . . 1
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purchase of Securities Being Offered . . . . . . . . . . . . . . . . . . . . 1
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Calculations of Performance. . . . . . . . . . . . . . . . . . . . . . . . . 2
Underlying Mutual Fund Performance Summary . . . . . . . . . . . . . . . . . 3
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
GENERAL INFORMATION AND HISTORY
Nationwide Variable Account-II is a separate investment account of
Nationwide Life Insurance Company ("Company"). The Company is a member of the
Nationwide Insurance Enterprise and all of the Company's common stock is owned
by Nationwide Financial Services, Inc. ("NFS"), a holding company. NFS has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B Common
Stock) to control NFS. Nationwide Corporation is a holding company, as well.
All of its common stock is held by Nationwide Mutual Insurance Company (95.3%)
and Nationwide Mutual Fire Insurance Company (4.7%), the ultimate controlling
persons of Nationwide Insurance Enterprise. The Nationwide Insurance Enterprise
is one of America's largest insurance and financial services family of
companies, with combined assets of over $67.5 billion as of December 31, 1996.
SERVICES
The Company, which has responsibility for administration of the Contracts
and the Variable Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each such Contract Owner and
records with respect to the Contract Value of each Contract.
The Custodian of the assets of the Variable Account is the Company. The
Company will maintain a record of all purchases and redemptions of shares of the
underlying Mutual Funds. The Company, or affiliates of the Company may have
entered into agreements with either the investment adviser or distributor for
several of the underlying Mutual Funds. The agreements relate to administrative
services furnished by the Company or an affiliate of the Company and provide for
an annual fee based on the average aggregate net assets of the Variable Account
(and other separate accounts of the Company or life insurance company
subsidiaries of the Company) invested in particular underlying Mutual Funds.
These fees in no way affect the net asset value of the underlying Mutual Funds
or fees paid by the Contract Owner.
The financial statements and schedules have been included herein in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, Two Nationwide Plaza, Columbus, Ohio 43215, and upon the authority
of said firm as experts in accounting and auditing.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states where
the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
("NASD").
The Contract Owner may transfer up to 100% of the Contract Value from the
Variable Account to the Fixed Account. However, the Company, at its sole
discretion, reserves the right to limit such transfers to 25% of the Contract
Value for any 12 month period. Contract Owners may at the maturity of an
Interest Rate
1
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Guarantee Period transfer a portion of the Contract Value of the Fixed Account
to the Variable Account. Such portion will be determined by the Company at its
sole discretion (but will not be less than 10% of the total value of the portion
of the Fixed Account that is maturing), and will be declared upon the expiration
date of the then current Interest Rate Guarantee Period. The Interest Rate
Guarantee Period expires on the final day of a calendar quarter. Transfers
under this provision must be made within 45 days after the termination date of
the guarantee period. Owners who have entered into a Dollar Cost Averaging
agreement with the Company may transfer from the Fixed Account under the terms
of that agreement.
Transfers from the Fixed and Variable Accounts may not be made prior to the
first Contract Anniversary. Transfers from the Fixed Account may not be made
within 12 months of any prior Transfer. Transfers must also be made prior to
the Annuitization Date.
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by Nationwide
Advisory Services, Inc. ("NAS"), One Nationwide Plaza, Columbus, Ohio 43215, a
wholly owned subsidiary of the Company. During the fiscal years ended December
31, 1996, 1995 and 1994, no underwriting commissions were paid by the Company to
NAS.
CALCULATIONS OF PERFORMANCE
Any current yield quotations of the Nationwide Separate Account Trust Money
Market Fund Sub-Account, subject to Rule 482 of the Securities Act of 1933,
shall consist of a seven calendar day historical yield, carried at least to the
nearest hundredth of a percent. The yield shall be calculated by determining
the net change, exclusive of capital changes, in the value of hypothetical pre-
existing account having a balance of one accumulation unit at the beginning of
the base period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the net change in account value by the
value of the account at the beginning of the period to obtain a base period
return, and multiplying the base period return by (365/7) or (366/7) in a leap
year. As of December 31, 1996, the Nationwide Separate Account Trust Money
Market Fund Sub-Account's seven-day current unit value yield was 3.64%. The
Nationwide Separate Account Trust Money Market Fund Sub-Account's effective
yield is computed similarly but includes the effect of assumed compounding on an
annualized basis of the current unit value yield quotations of the Fund, and for
the period ending December 31, 1996 was 3.70%.
The Nationwide Separate Account Trust Money Market Fund Sub-Account's yield
and effective yield will fluctuate daily. Actual yields will depend on factors
such as the type of instruments in the Fund's portfolio, portfolio quality and
average maturity, changes in interest rates, and the Fund's expenses. Although
the Sub-Account determines its yield on the basis of a seven calendar day
period, it may use a different time period on occasion. The yield quotes may
reflect the expense limitation described "Investment Manager and Other Services"
in the Fund's Statement of Additional Information. There is no assurance that
the yields quoted on any given occasion will remain in effect for any period of
time and there is no guarantee that the net asset values will remain constant.
It should be noted that a Contract Owner's investment in the Nationwide Separate
Account Trust Money Market Fund Sub-Account is not guaranteed or insured. Yield
of other money market funds may not be comparable if a different base period or
another method of calculation is used.
All performance advertising shall also include quotations of standardized
average annual total return, calculated in accordance with a standard method
prescribed by rules of the Securities and Exchange Commission, to facilitate
comparison with standardized average annual total return advertised for a
specific period is found by first taking a hypothetical $1,000 investment in
each of the Sub-Accounts' units on the first day of the period at the offering
price, which is the Accumulation Unit Value per unit ("initial investment") and
computing the ending redeemable value ("redeemable value") of that investment at
the end of the period. The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. Standardized average annual total return reflects the deduction of a
maximum $30 Contract Maintenance Charge and a 1.30% Mortality, Expense Risk and
Administration Charge. The redeemable value also reflects the effect of any
applicable Contingent Deferred Sales Charge that may be imposed at the end of
the period (see "Contingent Deferred Sales Charge" located in the prospectus).
No deduction is made for premium taxes which may be assessed by certain states.
Nonstandardized total return may also be advertised, and is calculated in a
manner similar to standardized average annual total return except the
nonstandardized total return is based on a hypothetical initial investment of
$10,000 and does not reflect the deduction of any applicable Contingent Deferred
Sales Charge. Reflecting the Contingent Deferred Sales Charge would decrease
the level of the performance advertised. The Contingent Deferred Sales Charge
is not reflected because the Contract is designed for long term investment.
2
<PAGE>
An assumed initial investment of $10,000 will be used because that figure more
closely approximates the size of a typical Contract than does the $1,000 figure
used in calculating the standardized average annual total return quotations.
The amount of the hypothetical initial investment used affects performance
because the Contract Maintenance Charge is fixed per Contract charge.
The standardized average annual total return and nonstandardized average
annual total return quotations will be current to the last day of the calendar
quarter preceding the date on which an advertisement is submitted for
publication. Both the standardized average annual return and the
nonstandardized average annual total return will be based on rolling calendar
quarters and will cover periods of one, five, and ten years, or a period
covering the time the underlying Mutual Fund held in the Sub-Account has been in
existence, if the underlying Mutual Fund has not been in existence for one of
the prescribed periods. For those underlying Mutual Funds which have not been
held as Sub-Accounts within the Variable Account for one of the quoted periods,
the average annual total return and nonstandardized total return quotations will
show the investment performance such underlying Mutual Funds would have achieved
(reduced by the applicable charges) had they been held as Sub-Accounts within
the Variable Account for the period quoted.
Quotations of average annual total return and total return are based upon
historical earnings and will fluctuate. Any quotation of performance,
therefore, would not be considered a guarantee of future performance. Factors
affecting a Sub-Account's performance include general market conditions,
operating expenses and investment management. A Contract Owner's account when
redeemed may be more or less than original cost.
Below are quotations of standardized average annual total return and
nonstandardized average annual total return calculated as described above, for
each of the Sub-Accounts available within the Variable Account.
UNDERLYING MUTUAL FUND PERFORMANCE SUMMARY
NON-STANDARDIZED TOTAL RETURN
- --------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- --------------------------------------------------------------------------------
American Century Variable 10.44% 5.02% 8.53% 5-01-91
Portfolios, Inc. -
American Century VP
Balanced
American Century Variable -5.87% 4.51% 9.14% 11-20-87
Portfolios, Inc. -
American Century VP
Capital Appreciation
American Century Variable 12.61% N/A 5.98% 5-01-94
Portfolios, Inc. -
American Century VP
International
American Century Variable N/A N/A 17.11% 5-01-96
Portfolios, Inc. -
American Century VP Value
AVIS Growth Fund 11.58% 12.63% 13.49%* 2-08-84
AVIS High Yield Bond 11.43% 9.33% 10.04%* 2-08-84
Fund
AVIS US Govt./AAA-rated 1.46% 4.71% 5.63%* 11-19-85
Dreyfus Socially 19.35% N/A 17.55% 10-06-93
Responsible Growth Fund
Dreyfus Stock Index Fund 20.64% 12.88% 11.92% 9-29-89
Dreyfus Variable 17.78% N/A 25.18% 5-02-94
Investment
Fund - Growth & Income
Portfolio
Fidelity VIP Fund- 12.49% 16.21% 12.04%* 10-09-86
Equity Income Portfolio
Fidelity VIP Fund-Growth 12.91% 13.42% 13.46%* 10-09-86
Portfolio
3
<PAGE>
NON-STANDARDIZED TOTAL RETURN
- --------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- --------------------------------------------------------------------------------
Fidelity VIP Fund-High 12.24% 13.24% 9.45%* 9-09-85
Income Portfolio
Fidelity VIP Fund- 11.44% 7.43% 6.24% 1-28-87
Overseas Portfolio
Fidelity VIP Fund II-Asset 12.81% 9.56% 9.99% 9-06-89
Manager.
Fidelity VIP Fund II- 19.42% N/A 28.31% 7-01-95
Contrafund Portfolio
NSAT- 24.19% N/A 12.50% 4-15-92
Capital Appreciation Fund
NSAT-Government Bond Fund 1.83% 5.37% 6.77%* 11-08-82
NSAT-Money Market Fund 3.44% 2.51% 4.12%* 11-10-81
NSAT-Small Company Fund 20.92% N/A 30.78% 10-23-95
NSAT-Total Return 19.95% 12.05% 10.92%* 11-08-82
N&B Advisers Management 7.41% 8.13% 9.78%* 9-10-84
Trust-Growth Portfolio
N&B Advisers Management 2.64% 3.67% 5.05%* 9-10-84
Trust-Limited Maturity
Bond
N&B Advisers Management 27.58% N/A 19.85% 3-22-94
Trust-Partners Portfolio
Oppenheimer Variable 3.13% 6.01% 7.17%* 4-30-85
Account Funds-Bond Fund
Oppenheimer Variable 15.96% 10.72% 8.95% 11-12-90
Account Funds-Global
Securities Fund
Oppenheimer Variable 13.69% 9.96% 9.87% 2-09-87
Account Funds-Multiple
Strategies Fund
Strong Special Fund II, 16.31% N/A 17.14% 5-08-92
Inc.
Strong Variable Insurance -0.81% N/A 10.56% 5-08-92
Funds, Inc.-Discovery Fund
II, Inc.
Strong Variable Insurance 8.64% N/A 8.99% 10-23-95
Funds, Inc.- International
Stock II
Van Eck Worldwide 0.88% 2.25% 5.02% 9-01-89
Insurance Trust-Worldwide
Bond Fund
Van Eck Worldwide 16.22% 12.82% 6.53% 9-01-89
Insurance Trust-Worldwide
Hard Assets Fund
Van Eck Worldwide 24.89% N/A 22.93% 12-27-95
Insurance Trust -
Worldwide Emerging Markets
Fund
Van Kampen American 38.40% N/A 30.27% 7-01-95
Capital Life Investment
Trust-Real Estate
Securities Fund
Warburg Pincus Trust- 8.25% N/A 9.79% 7-01-95
International Equity
Portfolio
Warburg Pincus Trust - N/A N/A -10.04% 9-30-96
Post-Venture Capital
Portfolio
Warburg Pincus Trust-Small 12.12% N/A 24.50% 7-01-95
Company Growth Portfolio
* Represents 10 years to 12/31/96.
4
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STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- --------------------------------------------------------------------------------
American Century 2.34% 1.80% 5.73% 5-01-91
Variable Portfolios,
Inc.- American Century
VP Balanced
American Century -13.46% 1.48% 6.80% 11-20-87
Variable Portfolios,
Inc.- American Century
VP Capital Appreciation
American Century 4.51% N/A 1.16% 5-01-94
Variable Portfolios,
Inc.- American Century
VP International
American Century N/A N/A 7.41% 5-01-96
Variable Portfolios,
Inc. - American Century
VP Value
AVIS-Growth Fund 3.48% 10.03% 11.67%* 2-08-84
AVIS-High Yield Bond 3.33% 6.63% 8.00%* 2-08-84
Fund
AVIS-US Govt./AAA-rated -6.56% 1.80% 3.20%* 11-19-85
Dreyfus Socially 11.25% N/A 13.50% 10-06-93
Responsible Growth Fund
Dreyfus Stock Index 12.54% 10.13% 9.20% 9-19-89
Fund
Dreyfus Variable 9.68% N/A 21.08% 5-02-94
Investment Fund -
Growth & Income
Portfolio
Fidelity VIP Fund- 4.39% 13.82% 9.90%* 10-09-86
Equity Income Portfolio
Fidelity VIP Fund- 4.81% 10.84% 11.55%* 10-09-86
Growth Portfolio
Fidelity VIP Fund-High 4.14% 10.84% 7.08%* 9-09-85
Income Portfolio
Fidelity VIP Fund- 3.34% 4.50% 3.67% 1-28-87
Overseas Portfolio
Fidelity VIP Fund II- 4.71% 6.90% 7.46% 9-06-89
Asset Manager Portfolio
Fidelity VIP Fund II - 11.32% N/A 23.79% 7-01-95
Contrafund Portfolio
NSAT-Capital 16.09% N/A 9.35% 4-15-92
Appreciation Fund
NSAT-Government Bond -6.21% 2.47% 4.49%* 11-08-82
Fund
NSAT-Money Market Fund -4.66% -0.61% 1.65%* 11-10-81
NSAT-Small Company Fund 12.82% N/A 21.64% 10-23-95
NSAT-Total Return Fund 11.85% 9.31% 8.75%* 11-08-82
N&B Advisers Management -0.69% 5.28% 7.71%* 9-10-84
Trust-Growth Portfolio
N&B Advisers Management -5.45% 0.64% 2.63%* 9-10-84
Trust-Limited
Maturity Bond Portfolio
N&B Advisers Management 19.48% N/A 15.73% 3-22-94
Trust-Partners
Portfolio
Oppenheimer Variable -4.97% 3.15% 4.92%* 4-30-85
Account Funds-Bond Fund
Oppenheimer Variable 7.86% 8.11% 5.91% 11-12-90
Account Funds-Global
Securities Fund
Oppenheimer Variable 5.59% 7.25% 7.77% 2-09-87
Account Funds-Multiple
Strategies Fund.
5
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STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
1 Year To 5 Years To Life of Fund Date Fund
SUB-ACCOUNT OPTIONS 12/31/96 12/31/96 To 12/31/96 Effective
- --------------------------------------------------------------------------------
Strong Special Fund II, 8.21% N/A 14.45% 5-08-92
Inc.
Strong Variable -8.70% N/A 7.58% 5-08-92
Insurance Funds, Inc.-
Discovery Fund II, Inc.
Strong Variable 0.54% N/A -0.14% 10-23-95
Insurance Funds, Inc.-
International Stock
Fund II
Van Eck Worldwide -7.11% -1.00% 2.24% 9-01-89
Insurance Trust-
Worldwide Bond
Van Eck Worldwide 8.12% 10.29% 3.35% 9-01-89
Insurance Trust-
Worldwide Hard Assets-
Fund
Van Eck Worldwide 16.79% N/A 11.62% 12-27-95
Insurance Trust -
Worldwide Emerging
Markets Fund
Van Kampen American 30.30% N/A 23.24% 7-01-95
Capital Life Investment
Trust-Real Estate
Securities Fund
Warburg Pincus Trust- 0.15% N/A 2.68% 7-01-95
International Equity
Portfolio
Warburg Pincus Trust - N/A N/A -18.85% 9-30-96
Post-Venture Capital
Portfolio
Warburg Pincus Trust- 4.02% N/A 17.79% 7-01-95
Small Company Growth
Portfolio
* Represents 10 years to 12/31/96.
ANNUITY PAYMENTS
See "Frequency and Amount of Annuity Payments" located in the prospectus.
6
<PAGE>
1
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Variable Account-II:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account-II as of December 31,
1996, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the
three year period then ended. These financial statements and schedules of
changes in unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules of changes in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures include confirmation of securities
owned as of December 31, 1996, by correspondence with the transfer agents of
the underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in unit
value referred to above present fairly, in all material respects, the financial
position of Nationwide Variable Account-II as of December 31, 1996, and the
results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 7, 1997
<PAGE>
2
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
American VI Series - Growth Fund (AVISGro)
591,641 shares (cost $17,724,667) ............................................. $ 23,446,735
American VI Series - High-Yield Bond Fund (AVISHiYld)
206,455 shares (cost $2,831,913) .............................................. 2,970,891
American VI Series - U.S. Government/AAA-Rated Securities Fund (AVISGvt)
558,936 shares (cost $6,405,065) .............................................. 6,125,940
Dreyfus VIF - Growth and Income Portfolio (DryGroInc)
10,651 shares (cost $208,490) ................................................. 208,234
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
4,048,465 shares (cost $80,578,592) ........................................... 81,333,655
Dreyfus Stock Index Fund (DryStkIx)
22,473,273 shares (cost $421,400,078) ......................................... 455,757,970
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
88,020,775 shares (cost $1,496,527,408) ....................................... 1,851,076,908
Fidelity VIP - Growth Portfolio (FidVIPGr)
53,397,112 shares (cost $1,442,803,412) ....................................... 1,662,786,063
Fidelity VIP - High Income Portfolio (FidVIPHI)
52,277,585 shares (cost $618,483,737) ......................................... 654,515,361
Fidelity VIP - Overseas Portfolio (FidVIPOv)
29,860,586 shares (cost $497,414,533) ......................................... 562,573,437
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
54,719,104 shares (cost $789,170,511) ......................................... 926,394,430
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
31,863,416 shares (cost $470,893,739) ......................................... 527,658,176
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
8,543,374 shares (cost $130,457,688) .......................................... 139,086,134
Nationwide SAT - Government Bond Fund (NSATGvtBd)
25,523,974 shares (cost $278,390,626) ......................................... 281,784,675
Nationwide SAT - Money Market Fund (NSATMyMkt)
842,095,034 shares (cost $842,095,034) ........................................ 842,095,034
Nationwide SAT - Small Company Fund (NSATSmCo)
11,411,941 shares (cost $153,200,271) ......................................... 158,511,867
Nationwide SAT - Total Return Fund (NSATTotRe)
43,928,334 shares (cost $493,101,989) ......................................... 582,928,991
Neuberger & Berman - Growth Portfolio (NBAMTGro)
14,576,973 shares (cost $355,570,591) ......................................... 375,794,365
Neuberger & Berman - Limited Maturity Bond Portfolio (NBAMTLMat)
14,503,021 shares (cost $202,666,998) ......................................... 203,767,444
</TABLE>
<PAGE>
3
<TABLE>
<S> <C>
Neuberger & Berman - Partners Portfolio (NBAMTPart)
21,480,783 shares (cost $316,971,355) ......................................... 354,003,309
Oppenheimer - Bond Fund (OppBdFd)
18,495,009 shares (cost $212,436,168) ......................................... 215,096,952
Oppenheimer - Global Securities Fund (OppGlSec)
17,352,191 shares (cost $273,206,728) ......................................... 306,613,219
Oppenheimer - Multiple Strategies Fund (OppMult)
15,186,448 shares (cost $210,778,683) ......................................... 237,364,175
Strong Special Fund II, Inc. (StSpec2)
31,310,474 shares (cost $502,480,063) ......................................... 602,413,525
Strong VIF - Strong Discovery Fund II (StDisc2)
19,325,445 shares (cost $231,435,391) ......................................... 208,714,811
Strong VIF - Strong International Stock Fund II (StIntStk2)
6,217,919 shares (cost $69,638,167) ........................................... 69,827,234
TCI Portfolios - TCI Balanced (TCIBal)
17,471,812 shares (cost $113,742,920) ......................................... 131,737,463
TCI Portfolios - TCI Growth (TCIGro)
44,171,041 shares (cost $481,435,940) ......................................... 452,311,464
TCI Portfolios - TCI International (TCIInt)
14,897,654 shares (cost $81,567,837) .......................................... 88,790,017
TCI Portfolios - TCI Value (TCIValue)
192,219 shares (cost $1,073,951) .............................................. 1,072,583
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
9,078,169 shares (cost $146,560,262) .......................................... 151,786,988
Van Eck - Worldwide Bond Fund (VEWrldBd)
9,841,666 shares (cost $109,164,680) .......................................... 109,242,492
Van Eck - Worldwide Emerging Markets Fund (VEWrldEMkt)
975,190 shares (cost $12,083,831) ............................................. 12,180,122
Van Kampen American Capital LIT - Real Estate Securities Fund (VKACRESec)
10,164,489 shares (cost $130,485,494) ......................................... 150,231,143
Warburg Pincus - International Equity Portfolio (WPIntEq)
23,071,607 shares (cost $262,173,995) ......................................... 264,862,050
Warburg Pincus - Post Venture Capital Portfolio (WPPVenCap)
968,094 shares (cost $9,297,111) .............................................. 9,448,597
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
18,047,620 shares (cost $255,570,779) ......................................... 257,178,579
---------------
Total investments .......................................................... 12,961,691,033
Accounts receivable ................................................................. 344,106
----------------
Total assets ............................................................... 12,962,035,139
ACCOUNTS PAYABLE ....................................................................... 32,685,984
----------------
CONTRACT OWNERS' EQUITY (NOTE 4) ....................................................... $ 12,929,349,155
----------------
----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
4
NATIONWIDE VARIABLE ACCOUNT-II
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ................... $ 600,928,342 255,746,278 219,361,059
Mortality, expense and administration charges (note 2) ... (146,901,903) (94,261,621) (63,749,637)
---------------- --------------- ---------------
Net investment activity ............................... 454,026,439 161,484,657 155,611,422
---------------- --------------- ---------------
Proceeds from mutual fund shares sold .................... 4,787,197,972 2,702,034,116 2,081,239,624
Cost of mutual fund shares sold .......................... (4,367,124,608) (2,527,741,633) (1,966,796,733)
---------------- --------------- ---------------
Realized gain (loss) on investments ................... 420,073,364 174,292,483 114,442,891
Change in unrealized gain (loss) on investments .......... 281,999,873 974,875,269 (372,586,662)
---------------- --------------- ---------------
Net gain (loss) on investments ........................ 702,073,237 1,149,167,752 (258,143,771)
---------------- --------------- ---------------
Net increase (decrease) in contract owners'
equity resulting from operations ................ 1,156,099,676 1,310,652,409 (102,532,349)
---------------- --------------- ---------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners .......... 3,619,439,725 2,272,793,729 2,110,347,434
Redemptions .............................................. (664,029,620) (445,809,864) (229,544,830)
Annuity benefits ......................................... (792,443) (401,351) (155,993)
Annual contract maintenance charge (note 2) .............. (6,040,328) (5,167,706) (3,881,459)
Contingent deferred sales charges (note 2) ............... (10,783,506) (7,795,056) (4,253,379)
Adjustments to maintain reserves ......................... 559,630 (180,793) 29,075
---------------- --------------- ---------------
Net equity transactions .............................. 2,938,353,458 1,813,438,959 1,872,540,848
---------------- --------------- ---------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ....................... 4,094,453,134 3,124,091,368 1,770,008,499
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ................. 8,834,896,021 5,710,804,653 3,940,796,154
---------------- --------------- ---------------
CONTRACT OWNERS' EQUITY END OF PERIOD ....................... $ 12,929,349,155 8,834,896,021 5,710,804,653
---------------- --------------- ---------------
---------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
5
NATIONWIDE VARIABLE ACCOUNT-II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
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.
The Company offers tax qualified and non-tax qualified Individual
Deferred Variable Annuity Contracts, and Individual Modified Single Premium
Deferred Variable Annuity Contracts through the Account. The primary
distribution for the contracts is through the brokerage community; however,
other distributors are utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees are offered for purchase. See note
2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or
the payout phase may invest in 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 VISeries - Growth Fund (AVISGro)
American VISeries - High-Yield Bond Fund (AVISHiYld)
American VISeries - U.S. Government/AAA-Rated Securities Fund
(AVISGvt)
Portfolio of the Dreyfus Variable Investment Fund (Dreyfus VIF);
Dreyfus VIF - Growth andIncome Portfolio (DryGroInc)
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
Dreyfus Stock Index Fund (DryStkIx)
Portfolios of the Fidelity Variable Insurance Products Fund
(Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidVIPEI)
Fidelity VIP - Growth Portfolio (FidVIPGr)
Fidelity VIP - High Income Portfolio (FidVIPHI)
Fidelity VIP - Overseas Portfolio (FidVIPOv)
Portfolios of the Fidelity Variable Insurance Products Fund II
(Fidelity VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidVIPAM)
Fidelity VIP-II - Contrafund Portfolio (FidVIPCon)
Funds of the Nationwide Separate Account Trust (Nationwide SAT)
(managed for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NSATCapAp)
Nationwide SAT - Government Bond Fund (NSATGvtBd)
Nationwide SAT - Money Market Fund (NSATMyMkt)
Nationwide SAT - Small Company Fund (NSATSmCo)
Nationwide SAT - Total Return Fund (NSATTotRe)
Portfolios of the Neuberger & Berman Advisers Management Trust
(Neuberger & Berman);
Neuberger & Berman - Growth Portfolio (NBAMTGro)
Neuberger & Berman - Limited Maturity Bond Portfolio (NBAMTLMat)
Neuberger & Berman - Partners Portfolio (NBAMTPart)
<PAGE>
6
Funds of the Oppenheimer Variable Account Funds (Oppenheimer);
Oppenheimer - Bond Fund (OppBdFd)
Oppenheimer - Global Securities Fund (OppGlSec)
Oppenheimer - Multiple Strategies Fund (OppMult)
Strong Special Fund II, Inc. (StSpec2)
Funds of the Strong Variable Insurance Funds, Inc. (Strong VIF);
Strong VIF - Strong Discovery Fund II (StDisc2)
Strong VIF - Strong International Stock Fund II (StIntStk2)
Portfolios of the TCIPortfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Balanced (TCIBal)
TCI Portfolios - TCI Growth (TCIGro)
TCI Portfolios - TCI International (TCIInt)
TCI Portfolios - TCIValue (TCIValue)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck);
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
Van Eck - Worldwide Bond Fund (VEWrldBd)
(formerly Van Eck - Global Bond Fund (VEGlobBd)
Van Eck - Worldwide Emerging Markets Fund (VEWrldEMkt)
Fund of the Van Kampen American Capital Life Investment Trust (Van
Kampen American Capital LIT);
Van Kampen American Capital LIT - Real Estate Securities
Fund (VKACRESec)
Portfolios of the Warburg Pincus Trust (Warburg Pincus);
Warburg Pincus - International Equity Portfolio (WPIntEq)
Warburg Pincus - Post Venture Capital Portfolio (WPPVenCap)
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1996, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results of
each fund, equity transactions by contract owners and certain contract expenses
(see note 2).
The accompanying financial statements include only contract owners'
purchase payments pertaining to the variable portions of their contracts and
exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1996. The cost of investments sold is
determined on the specific identification basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with, operations
of the Company which is taxed as a life insurance company under the Internal
Revenue Code.
The Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(f) Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform with the
current year presentation.
<PAGE>
7
(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 contract 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; for The BEST OF AMERICA(R) America's Vision Annuity(SM) 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; and for The BEST OF AMERICA(R) Nationwide
Insurance Enterprise Annuity contracts, a mortality risk charge assessed through
the daily unit value calculation equal to an annual rate of 0.80%.
(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
underlying mutual funds.)
- 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 - Dec. 31
- 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.
<PAGE>
8
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31,
1996, for each series, in both the accumulation and payout phases.
<TABLE>
<CAPTION>
Contract owners' equity represented by: UNITS UNIT VALUE
----- ----------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
The BEST OF AMERICA(R) Nationwide Insurance
Enterprise Annuity contracts:
Dreyfus VIF - Growth and Income Portfolio:
Non-tax qualified .......................................... 100 $ 9.988028 $ 999
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified .............................................. 3,819 12.423035 47,444
Non-tax qualified .......................................... 4,955 12.423035 61,556
Dreyfus Stock Index Fund:
Tax qualified .............................................. 21,527 12.854891 276,727
Non-tax qualified .......................................... 17,543 12.854891 225,513
Fidelity VIP - Equity-Income Portfolio:
Tax qualified .............................................. 38,049 12.163794 462,820
Non-tax qualified .......................................... 26,246 12.163794 319,251
Fidelity VIP - Growth Portfolio:
Tax qualified .............................................. 38,429 10.972453 421,660
Non-tax qualified .......................................... 35,425 10.972453 388,699
Fidelity VIP - High Income Portfolio:
Tax qualified .............................................. 13,647 11.487324 156,768
Non-tax qualified .......................................... 18,821 11.487324 216,203
Fidelity VIP - Overseas Portfolio:
Tax qualified .............................................. 511 11.775309 6,017
Non-tax qualified .......................................... 3,662 11.775309 43,121
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified .............................................. 6,477 11.975202 77,563
Non-tax qualified .......................................... 1,925 11.975202 23,052
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified .............................................. 14,615 12.282942 179,515
Non-tax qualified .......................................... 12,689 12.282942 155,858
Nationwide SAT - Capital Appreciation Fund:
Tax qualified .............................................. 12,286 13.467403 165,461
Non-tax qualified .......................................... 16,971 13.467403 228,555
Nationwide SAT - Government Bond Fund:
Tax qualified .............................................. 5,170 10.534938 54,466
Non-tax qualified .......................................... 16,048 10.534938 169,065
Nationwide SAT - Money Market Fund:
Tax qualified .............................................. 32,496 10.507347 341,447
Non-tax qualified .......................................... 33,761 10.507347 354,739
Nationwide SAT - Small Company Fund:
Tax qualified .............................................. 13,231 13.903343 183,955
Non-tax qualified .......................................... 31,720 13.903343 441,014
Nationwide SAT - Total Return Fund:
Tax qualified .............................................. 49,402 12.691338 626,977
Non-tax qualified .......................................... 65,856 12.691338 835,801
Neuberger & Berman - Growth Portfolio:
Tax qualified .............................................. 6,941 10.795282 74,930
Non-tax qualified .......................................... 7,119 10.795282 76,852
Neuberger & Berman - Limited Maturity Bond Portfolio:
Tax qualified .............................................. 1,473 10.533549 15,516
Non-tax qualified .......................................... 2,542 10.533549 26,776
Neuberger & Berman - Partners Portfolio:
Tax qualified .............................................. 11,527 13.585552 156,601
Non-tax qualified .......................................... 19,721 13.585552 267,921
Oppenheimer - Bond Fund:
Tax qualified .............................................. 5,191 10.693801 55,512
Non-tax qualified .......................................... 2,496 10.693801 26,692
</TABLE>
<PAGE>
9
<TABLE>
<S> <C> <C> <C> <C>
Oppenheimer - Global Securities Fund:
Tax qualified ............................................. 1,508 11.787738 17,776
Non-tax qualified ......................................... 4,650 11.787738 54,813
Oppenheimer - Multiple Strategies Fund:
Tax qualified ............................................. 4,469 11.803522 52,750
Non-tax qualified ......................................... 4,093 11.803522 48,312
Strong Special Fund II, Inc.:
Tax qualified ............................................. 7,847 12.408965 97,373
Non-tax qualified ......................................... 8,283 12.408965 102,783
Strong VIF - Strong Discovery Fund II:
Tax qualified ............................................. 897 10.467953 9,390
Non-tax qualified ......................................... 5,000 10.467953 52,340
Strong VIF - Strong International Stock Fund II:
Tax qualified ............................................. 3,313 11.142737 36,916
Non-tax qualified ......................................... 2,222 11.142737 24,759
TCI Portfolios - TCI Balanced:
Tax qualified ............................................. 5,362 11.371689 60,975
Non-tax qualified ......................................... 1,084 11.371689 12,327
TCI Portfolios - TCI Growth:
Tax qualified ............................................. 7,475 9.377268 70,095
Non-tax qualified ......................................... 10,548 9.377268 98,911
TCI Portfolios - TCI International:
Tax qualified ............................................. 365 11.752593 4,290
Non-tax qualified ......................................... 9,164 11.752593 107,701
TCI Portfolios - TCI Value:
Non-tax qualified ......................................... 109 10.143681 1,106
Van Eck - Gold and Natural Resources Fund:
Tax qualified ............................................. 1,121 12.953621 14,521
Non-tax qualified ......................................... 8,904 12.953621 115,339
Van Eck - Worldwide Bond Fund:
Tax qualified ............................................. 683 10.285816 7,025
Non-tax qualified ......................................... 181 10.285816 1,862
Van Eck - Worldwide Emerging Markets Fund:
Non-tax qualified ......................................... 151 10.078944 1,522
Van Kampen American Capital LIT - Real Estate Securities Fund:
Tax qualified ............................................. 3,666 14.773661 54,160
Non-tax qualified ......................................... 10,037 14.773661 148,283
Warburg Pincus - International Equity Portfolio:
Tax qualified ............................................. 6,990 11.306243 79,031
Non-tax qualified ......................................... 7,213 11.306243 81,552
Warburg Pincus - Post Venture Capital Portfolio:
Non-tax qualified ......................................... 74 10.164891 752
Warburg Pincus - Small Company Growth Portfolio:
Tax qualified ............................................. 11,253 12.604244 141,836
Non-tax qualified ......................................... 26,142 12.604244 329,500
The BEST OF AMERICA(R) contracts:
American VI Series - Growth Fund:
Tax qualified ............................................. 486,423 24.479182 11,907,237
Non-tax qualified ......................................... 471,250 24.479182 11,535,815
American VI Series - High-Yield Bond Fund:
Tax qualified ............................................. 74,769 23.160826 1,731,712
Non-tax qualified ......................................... 53,096 23.160826 1,229,747
American VI Series - U.S. Government Fund/AAA-Rated Securities Fund:
Tax qualified ............................................. 183,087 18.395431 3,367,964
Non-tax qualified ......................................... 149,634 18.395431 2,752,582
Dreyfus VIF - Growth and Income Portfolio:
Tax qualified ............................................. 15,022 9.986925 150,024
Non-tax qualified ......................................... 2,643 9.986925 26,395
</TABLE>
<PAGE>
10
<TABLE>
<S> <C> <C> <C> <C>
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified ........................................... 1,552,615 17.037112 26,452,076
Non-tax qualified ....................................... 1,190,421 17.037112 20,281,336
Dreyfus Stock Index Fund:
Tax qualified ........................................... 7,592,255 16.470432 125,047,720
Non-tax qualified ....................................... 6,210,747 16.470432 102,293,686
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ........................................... 23,565,494 28.043676 660,863,079
Non-tax qualified ....................................... 20,058,276 28.043676 562,507,793
Fidelity VIP - Growth Portfolio:
Tax qualified ........................................... 17,849,804 38.497038 687,164,583
Non-tax qualified ....................................... 13,715,597 38.497038 528,009,859
Fidelity VIP - High Income Portfolio:
Tax qualified ........................................... 7,274,256 24.553550 178,608,808
Non-tax qualified ....................................... 8,722,126 24.553550 214,159,157
Fidelity VIP - Overseas Portfolio:
Tax qualified ........................................... 13,781,464 16.573676 228,409,519
Non-tax qualified ....................................... 12,840,712 16.573676 212,817,800
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified ........................................... 21,570,235 20.422622 440,520,756
Non-tax qualified ....................................... 13,822,886 20.422622 282,299,576
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified ........................................... 10,594,586 13.255157 140,432,901
Non-tax qualified ....................................... 9,866,842 13.255157 130,786,540
Nationwide SAT - Capital Appreciation Fund:
Tax qualified ........................................... 2,288,355 17.979967 41,144,547
Non-tax qualified ....................................... 2,612,175 17.979967 46,966,820
Nationwide SAT - Government Bond Fund:
Tax qualified ........................................... 3,938,276 30.296925 119,317,653
Non-tax qualified ....................................... 3,184,368 30.216906 96,221,749
Nationwide SAT - Money Market Fund:
Tax qualified ........................................... 9,766,503 22.132823 216,160,282
Non-tax qualified ....................................... 10,963,993 22.132823 242,664,116
Nationwide SAT - Small Company Fund:
Tax qualified ........................................... 3,071,120 13.831813 42,479,158
Non-tax qualified ....................................... 3,061,699 13.831813 42,348,848
Nationwide SAT - Total Return Fund:
Tax qualified ........................................... 3,546,292 62.707634 222,379,581
Non-tax qualified ....................................... 3,148,253 61.092889 192,335,871
Neuberger & Berman - Growth Portfolio:
Tax qualified ........................................... 5,597,573 29.757359 166,568,989
Non-tax qualified ....................................... 4,702,904 29.757359 139,946,003
Neuberger & Berman - Limited Maturity Bond Portfolio:
Tax qualified ........................................... 3,722,398 16.791470 62,504,534
Non-tax qualified ....................................... 3,388,267 16.791470 56,893,984
Neuberger & Berman - Partners Portfolio:
Tax qualified ........................................... 5,383,558 17.256151 92,899,490
Non-tax qualified ....................................... 5,392,259 17.256151 93,049,636
Oppenheimer - Bond Fund:
Tax qualified ........................................... 3,808,030 17.356310 66,093,349
Non-tax qualified ....................................... 3,276,566 17.356310 56,869,095
Oppenheimer - Global Securities Fund:
Tax qualified ........................................... 7,895,779 13.266755 104,751,366
Non-tax qualified ....................................... 5,355,527 13.266755 71,050,465
Oppenheimer - Multiple Strategies Fund:
Tax qualified ........................................... 4,869,534 18.045475 87,873,054
Non-tax qualified ....................................... 3,811,559 18.045475 68,781,393
Strong Special Fund II, Inc.:
Tax qualified ........................................... 11,342,542 21.072564 239,016,442
Non-tax qualified ....................................... 8,634,564 21.072564 181,952,403
</TABLE>
<PAGE>
11
<TABLE>
<S> <C> <C> <C> <C>
Strong VIF - Strong Discovery Fund II:
Tax qualified ........................................... 4,502,456 16.129688 72,623,211
Non-tax qualified ....................................... 3,833,429 16.129688 61,832,014
Strong VIF - Strong International Stock Fund II:
Tax qualified ........................................... 1,788,555 11.140682 19,925,722
Non-tax qualified ....................................... 1,660,749 11.140682 18,501,876
TCI Portfolios - TCI Balanced:
Tax qualified ........................................... 3,254,121 14.300170 46,534,484
Non-tax qualified ....................................... 2,577,277 14.300170 36,855,499
TCI Portfolios - TCI Growth:
Tax qualified ........................................... 9,324,052 23.677551 220,770,717
Non-tax qualified ....................................... 6,231,979 23.677551 147,558,001
TCI Portfolios - TCI International:
Tax qualified ........................................... 2,194,705 11.745639 25,778,213
Non-tax qualified ....................................... 1,758,586 11.745639 20,655,716
TCI Portfolios - TCI Value:
Tax qualified ........................................... 12,933 10.142565 131,174
Non-tax qualified ....................................... 77,276 10.142565 783,777
Van Eck - Gold and Natural Resources Fund:
Tax qualified ........................................... 3,151,393 16.248199 51,204,461
Non-tax qualified ....................................... 3,558,069 16.248199 57,812,213
Van Eck - Worldwide Bond Fund:
Tax qualified ........................................... 2,627,198 14.604281 38,368,338
Non-tax qualified ....................................... 2,639,292 14.604281 38,544,962
Van Eck - Worldwide Emerging Markets Fund:
Tax qualified ........................................... 271,881 10.077830 2,739,970
Non-tax qualified ....................................... 239,183 10.077830 2,410,446
Van Kampen American Capital LIT - Real Estate Securities Fund:
Tax qualified ........................................... 2,491,780 14.931303 37,205,522
Non-tax qualified ....................................... 3,554,657 14.931303 53,075,661
Warburg Pincus - International Equity Portfolio:
Tax qualified ........................................... 5,551,036 11.572294 64,238,221
Non-tax qualified ....................................... 5,736,148 11.572294 66,380,391
Warburg Pincus - Post Venture Capital Portfolio:
Tax qualified ........................................... 205,349 10.163772 2,087,120
Non-tax qualified ....................................... 198,784 10.163772 2,020,395
Warburg Pincus - Small Company Growth Portfolio:
Tax qualified ........................................... 4,899,073 13.973889 68,459,102
Non-tax qualified ....................................... 4,810,067 13.973889 67,215,342
The BEST OF AMERICA(R) America's Vision Annuity(SM) contracts:
Dreyfus VIF - Growth andIncome Portfolio:
Tax qualified ........................................... 1,683 9.986704 16,808
Non-tax qualified ....................................... 1,403 9.986704 14,011
The Dreyfus Socially Responsible Growth Fund, Inc.:
Tax qualified ........................................... 863,844 16.091197 13,900,284
Non-tax qualified ....................................... 1,278,742 16.091197 20,576,489
Dreyfus Stock Index Fund:
Tax qualified ........................................... 5,666,553 16.369120 92,756,486
Non-tax qualified ....................................... 8,243,399 16.369120 134,937,187
Fidelity VIP - Equity-Income Portfolio:
Tax qualified ........................................... 16,618,114 16.150507 268,390,966
Non-tax qualified ....................................... 22,169,855 16.150507 358,054,398
Fidelity VIP - Growth Portfolio:
Tax qualified ........................................... 12,013,122 15.220265 182,842,900
Non-tax qualified ....................................... 17,297,852 15.220265 263,277,891
Fidelity VIP - High Income Portfolio:
Tax qualified ........................................... 8,108,419 13.162137 106,724,122
Non-tax qualified ....................................... 11,738,433 13.162137 154,502,863
</TABLE>
<PAGE>
12
<TABLE>
<S> <C> <C> <C> <C>
Fidelity VIP - Overseas Portfolio:
Tax qualified ........................................... 3,807,002 12.718928 48,420,984
Non-tax qualified ....................................... 5,707,057 12.718928 72,587,647
Fidelity VIP-II - Asset Manager Portfolio:
Tax qualified ........................................... 6,899,163 12.472730 86,051,397
Non-tax qualified ....................................... 9,363,900 12.472730 116,793,396
Fidelity VIP-II - Contrafund Portfolio:
Tax qualified ........................................... 8,168,270 13.235075 108,107,666
Non-tax qualified ....................................... 11,178,146 13.235075 147,943,601
Nationwide SAT - Capital Appreciation Fund:
Tax qualified ........................................... 1,424,586 15.932775 22,697,608
Non-tax qualified ....................................... 1,750,256 15.932775 27,886,435
Nationwide SAT - Government Bond Fund:
Tax qualified ........................................... 2,626,441 11.423331 30,002,705
Non-tax qualified ....................................... 3,145,104 11.423331 35,927,564
Nationwide SAT - Money Market Fund:
Tax qualified ........................................... 12,748,020 11.072205 141,148,691
Non-tax qualified ....................................... 18,836,301 11.072205 208,559,386
Nationwide SAT - Small Company Fund:
Tax qualified ........................................... 2,079,253 13.815158 28,725,209
Non-tax qualified ....................................... 3,209,131 13.815158 44,334,652
Nationwide SAT - Total Return Fund:
Tax qualified ........................................... 4,698,191 15.378605 72,251,624
Non-tax qualified ....................................... 6,080,735 15.378605 93,513,222
Neuberger & Berman - Growth Portfolio:
Tax qualified ........................................... 1,819,563 13.220449 24,055,440
Non-tax qualified ....................................... 3,383,799 13.220449 44,735,342
Neuberger & Berman - Limited Maturity Bond Portfolio:
Tax qualified ........................................... 2,722,579 11.092313 30,199,698
Non-tax qualified ....................................... 4,876,119 11.092313 54,087,438
Neuberger & Berman - Partners Portfolio:
Tax qualified ........................................... 3,997,138 17.213970 68,806,614
Non-tax qualified ....................................... 5,741,323 17.213970 98,830,962
Oppenheimer - Bond Fund:
Tax qualified ........................................... 3,583,135 11.601791 41,570,783
Non-tax qualified ....................................... 4,341,063 11.601791 50,364,106
Oppenheimer - Global Securities Fund:
Tax qualified ........................................... 4,661,410 12.171005 56,734,044
Non-tax qualified ....................................... 6,079,421 12.171005 73,992,663
Oppenheimer - Multiple Strategies Fund:
Tax qualified ........................................... 2,607,467 13.395639 34,928,687
Non-tax qualified ....................................... 3,408,601 13.395639 45,660,388
Strong Special Fund II, Inc.:
Tax qualified ........................................... 5,059,293 15.477893 78,307,196
Non-tax qualified ....................................... 6,638,439 15.477893 102,749,049
Strong VIF - Strong Discovery Fund II:
Tax qualified ........................................... 2,193,936 13.350547 29,290,246
Non-tax qualified ....................................... 3,358,454 13.350547 44,837,198
Strong VIF - Strong International Stock Fund II:
Tax qualified ........................................... 1,170,883 11.127252 13,028,710
Non-tax qualified ....................................... 1,645,592 11.127252 18,310,917
TCI Portfolios - TCI Balanced:
Tax qualified ........................................... 1,516,835 13.180739 19,993,006
Non-tax qualified ....................................... 2,144,874 13.180739 28,271,024
TCI Portfolios - TCI Growth:
Tax qualified ........................................... 2,639,035 12.067726 31,847,151
Non-tax qualified ....................................... 4,282,747 12.067726 51,683,017
TCI Portfolios - TCI International:
Tax qualified ........................................... 1,434,727 11.716901 16,810,554
Non-tax qualified ....................................... 2,170,866 11.716901 25,435,822
</TABLE>
<PAGE>
13
<TABLE>
<S> <C> <C> <C> <C>
TCI Portfolios - TCI Value:
Tax qualified ........................................... 4,681 10.142340 47,476
Non-tax qualified ....................................... 10,752 10.142340 109,050
Van Eck - Gold and Natural Resources Fund:
Tax qualified ........................................... 1,203,386 13.331794 16,043,294
Non-tax qualified ....................................... 1,997,123 13.331794 26,625,232
Van Eck - Worldwide Bond Fund:
Tax qualified ........................................... 1,142,334 11.597396 13,248,100
Non-tax qualified ....................................... 1,639,285 11.597396 19,011,437
Van Eck - Worldwide Emerging Markets Fund:
Tax qualified ........................................... 343,730 10.077608 3,463,976
Non-tax qualified ....................................... 353,687 10.077608 3,564,319
Van Kampen American Capital LIT - Real Estate Securities Fund:
Tax qualified ........................................... 1,646,291 14.908696 24,544,052
Non-tax qualified ....................................... 2,361,457 14.908696 35,206,245
Warburg Pincus - International Equity Portfolio:
Tax qualified ........................................... 4,575,313 11.554772 52,866,699
Non-tax qualified ....................................... 7,026,060 11.554772 81,184,521
Warburg Pincus - Post Venture Capital Portfolio:
Tax qualified ........................................... 258,812 10.163549 2,630,448
Non-tax qualified ....................................... 266,629 10.163549 2,709,897
Warburg Pincus - Small Company Growth Portfolio:
Tax qualified ........................................... 3,578,020 13.952718 49,923,104
Non-tax qualified ....................................... 5,095,747 13.952718 71,099,521
--------- ---------
Reserves for annuity contracts in payout phase:
Tax qualified ........................................... 2,554,123
Non-tax qualified ....................................... 2,710,327
----------------
$ 12,929,349,155
----------------
----------------
</TABLE>
<PAGE>
14
SCHEDULE I
NATIONWIDE VARIABLE ACCOUNT-II
The BEST OF AMERICA(R)
NATIONWIDE INSURANCE ENTERPRISE ANNUITY CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DRYGROINC DRYSRGRO DRYSTKIX FIDVIPEI FIDVIPGR FIDVIPHI
- - ------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 $10.000000 10.330490 10.575706 10.729806 9.643317 10.155366
- - ------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .536263 .457726 .495196 .693009 .926355
- - ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.010213) 1.647572 1.914712 1.030017 .719991 .492885
- - ------------------------------------------------------------------------------------------------------------
Contract charges (.001759) (.091290) (.093253) (.091225) (.083864) (.087282)
- - ------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $ 9.988028 12.423035 12.854891 12.163794 10.972453 11.487324
- - ------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 0%(b) 20% 22% 13% 14% 13%
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 ** $10.000000 10.000000 10.000000 10.000000 10.000000
- - ------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .284361 .133565 .055400 .000000 .000000
- - ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .059585 .455824 .688141 (.343684) .168653
- - ------------------------------------------------------------------------------------------------------------
Contract charges (.013456) (.013683) (.013735) (.012999) (.013287)
- - ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.330490 10.575706 10.729806 9.643317 10.155366
- - ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3%(b) 6%(b) 7%(b) (4)%(b) 2%(b)
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIDVIPOV FIDVIPAM FIDVIPCON NSATCAPAP NSATGVTBD
- - --------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 10.484931 10.533861 10.207482 10.763065 10.262495
- - --------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .258087 .693290 .096225 .560736 .636972
- - --------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.121390 .837636 2.068018 2.239869 (.282546)
- - --------------------------------------------------------------------------------------------
Contract charges (.089099) (.089585) (.088783) (.096267) (.081983)
- - --------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 11.775309 11.975202 12.282942 13.467403 10.534938
- - --------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 12% 14% 20% 25% 3%
- - --------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 10.000000 10.000000 10.000000 ** 10.000000
- - --------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .000000 .131621 .160077
- - --------------------------------------------------------------------------------------------
Unrealized gain (loss) .498416 .547401 .089202 .115777
- - --------------------------------------------------------------------------------------------
Contract charges (.013485) (.013540) (.013341) (.013359)
- - --------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 10.484931 10.533861 10.207482 10.262495
- - --------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 5%(b) 5%(b) 2%(b) 3%(b)
- - --------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
15
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT-II
The BEST OF AMERICA(R)
NATIONWIDE INSURANCE ENTERPRISE ANNUITY CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
NSATMYMKT NSATSMCO NSATTOTRE NBAMTGRO NBAMTLMAT NBAMTPART
- - ------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 $10.076854 11.411037 10.500717 9.971367 10.180593 10.570046
- - ------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .513543 .133865 .702739 .904925 .857039 .430854
- - ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 2.461847 1.579762 .002333 (.421520) 2.680302
- - ------------------------------------------------------------------------------------------------------------
Contract charges (.083050) (.103406) (.091880) (.083343) (.082563) (.095650)
- - ------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $10.507347 13.903343 12.691338 10.795282 10.533549 13.585552
- - ------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 4% 22% 21% 8% 3% 29%
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 $10.000000 10.000000 10.000000 10.000000 10.000000 10.000000
- - ------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .090135 .017460 .616695 .000000 .000000 .000000
- - ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.407776 (.102353) (.015308) .193905 .583646
- - ------------------------------------------------------------------------------------------------------------
Contract charges (.013281) (.014199) (.013625) (.013325) (.013312) (.013600)
- - ------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $10.076854 11.411037 10.500717 9.971367 10.180593 10.570046
- - ------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 1%(b) 14%(b) 5%(b) 0%(b) 2%(b) 6%(b)
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPPBDFD OPPGLSEC OPPMULT STSPEC2 STDISC2
- - ---------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 10.287129 10.087683 10.302692 10.587949 10.468286
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .661948 .000000 .785088 .498307 2.134313
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) (.172176) 1.787331 .804123 1.414208 (2.052747)
- - ---------------------------------------------------------------------------------------------
Contract charges (.083100) (.087276) (.088381) (.091499) (.081899)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 10.693801 11.787738 11.803522 12.408965 10.467953
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 4% 17% 15% 17% 0%
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 10.000000 10.000000 10.000000 10.000000 10.000000
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .170891 .000000 .105143 .031024 .134105
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) .129602 .100810 .210984 .570573 .347815
- - ---------------------------------------------------------------------------------------------
Contract charges (.013364) (.013127) (.013435) (.013648) (.013634)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 10.287129 10.087683 10.302692 10.587949 10.468286
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 3%(b) 1%(b) 3%(b) 6%(b) 5%(b)
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
16
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT-II
The BEST OF AMERICA(R)
NATIONWIDE INSURANCE ENTERPRISE ANNUITY CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
STINTSTK2 TCIBAL TCIGRO TCIINT TCIVALUE VEGOLDNR VEWRLDBD
- - ----------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 $10.176527 10.216536 9.880281 10.355977 10.000000 11.060595 10.113918
- - ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .050845 .483345 1.108725 .246392 .000000 .234696 .275985
- - ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.003660 .758083 (1.532596) 1.237834 .145456 1.758754 (.023506)
- - ----------------------------------------------------------------------------------------------------------------
Contract charges (.088295) (.086275) (.079142) (.087610) (.001775) (.100424) (.080581)
- - ----------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $11.142737 11.371689 9.377268 11.752593 10.143681 12.953621 10.285816
- - ----------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 9% 11% (5)% 13% 1%(b) 17% 2%
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 ** ** $10.000000 10.000000 ** 10.000000 10.000000
- - ----------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .000000 .53476 .187333
- - ----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.106657) .369293 1.021372 (.060143)
- - ----------------------------------------------------------------------------------------------------------------
Contract charges (.013062) (.013316) (.014253) (.013272)
- - ----------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $ 9.880281 10.355977 11.060595 10.113918
- - ----------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (1)%(b) 4%(b) 11%(b) 1%(b)
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VEWRLDEMKT VKACRESEC WPLNTEQ WPPVENCAP WPSMCOGR
- - ------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 10.000000 10.597781 10.363169 10.000000 11.154927
- - ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .284217 .220456 .000000 .000000
- - ------------------------------------------------------------------------------------------
Unrealized gain (loss) .080700 3.985795 .811087 .166654 1.546684
- - ------------------------------------------------------------------------------------------
Contract charges (.001756) (.094132) (.088469) (.001763) (.097367)
- - ------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 10.078944 14.773661 11.306243 10.164891 12.604244
- - ------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 1%(b) 39% 9% 2%(b) 13%
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 ** 10.000000 10.000000 ** 10.000000
- - ------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .090508 .075167 .000000
- - ------------------------------------------------------------------------------------------
Unrealized gain (loss) .520696 .301322 1.168850
- - ------------------------------------------------------------------------------------------
Contract charges (.013423) (.013320) (.013923)
- - ------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 10.597781 10.363169 11.154927
- - ------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 6%(b) 4%(b) 12%(b)
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
17
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
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
AVISGRO+ AVISHIYLD+ AVISGVT+ DRYGROINC DRYSRGRO DRYSTKIX
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $21.880052 20.729452 18.077072 10.000000 14.239508 13.619180
- - ------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.871220 1.958372 1.351206 .000000 .735635 .587282
- - ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.027121 .758000 (.798218) (.010207) 2.266421 2.459091
- - ------------------------------------------------------------------------------------------------------------
Contract charges (.299211) (.284998) (.234629) (.002868) (.204452) (.195121)
- - ------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $24.479182 23.160826 18.395431 9.986925 17.037112 16.470432
- - ------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 12% 12% 2% 0%(b) 20% 21%
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 $16.632869 17.247186 15.872495 ** 10.721141 10.087774
- - ------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.970200 1.862872 1.241711 .391978 .361278
- - ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.537128 1.870069 1.184664 3.289326 3.325716
- - ------------------------------------------------------------------------------------------------------------
Contract charges (.260145) (.250675) (.221798) (.162937) (.155588)
- - ------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $21.880052 20.729452 18.077072 14.239508 13.619180
- - ------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 32% 20% 14% 33% 35%
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 $16.767635 18.696382 16.810323 ** 10.702195 10.130946
- - ------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .539769 1.648226 1.072204 .276343 .283238
- - ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.458197) (2.863015) (1.799954) (.117315) (.195244)
- - ------------------------------------------------------------------------------------------------------------
Contract charges (.216338) (.234407) (.210078) (.140082) (.131166)
- - ------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $16.632869 17.247186 15.872495 10.721141 10.087774
- - ------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (1)% (8)% (6)% 0% 0%
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIDVIPEI FIDVIPGR FIDVIPHI FIDVIPOV FIDVIPAM
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 24.863579 34.006052 21.817076 14.832631 18.056027
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.146951 2.442671 1.989184 .364935 1.187807
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.376638 2.528836 1.052032 1.580901 1.428293
- - ---------------------------------------------------------------------------------------------
Contract charges (.343492) (.480521) (.304742) (.204791) (.249505)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 28.043676 38.497038 24.553550 16.573676 20.422622
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 13% 13% 13% 12% 13%
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 18.646331 25.451479 18.327364 13.701507 15.641016
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.458073 .140639 1.326946 .104797 .328525
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.043000 8.817717 2.428014 1.210063 2.303674
- - ---------------------------------------------------------------------------------------------
Contract charges (.283825) (.403783) (.265248) (.183736) (.217188)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 24.863579 34.006052 21.817076 14.832631 18.056027
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 33% 34% 19% 8% 15%
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 17.644458 25.790764 18.859652 13.646118 16.874276
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.324090 1.551366 1.728139 .070437 .820188
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) (.084066) (1.565204) (2.016825) .168983 (1.841072)
- - ---------------------------------------------------------------------------------------------
Contract charges (.238151) (.325447) (.243602) (.184031) (.212376)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 18.646331 25.451479 18.327364 13.701507 15.641016
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 6% (1)% (3)% 0% (7)%
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
+ See note 1(b).
<PAGE>
18
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
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NSATGVTBD NSATGVTBD
FIDVIPCON NSATCAPAP QUAL NON-QUAL NSATMYMKT
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $11.071500 14.442619 29.663756 29.585401 21.334141
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .104321 .749106 1.835340 1.830491 1.084427
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.235809 2.998126 (.817100) (.814933) .000000
- - -----------------------------------------------------------------------------------------------
Contract charges (.156473) (.209884) (.385071) (.384053) (.285745)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $13.255157 17.979967 30.296925 30.216906 22.132823
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 20% 24% 2% 2% 4%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 $10.000000 11.311683 25.309101 25.242252 20.457373
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .142778 .642190 1.790910 1.786181 1.150096
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) .998371 2.653706 2.924333 2.916602 .000000
- - -----------------------------------------------------------------------------------------------
Contract charges (.069649) (.164960) (.360588) (.359634) (.273328)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $11.071500 14.442619 29.663756 29.585401 21.334141
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 11%(b) 28% 17% 17% 4%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 ** $11.564256 26.497619 26.427634 19.951530
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .182737 1.662261 1.657870 .769331
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) (.286833) (2.516459) (2.509816) .000000
- - -----------------------------------------------------------------------------------------------
Contract charges (.148477) (.334320) (.333436) (.263488)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $11.311683 25.309101 25.242252 20.457373
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (2)% (4)% (4)% 3%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NSATTOTRE NSATTOTRE
NSATSMCO QUAL NON-QUAL NBAMTGRO NBAMTLMAT NBAMTPART
- - -----------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 11.410135 52.147953 50.805130 27.626244 16.311479 13.494251
- - -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .133283 3.474445 3.384976 2.505038 1.372002 .549587
- - -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.456383 7.826655 7.625118 .001295 (.677039) 3.410729
- - -----------------------------------------------------------------------------------------------------------
Contract charges (.167988) (.741419) (.722335) (.375218) (.214972) (.198416)
- - -----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 13.831813 62.707634 61.092889 29.757359 16.791470 17.256151
- - -----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 21% 20% 20% 8% 3% 28%
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 10.000000 40.926247 39.872391 21.247525 14.896724 10.017795
- - -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .017459 4.054856 3.950443 .751645 .827026 .081856
- - -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.418317 7.778269 7.577969 5.960166 .791918 3.550121
- - -----------------------------------------------------------------------------------------------------------
Contract charges (.025641) (.611419) (.595673) (.333092) (.204189) (.155521)
- - -----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 11.410135 52.147953 50.805130 27.626244 16.311479 13.494251
- - -----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 14%(b) 27% 27% 30% 9% 35%
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 ** 41.023082 39.966728 22.656907 15.115753 10.000000
- - -----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 2.069920 2.016621 2.730116 .638336 .000000
- - -----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.626696) (1.584802) (3.855326) (.662388) .072563
- - -----------------------------------------------------------------------------------------------------------
Contract charges (.540059) (.526156) (.284172) (.194977) (.054768)
- - -----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 40.926247 39.872391 21.247525 14.896724 10.017795
- - -----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 0% 0% (6)% (1)% 0%(b)
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
19
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
YEARS ENDED DECEMBER, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
OPPBDFD OPPGISEC OPPMULT STSPEC2
- - ---------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C>
Beginning unit value -
Jan. 1 $16.781326 11.411200 15.831164 18.071722
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.076598 .000000 1.203421 .849258
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) (.281316) 2.015955 1.231538 2.405366
- - ---------------------------------------------------------------------------------------------
Contract charges (.220298) (.160400) (.220648) (.253782)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $17.356310 13.266755 18.045475 21.072564
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 3% 16% 14% 17%
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 $14.531774 11.307851 13.216172 14.551898
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.000174 .297358 1.064619 .752969
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.454423 (.045704) 1.742703 2.978530
- - ---------------------------------------------------------------------------------------------
Contract charges (.205045) (.148305) (.192330) (.211675)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $16.781326 11.411200 15.831164 18.071722
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 15% 1% 20% 24%
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 $15.013579 12.151882 13.655607 14.230988
- - ---------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .845781 .214070 .695235 .407882
- - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.135198) (.900281) (.959283) .103551
- - ---------------------------------------------------------------------------------------------
Contract charges (.192388) (.157820) (.175387) (.190523)
- - ---------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $14.531774 11.307851 13.216172 14.551898
- - ---------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (3)% (7)% (3)% 2%
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STDISC2 STINTSTK2 TCIBAL TCIGRO TCIINT
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 16.212409 10.226470 12.912980 25.074858 10.402550
- - -------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 3.300022 .050935 .609851 2.810305 .247026
- - -------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (3.176638) 1.007473 .954518 (3.881210) 1.239063
- - -------------------------------------------------------------------------------------------------------------
Contract charges (.206105) (.144196) (.177179) (.326402) (.143000)
- - -------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 16.129688 11.140682 14.300170 23.677551 11.745639
- - -------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (1)% 9% 11% (6)% 13%
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 12.143604 10.000000 10.801286 19.378026 9.392316
- - -------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .211635 .041084 .305744 .022298 .000000
- - -------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 4.041557 .209464 1.961261 5.972516 1.136498
- - -------------------------------------------------------------------------------------------------------------
Contract charges (.184387) (.024078) (.155311) (.297982) (.126264)
- - -------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 16.212409 10.226470 12.912980 25.074858 10.402550
- - -------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 34% 2%(b) 20% 29% 11%
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 13.003747 ** 10.876699 19.864882 10.000000
- - -------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .971108 .260548 .002124 .000000
- - -------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.670219) (.194362) (.235006) (.554314)
- - -------------------------------------------------------------------------------------------------------------
Contract charges (.161032) (.141599) (.253974) (.053370)
- - -------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 12.143604 10.801286 19.378026 9.392316
- - -------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (7)% (1)% (2)% (6)%(b)
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
20
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
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
TCIVALUE VEGOLDNR VEWRLDBD VEWRLDEMKT VKACRESEC WPINTEQ WPPVENCAP WPSMCOGR
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $10.000000 13.944310 14.433345 10.000000 10.765351 10.661059 10.000000 12.430073
- - ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .295267 .393026 .000000 .287350 .225703 .000000 .000000
- - ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .145460 2.214346 (.035238) .080692 4.033978 .833419 .166646 1.720113
- - ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.002895) (.205724) (.186852) (.002862) (.155376) (.147887) (.002874) (.176297)
- - ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $10.142565 16.248199 14.604281 10.077830 14.931303 11.572294 10.163772 13.973889
- - ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 1%(b) 17% 1% 1%(b) 39% 9% 2%(b) 12%
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 ** $12.728311 12.465907 ** 10.000000 10.000000 ** 10.000000
- - ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .125379 1.008457 .091958 .077344 .000000
- - ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.262065 1.139655 .739393 .650502 2.501564
- - ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.171445) (.180674) (.066000) (.066787) (.071491)
- - ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $13.944310 14.433345 10.765351 10.661059 12.430073
- - ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 10% 16% 8%(b) 7%(b) 24%(b)
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 ** $13.544828 12.798654 ** ** ** ** **
- - ---------------------------------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .068031 .051478
- - ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.711769) (.222396)
- - ---------------------------------------------------------------------------------------------------------------------------------
Contract charges (.172779) (.161829)
- - ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $12.728311 12.465907
- - ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value*(a) (6)% (3)%
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
21
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT-II
The BEST OF AMERICA(R)
AMERICA'S VISION ANNUITY(SM) CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DRYGROINC DRYSRGRO DRYSTKIX FIDVIPEI FIDVIPGR
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $10.000000 13.462638 13.549203 14.333670 13.458405
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .694830 .583832 .661147 .966633
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) (.010207) 2.141897 2.445129 1.368948 1.000033
- - -----------------------------------------------------------------------------------------------
Contract charges (.003089) (.208168) (.209044) (.213258) (.204806)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $ 9.986704 16.091197 16.369120 16.150507 15.220265
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 0%(b) 20% 21% 13% 13%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 ** $10.146464 10.046079 10.760332 10.082986
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .370596 .359517 .841191 .055711
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.111650 3.310456 2.908537 3.491973
- - -----------------------------------------------------------------------------------------------
Contract charges (.166072) (.166849) (.176390) (.172265)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $13.462638 13.549203 14.333670 13.458405
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 33% 35% 33% 33%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 ** $10.138790 10.099271 10.192462 10.227729
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .261532 .282153 .764674 .615160
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) (.110944) (.194528) (.048662) (.620912)
- - -----------------------------------------------------------------------------------------------
Contract charges (.142914) (.140817) (.148142) (.138991)
- - -----------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.146464 10.046079 10.760332 10.082986
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 0% (1)% 6% (1)%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIDVIPHI FIDVIPOV FIDVIPAM FIDVIPCON NSATCAPAP NSATGVTBD
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 11.707151 11.394419 11.038610 11.065996 12.811228 11.196001
- - ----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends 1.067306 .280317 .726101 .104260 .663900 .692273
- - ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .563776 1.213612 .872284 2.233243 2.658151 (.308425)
- - ----------------------------------------------------------------------------------------------------------
Contract charges (.176096) (.169420) (.164265) (.168424) (.200504) (.156518)
- - ----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 13.162137 12.718928 12.472730 13.235075 15.932775 11.423331
- - ----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 12% 12% 13% 20% 24% 2%
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 9.844496 10.536141 9.571852 10.000000 10.044095 9.562079
- - ----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .712698 .080579 .201029 .142710 .569727 .676196
- - ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.303393 .929853 1.408870 .998320 2.355148 1.104438
- - ----------------------------------------------------------------------------------------------------------
Contract charges (.153436) (.152154) (.143141) (.075034) (.157742) (.146712)
- - ----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 11.707151 11.394419 11.038610 11.065996 12.811228 11.196001
- - ----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 19% 8% 15% 11%(b) 28% 17%
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 10.140663 10.504149 10.337032 ** 10.278752 10.021251
- - ---------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .929117 .054214 .502389 .162311 .628252
- - ---------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.084223) .130333 (1.127465) (.254834) (.951262)
- - ---------------------------------------------------------------------------------------------------------
Contract charges (.141061) (.152555) (.140104) (.142134) (.136162)
- - ---------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 9.844496 10.536141 9.571852 10.044095 9.562079
- - ---------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (3)% 0% (7)% (2)% (5)%
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
22
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT-II
The BEST OF AMERICA(R)
AMERICA'S VISION ANNUITY(SM) CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NSATMYMKT NSATSMCO NSATTOTRE NBAMTGRO NBAMTLMAT
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $10.683538 11.408018 12.801951 12.286164 10.786223
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .542750 .133144 .852193 1.113872 .907105
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 2.454868 1.920473 .000119 (.447926)
- - -----------------------------------------------------------------------------------------------
Contract charges (.154083) (.180872) (.196012) (.179706) (.153089)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $11.072205 13.815158 15.378605 13.220449 11.092313
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 4% 21% 20% 8% 3%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 $10.254838 10.000000 10.057257 9.458916 9.860649
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .576257 .017456 .995563 .334560 .547347
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418186 1.910936 2.652367 .523785
- - -----------------------------------------------------------------------------------------------
Contract charges (.147557) (.027624) (.161805) (.159679) (.145558)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $10.683538 11.408018 12.801951 12.286164 10.786223
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value*(a) 4% 14%(b) 27% 30% 9%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 $10.011385 ** 10.091256 10.096549 10.015749
- - -----------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .385849 .508763 1.216477 .422915
- - -----------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.399693) (1.717723) (.438889)
- - -----------------------------------------------------------------------------------------------
Contract charges (.142396) (.143069) (.136387) (.139126)
- - -----------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $10.254838 10.057257 9.458916 9.860649
- - -----------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 2% 0% (6)% (2)%
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NBAMTPART OPPBDFD OPPGISEC OPPMULT STSPEC2 STDISC2
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 13.474969 11.228877 10.479380 11.763879 13.287288 13.432714
- - ----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .548709 .719951 .000000 .893804 .624234 2.733315
- - ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.403649 (.188311) 1.850267 .914532 1.767320 (2.631584)
- - ----------------------------------------------------------------------------------------------------------
Contract charges (.213357) (.158726) (.158642) (.176576) (.200949) (.183898)
- - ----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 17.213970 11.601791 12.171005 13.395639 15.477893 13.350547
- - ----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 28% 3% 16% 14% 16% (1)%
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 10.013591 9.733460 10.394970 9.830640 10.710138 10.071698
- - ----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .081808 .669514 .273289 .791531 .553997 .175352
- - ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.546970 .973805 (.042048) 1.295766 2.190922 3.350345
- - ----------------------------------------------------------------------------------------------------------
Contract charges (.167400) (.147902) (.146831) (.154058) (.167769) (.164681)
- - ----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 13.474969 11.228877 10.479380 11.763879 13.287288 13.432714
- - ----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value*(a) 35% 15% 1% 20% 24% 33%
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 10.000000 10.066342 11.182167 10.167774 10.484543 10.796000
- - ----------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .000000 .566682 .196942 .517326 .300283 .805515
- - ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .072593 (.760661) (.827742) (.713828) .076473 (1.385836)
- - ----------------------------------------------------------------------------------------------------------
Contract charges (.059002) (.138903) (.156397) (.140632) (.151161) (.143981)
- - ----------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 10.013591 9.733460 10.394970 9.830640 10.710138 10.071698
- - ----------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 0%(b) (3)% (7)% (3)% 2% (7)%
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
<PAGE>
23
SCHEDULE I, CONTINUED
NATIONWIDE VARIABLE ACCOUNT-II
The BEST OF AMERICA(R)
AMERICA'S VISION ANNUITY(SM) CONTRACTS
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
STINTSTK2 TCIBAL TCIGRO TCIINT TCIVALUE VEGOLDNR
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $10.224570 11.914266 12.792935 10.387676 10.000000 11.453100
- - ------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .050894 .562489 1.433431 .246577 .000000 .242414
- - ------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.007035 .880033 (1.979303) 1.236426 .145458 1.818253
- - ------------------------------------------------------------------------------------------------------
Contract charges (.155247) (.176049) (.179337) (.153778) (.003118) (.181973)
- - ------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $11.127252 13.180739 12.067726 11.716901 10.142340 13.331794
- - ------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 9% 11% (6)% 13% 1%(b) 16%
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 $10.000000 9.975959 9.896469 9.388381 ** 10.464922
- - ------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .041077 .282199 .011387 .000000 .103018
- - ------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .209428 1.810577 3.048970 1.135219 1.036957
- - ------------------------------------------------------------------------------------------------------
Contract charges (.025935) (.154469) (.163891) (.135924) (.151797)
- - ------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $10.224570 11.914266 12.792935 10.387676 11.453100
- - ------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 2%(b) 19% 29% 11% 9%
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 ** $10.055760 10.155359 10.000000 ** 11.147499
- - ------------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .240728 .001086 .000000 .055957
- - ------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.179560) (.120150) (.554133) (.585405)
- - ------------------------------------------------------------------------------------------------------
Contract charges (.140969) (.139826) (.057486) (.153129)
- - ------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $ 9.975959 9.896469 9.388381 10.464922
- - ------------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (1)% (3)% (6)%(b) (6)%
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VEWRLDBD VEWRLDEMKT VKACRESEC WPLNTEQ WPPVENCAP WPSMCOGR
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 11.473340 10.000000 10.759998 10.655759 10.000000 12.423899
- - ----------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .312292 .000000 .286935 .225373 .000000 .000000
- - ----------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.028284) .080691 4.028984 .832826 .166644 1.718585
- - ----------------------------------------------------------------------------------------------------
Contract charges (.159952) (.003083) (.167221) (.159186) (.003095) (.189766)
- - ----------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 11.597396 10.077608 14.908696 11.554772 10.163549 13.952718
- - ----------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 1% 1%(b) 39% 8% 2%(b) 12%
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
1995
Beginning unit value -
Jan. 1 9.919400 ** 10.000000 10.000000 ** 10.000000
- - ----------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .802034 .091916 .077309 .000000
- - ----------------------------------------------------------------------------------------------------
Unrealized gain (loss) .906733 .739173 .650383 2.500906
- - ----------------------------------------------------------------------------------------------------
Contract charges (.154827) (.071091) (.071933) (.077007)
- - ----------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 11.473340 10.759998 10.655759 12.423899
- - ----------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) 16% 8%(b) 7%(b) 24%(b)
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
1994
Beginning unit value -
Jan. 1 10.194477 ** ** ** ** **
- - ----------------------------------------------------------------------------------------------------
Reinvested capital gains
and dividends .040987
- - ----------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.177244)
- - ----------------------------------------------------------------------------------------------------
Contract charges (.138820)
- - ----------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 9.919400
- - ----------------------------------------------------------------------------------------------------
Percentage increase
(decrease)
in unit value* (a) (3)%
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not being utilized for the entire year
indicated.
** This investment option was not being utilized or was not available.
See Note 3.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Life Insurance Company
We have audited the accompanying consolidated balance sheets of Nationwide
Life Insurance Company and subsidiaries (collectively the Company) as of
December 31, 1996 and 1995, and the related consolidated statements of
income, shareholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Nationwide Life Insurance Company and subsidiaries as of December 31, 1996
and 1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
($000's omitted)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ----------- -----------
<S> <C> <C>
Investments (notes 5, 8 and 9):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995) $12,304,639 12,485,564
Equity securities (cost $43,890 in 1996; $23,617 in 1995) 59,131 29,953
Mortgage loans on real estate, net 5,272,119 4,602,764
Real estate, net 265,759 229,442
Policy loans 371,816 336,356
Other long-term investments 28,668 61,989
Short-term investments (note 13) 4,789 32,792
----------- -----------
18,306,921 17,778,860
----------- -----------
Cash 43,784 9,455
Accrued investment income 210,182 212,963
Deferred policy acquisition costs 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2) 485,707 506,677
Other assets (note 6) 426,441 388,214
Assets held in Separate Accounts (note 8) 26,926,702 18,591,108
----------- -----------
$47,766,246 38,507,633
----------- -----------
----------- -----------
Liabilities and Shareholder's Equity
------------------------------------
Future policy benefits and claims (notes 6 and 8) $17,179,060 16,358,614
Policyholders' dividend accumulations 361,401 348,027
Other policyholder funds 60,073 65,297
Accrued federal income tax (note 7):
Current 30,170 35,301
Deferred 162,212 246,627
----------- -----------
192,382 281,928
----------- -----------
Dividend payable to shareholder (notes 1 and 2) 485,707 -
Other liabilities 423,047 234,147
Liabilities related to Separate Accounts (note 8) 26,926,702 18,591,108
----------- -----------
45,628,372 35,879,121
----------- -----------
Commitments and contingencies (notes 6, 9 and 15)
Shareholder's equity (notes 3, 4, 5, 12 and 13):
Capital shares, $1 par value. Authorized 5,000,000 shares, issued and
outstanding 3,814,779 shares 3,815 3,815
Additional paid-in capital 527,874 657,118
Retained earnings 1,432,593 1,583,275
Unrealized gains on securities available-for-sale, net 173,592 384,304
----------- -----------
2,137,874 2,628,512
----------- -----------
$47,766,246 38,507,633
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenues (note 16):
Investment product and universal life insurance product policy charges $ 400,902 286,534 217,245
Traditional life insurance premiums 198,642 199,106 176,658
Net investment income (note 5) 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 5) (326) (1,724) (16,527)
Other income 35,861 20,702 11,312
---------- ---------- ---------
1,992,838 1,798,651 1,599,499
---------- ---------- ---------
Benefits and expenses:
Benefits and claims 1,160,580 1,115,493 992,667
Provision for policyholders' dividends on participating policies (note 12) 40,973 39,937 38,754
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Other operating expenses (note 13) 342,394 272,954 240,652
---------- ---------- ---------
1,677,341 1,511,079 1,357,641
---------- ---------- ---------
Income from continuing operations before federal income tax expense 315,497 287,572 241,858
---------- ---------- ---------
Federal income tax expense (benefit) (note 7):
Current 116,512 88,700 73,559
Deferred (5,623) 11,108 5,030
---------- ---------- ---------
110,889 99,808 78,589
---------- ---------- ---------
Income from continuing operations 204,608 187,764 163,269
Income from discontinued operations (less federal income tax expense of
$4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2) 11,324 24,714 20,459
---------- ---------- ---------
Net income $ 215,932 212,478 183,728
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
Unrealized
gains (losses)
Additional on securities Total
Capital paid-in Retained available-for- shareholder's
shares capital earnings sale, net equity
------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Balance, beginning of year $3,815 406,089 1,194,519 6,745 1,611,168
Capital contribution - 200,000 - - 200,000
Net income - - 183,728 - 183,728
Adjustment for change in accounting for
certain investments in debt and equity
securities, net (note 4) - - - 212,553 212,553
Unrealized losses on securities available-
for-sale, net - - - (338,971) (338,971)
------ ------- --------- --------- ----------
Balance, end of year $3,815 606,089 1,378,247 (119,673) 1,868,478
------ ------- --------- --------- ----------
------ ------- --------- --------- ----------
1995:
Balance, beginning of year 3,815 606,089 1,378,247 (119,673) 1,868,478
Capital contribution (note 13) - 51,029 - (4,111) 46,918
Dividends to shareholder - - (7,450) - (7,450)
Net income - - 212,478 - 212,478
Unrealized gains on securities available-
for-sale, net - - - 508,088 508,088
------ ------- --------- --------- ----------
Balance, end of year $3,815 657,118 1,583,275 384,304 2,628,512
------ ------- --------- --------- ----------
------ ------- --------- --------- ----------
1996:
Balance, beginning of year 3,815 657,118 1,583,275 384,304 2,628,512
Capital contribution (note 13) - 25 5 - 30
Dividends to shareholder - (129,269) (366,619) (39,819) (535,707)
Net income - - 215,932 - 215,932
Unrealized losses on securities available-
for-sale, net - - - (170,893) (170,893)
------ ------- --------- --------- ----------
Balance, end of year $3,815 527,874 1,432,593 173,592 2,137,874
------ ------- --------- --------- ----------
------ ------- --------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
($000's omitted)
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 215,932 212,478 183,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Capitalization of deferred policy acquisition costs (422,572) (321,327) (242,431)
Amortization of deferred policy acquisition costs 133,394 82,695 85,568
Amortization and depreciation 6,962 10,234 3,603
Realized (gains) losses on invested assets, net (284) 3,250 16,094
Deferred federal income tax expense (benefit) 7,603 (30,673) 9,946
Decrease (increase) in accrued investment income 2,781 (16,999) (12,808)
(Increase) decrease in other assets (38,876) 39,880 (102,676)
Increase in policy liabilities 305,755 135,937 118,361
Increase in policyholders' dividend accumulations 13,374 12,639 15,298
(Decrease) increase in accrued federal income tax payable (5,131) 30,836 (5,714)
Increase in other liabilities 188,900 26,851 506
Other, net (61,679) 1,832 (29,595)
---------- --------- ---------
Net cash provided by operating activities 346,159 187,633 39,880
---------- --------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 1,162,766 634,553 544,843
Proceeds from sale of securities available-for-sale 299,558 107,345 228,308
Proceeds from maturity of fixed maturity securities held-to-maturity - 564,450 491,862
Proceeds from repayments of mortgage loans on real estate 309,050 207,832 190,574
Proceeds from sale of real estate 18,519 48,331 46,713
Proceeds from repayments of policy loans and sale of other invested assets 22,795 53,587 120,506
Cost of securities available-for-sale acquired (1,573,640) (1,942,413) (1,816,370)
Cost of fixed maturity securities held-to-maturity acquired - (593,636) (410,379)
Cost of mortgage loans on real estate acquired (972,776) (796,026) (471,570)
Cost of real estate acquired (7,862) (10,928) (6,385)
Policy loans issued and other invested assets acquired (57,740) (75,910) (65,302)
Short-term investments, net 28,003 77,837 (89,376)
Purchase of affiliate (note 13) - - (155,000)
---------- --------- ---------
Net cash used in investing activities (771,327) (1,724,978) (1,391,576)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions 30 - 200,000
Dividends paid to shareholder (50,000) (7,450) -
Increase in investment product and universal life insurance
product account balances 2,293,933 2,809,385 3,547,976
Decrease in investment product and universal life insurance
product account balances (1,784,466) (1,258,758) (2,412,595)
---------- --------- ---------
Net cash provided by financing activities 459,497 1,543,177 1,335,381
---------- --------- ---------
Net increase (decrease) in cash 34,329 5,832 (16,315)
Cash, beginning of year 9,455 3,623 19,938
---------- --------- ---------
Cash, end of year $ 43,784 9,455 3,623
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
($000's omitted)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Nationwide Life Insurance Company (NLIC) is a wholly owned
subsidiary of Nationwide Corporation (Nationwide Corp.). Wholly
owned subsidiaries of NLIC include Nationwide Life and Annuity
Insurance Company (NLAIC), Employers Life Insurance Company of
Wausau and subsidiaries (ELICW), National Casualty Company (NCC),
West Coast Life Insurance Company (WCLIC), Nationwide Advisory
Services, Inc. (formerly Nationwide Financial Services, Inc.),
Nationwide Investment Services Corporation (formerly PEBSCO
Securities Corporation) (NISC) and NWE, Inc. NLIC and its
subsidiaries are collectively referred to as "the Company."
Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS)
in November 1996 as a holding company for NLIC and the other
companies of the Nationwide Insurance Enterprise that offer or
distribute long-term savings and retirement products. On January
27, 1997, Nationwide Corp. contributed to NFS the common stock of
NLIC and three marketing and distribution companies. NFS is
planning an initial public offering of its Class A common stock
during the first quarter of 1997.
In anticipation of the restructuring described above, on September
24, 1996, NLIC's Board of Directors declared a dividend payable
January 1, 1997 to Nationwide Corp. consisting of the outstanding
shares of common stock of certain subsidiaries (ELICW, NCC and
WCLIC) that do not offer or distribute long-term savings and
retirement products. In addition, during 1996, NLIC entered into
two reinsurance agreements whereby all of NLIC's accident and
health and group life insurance business was ceded to ELICW and
another affiliate effective January 1, 1996. These subsidiaries
and all accident and health and group life insurance business have
been accounted for as discontinued operations for all periods
presented. See notes 2 and 13.
In addition, as part of the restructuring described above, NLIC
intends to make an $850,000 distribution to NFS which will then
make an equivalent distribution to Nationwide Corp.
The Company is a leading provider of long-term savings and
retirement products to retail and institutional customers and is
subject to competition from other financial services providers
throughout the United States. The Company is subject to regulation
by the Insurance Departments of states in which it is licensed, and
undergoes periodic examinations by those departments.
The following is a description of the most significant risks facing
life insurers and how the Company mitigates those risks:
LEGAL/REGULATORY RISK is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives, new legal theories or
insurance company insolvencies through guaranty fund assessments
may create costs for the insurer beyond those currently recorded in
the consolidated financial statements. The Company mitigates this
risk by offering a wide range of products and by operating
throughout the United States, thus reducing its exposure to any
single product or jurisdiction, and also by employing underwriting
practices which identify and minimize the adverse impact of this
risk.
CREDIT RISK is the risk that issuers of securities owned by the
Company or mortgagors on mortgage loans on real estate owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes
this risk by adhering to a conservative investment strategy, by
maintaining reinsurance and credit and collection policies and by
providing for any amounts deemed uncollectible.
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTEREST RATE RISK is the risk that interest rates will change and
cause a decrease in the value of an insurer's investments. This
change in rates may cause certain interest-sensitive products to
become uncompetitive or may cause disintermediation. The Company
mitigates this risk by charging fees for non-conformance with
certain policy provisions, by offering products that transfer this
risk to the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly
than assets mature, an insurer would have to borrow funds or sell
assets prior to maturity and potentially recognize a gain or loss.
(2) DISCONTINUED OPERATIONS
As discussed in note 1, NFS is a holding company for NLIC and
certain other companies that offer or distribute long-term savings
and retirement products. Prior to the contribution by Nationwide
Corp. to NFS of the outstanding common stock of NLIC and other
companies, NLIC effected certain transactions with respect to
certain subsidiaries and lines of business that were unrelated to
long-term savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a
dividend to Nationwide Corp. consisting of the outstanding shares
of common stock of three subsidiaries: ELICW, NCC and WCLIC. ELICW
writes group accident and health and group life insurance business
and maintains it offices in Wausau, Wisconsin. NCC is a property
and casualty company that serves as a fronting company for a
property and casualty subsidiary of Nationwide Mutual Insurance
Company (NMIC), an affiliate. NCC maintains its offices in
Scottsdale, Arizona. WCLIC writes high dollar term life insurance
policies and is located in San Francisco, California. ELICW, NCC
and WCLIC have been accounted for as discontinued operations for
all periods presented. NLIC did not recognize any gain or loss on
the disposal of these subsidiaries.
A summary of the combined results of operations, including the
results of the accident and health and group life insurance
business ELICW assumed from NLIC in 1996, and assets and
liabilities of ELICW, NCC and WCLIC as of and for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <S> <C> <C>
Revenues $ 668,870 422,149 84,226
Net income 11,324 26,456 11,753
Assets, consisting primarily of investments 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy benefits and claims 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business
was ceded to ELICW and NMIC, effective January 1, 1996. See note
13 for a complete discussion of the reinsurance agreements. NLIC
has discontinued its accident and health and group life insurance
business and in connection therewith has entered into reinsurance
agreements to cede all existing and any future writings to other
affiliated companies and will cease writing any new business prior
to December 31, 1997. NLIC's accident and health and group life
insurance business is accounted for as discontinued operations for
all periods presented. NLIC did not recognize any gain or loss on
the disposal of the accident and health and group life insurance
business. The assets, liabilities, results of operations and
activities of discontinued operations are distinguished physically,
operationally and for financial reporting purposes from the
remaining assets, liabilities, results of operations and activities
of NLIC.
<PAGE>
A summary of the results of operations, net of amounts ceded to
ELICW and NMIC in 1996, and assets and liabilities of NLIC's
accident and health and group life insurance business as of and for
the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues $ - 354,788 362,476
Net income (loss) - (1,742) 8,706
Assets, consisting primarily of investments 259,185 239,426 234,082
Liabilities, consisting primarily of policy benefits and claims 259,185 239,426 234,082
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP)
which differ from statutory accounting practices prescribed or
permitted by regulatory authorities. Annual Statements for NLIC
and its insurance subsidiaries, filed with the department of
insurance of each insurance company's state of domicile, are
prepared on the basis of accounting practices prescribed or
permitted by each department. Prescribed statutory accounting
practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state
laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices
not so prescribed. The Company has no material permitted statutory
accounting practices.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosures of contingent
assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses for
the reporting period. Actual results could differ significantly
from those estimates.
The most significant estimates include those used in determining
deferred policy acquisition costs, valuation allowances for
mortgage loans on real estate and real estate investments and the
liability for future policy benefits and claims. Although some
variability is inherent in these estimates, management believes the
amounts provided are adequate.
(a) CONSOLIDATION POLICY
The consolidated financial statements include the accounts of NLIC
and its wholly owned subsidiaries. Subsidiaries that are classified
and reported as discontinued operations are not consolidated but
rather are reported as "Investment in Subsidiaries Classified as
Discontinued Operations" in the accompanying consolidated balance
sheets and "Income for Discontinued Operations" in the accompanying
consolidated statements of income. All significant intercompany
balances and transactions have been eliminated.
(b) VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES
The Company is required to classify its fixed maturity securities
and equity securities as either held-to-maturity, available-for-
sale or trading. Fixed maturity securities are classified as held-
to-maturity when the Company has the positive intent and ability to
hold the securities to maturity and are stated at amortized cost.
Fixed maturity securities not classified as held-to-maturity and
all equity securities are classified as available-for-sale and are
stated at fair value, with the unrealized gains and losses, net of
adjustments to deferred policy acquisition costs and deferred
federal income tax, reported as a separate component of
shareholder's equity. The adjustment to deferred policy
acquisition costs represents the change in amortization of deferred
policy acquisition costs that would have been required as a charge
or credit to operations had such unrealized amounts been realized.
The Company has no fixed maturity securities classified as held-to-
maturity or trading as of December 31, 1996 or 1995.
<PAGE>
Mortgage loans on real estate are carried at the unpaid principal
balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based
on a review by portfolio managers. The measurement of impaired
loans is based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the fair value of the collateral, if the loan is
collateral dependent. Loans in foreclosure and loans considered to
be impaired are placed on non-accrual status. Interest received on
non-accrual status mortgage loans on real estate are included in
interest income in the period received.
Real estate is carried at cost less accumulated depreciation and
valuation allowances. Other long-term investments are carried on
the equity basis, adjusted for valuation allowances. Impairment
losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
assets' carrying amount.
Realized gains and losses on the sale of investments are determined
on the basis of specific security identification. Estimates for
valuation allowances and other than temporary declines are included
in realized gains and losses on investments.
(c) REVENUES AND BENEFITS
INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
Investment products consist primarily of individual and group
variable and fixed annuities, annuities without life contingencies
and guaranteed investment contracts. Universal life insurance
products include universal life insurance, variable universal life
insurance and other interest-sensitive life insurance policies.
Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of
insurance, policy administration and surrender charges that have
been earned and assessed against policy account balances during the
period. Policy benefits and claims that are charged to expense
include interest credited to policy account balances and benefits
and claims incurred in the period in excess of related policy
account balances.
TRADITIONAL LIFE INSURANCE PRODUCTS: Traditional life insurance
products include those products with fixed and guaranteed premiums
and benefits and consist primarily of whole life insurance,
limited-payment life insurance, term life insurance and certain
annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits
and expenses are associated with earned premiums so as to result in
recognition of profits over the life of the contract. This
association is accomplished by the provision for future policy
benefits and the deferral and amortization of policy acquisition
costs.
ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
insurance premiums are recognized as revenue over the terms of the
policies. Policy claims are charged to expense in the period that
the claims are incurred. All accident and health insurance
business is accounted for as discontinued operations. See note 2.
(d) DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
certain expenses of the policy issue and underwriting department
and certain variable agency expenses have been deferred. For
investment products and universal life insurance products, deferred
policy acquisition costs are being amortized with interest over the
lives of the policies in relation to the present value of estimated
future gross profits from projected interest margins, asset fees,
cost of insurance, policy administration and surrender charges.
For years in which gross profits are negative, deferred policy
acquisition costs are amortized based on the present value of gross
revenues. For traditional life products, these deferred policy
acquisition costs are predominantly being amortized with interest
over the premium paying period of the related policies in
proportion to the ratio of actual annual premium revenue to the
anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for
computing liabilities for future policy benefits. Deferred policy
acquisition costs are adjusted to reflect the impact of unrealized
gains and losses on fixed maturity securities available-for-sale as
described in note 3(b).
<PAGE>
(e) SEPARATE ACCOUNTS
Separate Account assets and liabilities represent contractholders'
funds which have been segregated into accounts with specific
investment objectives. The investment income and gains or losses
of these accounts accrue directly to the contractholders. The
activity of the Separate Accounts is not reflected in the
consolidated statements of income and cash flows except for the
fees the Company receives.
(f) FUTURE POLICY BENEFITS
Future policy benefits for investment products in the accumulation
phase, universal life insurance and variable universal life
insurance policies have been calculated based on participants'
contributions plus interest credited less applicable contract
charges.
Future policy benefits for traditional life insurance policies have
been calculated using a net level premium method based on estimates
of mortality, morbidity, investment yields and withdrawals which
were used or which were being experienced at the time the policies
were issued, rather than the assumptions prescribed by state
regulatory authorities. See note 6.
Future policy benefits and claims for collectively renewable long-
term disability policies and group long-term disability policies
are the present value of amounts not yet due on reported claims and
an estimate of amounts to be paid on incurred but unreported
claims. The impact of reserve discounting is not material. Future
policy benefits and claims on other group health insurance policies
are not discounted. All health insurance business is accounted for
as discontinued operations. See note 2.
(g) PARTICIPATING BUSINESS
Participating business represents approximately 52% in 1996 (54% in
1995 and 55% in 1994) of the Company's life insurance in force, 78%
in 1996 (79% in 1995 and 79% in 1994) of the number of life
insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
in 1994) of life insurance premiums. The provision for
policyholder dividends is based on current dividend scales. Future
dividends are provided for ratably in future policy benefits based
on dividend scales in effect at the time the policies were issued.
(h) FEDERAL INCOME TAX
The Company, with the exception of ELICW, files a consolidated
federal income tax return with NMIC, the majority shareholder of
Nationwide Corp. The members of the consolidated tax return group
have a tax sharing arrangement which provides, in effect, for each
member to bear essentially the same federal income tax liability as
if separate tax returns were filed. Through 1994, ELICW filed a
consolidated federal income tax return with Employers Insurance of
Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
files a separate federal income tax return.
The Company utilizes the asset and liability method of accounting
for income tax. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the
deferred tax assets to the amounts expected to be realized.
<PAGE>
(i) REINSURANCE CEDED
Reinsurance premiums ceded and reinsurance recoveries on benefits
and claims incurred are deducted from the respective income and
expense accounts. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. All of the Company's accident
and health and group life insurance business is ceded to affiliates
and is accounted for as discontinued operations. See notes 2 and
13.
(j) RECLASSIFICATION
Certain items in the 1995 and 1994 consolidated financial
statements have been reclassified to conform to the 1996
presentation.
(4) CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, the Company changed its method of
accounting for certain investments in debt and equity securities in
connection with the issuance of STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS (SFAS) NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES. As of January 1, 1994, the Company
classified fixed maturity securities with amortized cost and fair
value of $6,299,665 and $6,721,714, respectively, as available-for-
sale and recorded the securities at fair value. Previously, these
securities were recorded at amortized cost. The effect as of
January 1, 1994 has been recorded as a direct credit to
shareholder's equity as follows:
Excess of fair value over amortized cost of fixed maturity
securities available-for-sale $ 422,049
Adjustment to deferred policy acquisition costs (95,044)
Deferred federal income tax (114,452)
---------
$ 212,553
---------
---------
(5) INVESTMENTS
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $275,696 4,795 (1,340) 279,151
Obligations of states and political subdivisions 6,242 450 (2) 6,690
Debt securities issued by foreign governments 100,656 2,141 (857) 101,940
Corporate securities 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities 3,588,974 91,438 (15,124) 3,665,288
------------ ---------- ---------- -----------
Total fixed maturity securities 11,970,878 384,770 (51,009) 12,304,639
Equity securities 43,890 15,571 (330) 59,131
------------ ---------- ---------- -----------
$12,014,768 400,341 (51,339) 12,363,770
------------ ---------- ---------- -----------
------------ ---------- ---------- -----------
</TABLE>
<PAGE>
The amortized cost and estimated fair value of securities
available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
<S> <C> <C> <C> <C>
1995:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $310,186 12,764 (1) 322,949
Obligations of states and political subdivisions 8,655 1,205 (1) 9,859
Debt securities issued by foreign governments 101,414 4,387 (66) 105,735
Corporate securities 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities 3,553,861 165,169 (8,388) 3,710,642
----------- -------- ------- ----------
Total fixed maturity securities 11,862,556 657,206 (34,198) 12,485,564
Equity securities 23,617 6,382 (46) 29,953
----------- -------- ------- ----------
$11,886,173 663,588 (34,244) 12,515,517
----------- -------- ------- ----------
----------- -------- ------- ----------
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Estimated
cost fair value
Fixed maturity securities available-for-sale: ----------- ----------
Due in one year or less $ 440,235 444,214
Due after one year through five years 3,937,010 4,053,152
Due after five years through ten years 2,809,813 2,871,806
Due after ten years 1,194,846 1,270,179
----------- ----------
8,381,904 8,639,351
Mortgage-backed securities 3,588,974 3,665,288
----------- ----------
$11,970,878 12,304,639
----------- ----------
----------- ----------
The components of unrealized gains on securities available-for-sale, net,
were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Gross unrealized gains $349,002 629,344
Adjustment to deferred policy acquisition costs (81,939) (138,914)
Deferred federal income tax (93,471) (171,649)
-------- --------
173,592 318,781
Unrealized gains on securities available-for-sale, net, of
subsidiaries classified as discontinued operations (note 2) - 65,523
-------- --------
$173,592 384,304
-------- --------
-------- --------
</TABLE>
<PAGE>
An analysis of the change in gross unrealized gains (losses) on securities
available-for-sale and fixed maturity securities held-to-maturity follows for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(289,247) 876,332 (675,373)
Equity securities 8,905 (26) (1,927)
Fixed maturity securities held-to-maturity - 75,626 (398,183)
--------- --------- ----------
$(280,342) 951,932 (1,075,483)
--------- --------- ----------
--------- --------- ----------
</TABLE>
Proceeds from the sale of securities available-for-sale during
1996, 1995 and 1994 were $299,558, $107,345 and $228,308,
respectively. During 1996, gross gains of $6,606 ($4,838 and
$3,045 in 1995 and 1994, respectively) and gross losses of $6,925
($2,147 and $21,280 in 1995 and 1994, respectively) were realized
on those sales.
During 1995, the Company transferred fixed maturity securities
classified as held-to-maturity with amortized cost of $25,429 to
available-for-sale securities due to evidence of a significant
deterioration in the issuer's creditworthiness. The transfer of
those fixed maturity securities resulted in a gross unrealized loss
of $3,535.
As permitted by the Financial Accounting Standards Board's Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in
November 1995 the Company transferred all of its fixed maturity
securities previously classified as held-to-maturity to available-
for-sale. As of December 14, 1995, the date of transfer, the fixed
maturity securities had amortized cost of $3,320,093, resulting in
a gross unrealized gain of $155,940.
Investments that were non-income producing for the twelve month
period preceding December 31, 1996 amounted to $26,805 ($27,712 in
1995) and consisted of $248 ($6,982 in 1995) in fixed maturity
securities, $20,633 ($14,740 in 1995) in real estate and $5,924
($5,990 in 1995) in other long-term investments.
Real estate is presented at cost less accumulated depreciation of
$30,338 as of December 31, 1996 ($30,482 as of December 31, 1995)
and valuation allowances of $15,219 as of December 31, 1996
($25,819 as of December 31, 1995).
The recorded investment of mortgage loans on real estate considered
to be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND
DISCLOSURE) as of December 31, 1996 was $51,765 ($44,409 as of
December 31, 1995), which includes $41,663 ($23,975 as of December
31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $8,485 ($5,276 as of December 31,
1995) and $10,102 ($20,434 as of December 31, 1995) of impaired
mortgage loans on real estate for which there was no valuation
allowance. During 1996, the average recorded investment in
impaired mortgage loans on real estate was approximately $39,674
($22,181 in 1995) and interest income recognized on those loans was
$2,103 ($387 in 1995), which is equal to interest income recognized
using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on
real estate is summarized for the years ended December 31:
1996 1995
------- ------
Allowance, beginning of year $49,128 46,381
Additions charged to operations 4,497 7,433
Direct write-downs charged against the allowance (2,587) (4,686)
------- ------
Allowance, end of year $51,038 49,128
------- ------
------- ------
<PAGE>
An analysis of investment income by investment type follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-sale:
Fixed maturity securities $917,135 685,787 647,927
Equity securities 1,291 1,330 509
Fixed maturity securities held-to-maturity - 201,808 185,938
Mortgage loans on real estate 432,815 395,478 372,734
Real estate 44,332 38,344 40,170
Short-term investments 4,155 10,576 6,141
Other 3,998 7,239 2,121
---------- --------- ---------
Total investment income 1,403,726 1,340,562 1,255,540
Less investment expenses 45,967 46,529 44,729
---------- --------- ---------
Net investment income $1,357,759 1,294,033 1,210,811
---------- --------- ---------
---------- --------- ---------
</TABLE>
An analysis of realized gains (losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities $(3,462) 4,213 (7,296)
Equity securities 3,143 3,386 1,422
Mortgage loans on real estate (4,115) (7,091) (20,446)
Real estate and other 4,108 (2,232) 9,793
------- ------ -------
$ (326) (1,724) (16,527)
------- ------ -------
------- ------ -------
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592 as of
December 31, 1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
(6) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts
represents approximately 87% and 87% of the total liability for
future policy benefits as of December 31, 1996 and 1995,
respectively. The average interest rate credited on investment
product policies was approximately 6.3%, 6.6% and 6.5% for the
years ended December 31, 1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
INTEREST RATES: Interest rates vary as follows:
Year of issue Interest rates
------------- --------------------------------------------------
1996 6.6%, not graded
1984-1995 6.0% to 10.5%, not graded
1966-1983 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior generally lower than post 1965 issues
<PAGE>
WITHDRAWALS: Rates, which vary by issue age, type of coverage and
policy duration, are based on Company experience.
MORTALITY: Mortality and morbidity rates are based on published
tables, modified for the Company's actual experience.
The Company has entered into a reinsurance contract to cede a
portion of its general account individual annuity business to The
Franklin Life Insurance Company (Franklin). Total recoveries due
from Franklin were $240,451 and $245,255 as of December 31, 1996
and 1995, respectively. The contract is immaterial to the
Company's results of operations. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. Under the terms of the contract, Franklin has
established a trust as collateral for the recoveries. The trust
assets are invested in investment grade securities, the market
value of which must at all times be greater than or equal to 102%
of the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as
described in note 13. All other reinsurance agreements are not
material to either premiums or reinsurance recoverables.
(7) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to
significant components of the net deferred tax liability as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $175,571 149,192
Liabilities in Separate Accounts 188,426 129,120
Mortgage loans on real estate and real estate 23,366 25,165
Other policyholder funds 7,407 7,424
Other assets and other liabilities 53,757 41,847
-------- --------
Total gross deferred tax assets 448,527 352,748
Less valuation allowances (7,000) (7,000)
-------- --------
Net deferred tax assets 441,527 345,748
-------- --------
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 399,345 299,579
Fixed maturity securities 133,210 227,345
Deferred tax on realized investment gains 37,597 40,634
Equity securities and other long-term investments 8,210 3,780
Other 25,377 21,037
-------- --------
Total gross deferred tax liabilities 603,739 592,375
-------- --------
$162,212 246,627
-------- --------
-------- --------
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of
the total gross deferred tax assets will not be realized. Nearly
all future deductible amounts can be offset by future taxable
amounts or recovery of federal income tax paid within the statutory
carryback period. There has been no change in the valuation
allowance for the years ended December 31, 1996, 1995 and 1994.
<PAGE>
Total federal income tax expense for the years ended December 31,
1996, 1995 and 1994 differs from the amount computed by applying
the U.S. federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- ---------------
Amount % Amount % Amount %
-------------- -------------- ---------------
<S> <C> <C> <C>
Computed (expected) tax expense $110,424 35.0 $100,650 35.0 $84,650 35.0
Tax exempt interest and dividends
received deduction (212) (0.1) (18) (0.0) (130) (0.1)
Other, net 677 0.3 (824) (0.3) (5,931) (2.5)
-------------- -------------- ---------------
Total (effective rate of each year) $110,889 35.2 $ 99,808 34.7 $78,589 32.5
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
Total federal income tax paid was $115,839, $51,840 and $83,239 during the
years ended December 31, 1996, 1995 and 1994, respectively.
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS (SFAS 107) requires disclosure of fair value
information about existing on and off-balance sheet financial
instruments. SFAS 107 defines the fair value of a financial
instrument as the amount at which the financial instrument could be
exchanged in a current transaction between willing parties. In
cases where quoted market prices are not available, fair value is
based on estimates using present value or other valuation
techniques.
These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. Although fair value estimates are calculated using
assumptions that management believes are appropriate, changes in
assumptions could cause these estimates to vary materially. In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many
cases, could not be realized in the immediate settlement of the
instruments. SFAS 107 excludes certain assets and liabilities from
its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company.
Although insurance contracts, other than policies such as annuities
that are classified as investment contracts, are specifically
exempted from SFAS 107 disclosures, estimated fair value of policy
reserves on life insurance contracts is provided to make the fair
value disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses
can have a significant effect on fair value estimates and have not
been considered in the estimates.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures:
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
FIXED MATURITY AND EQUITY SECURITIES: Fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair
value is estimated using values obtained from independent pricing
services or, in the case of private placements, is estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments. The fair value for equity securities is based on
quoted market prices.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
held in Separate Accounts is based on quoted market prices. The
fair value of liabilities related to Separate Accounts is the
amount payable on demand, which includes certain surrender charges.
<PAGE>
MORTGAGE LOANS ON REAL ESTATE: The fair value for mortgage loans
on real estate is estimated using discounted cash flow analyses,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Fair value for mortgages in default is the estimated fair value of
the underlying collateral.
INVESTMENT CONTRACTS: Fair value for the Company's liabilities
under investment type contracts is disclosed using two methods.
For investment contracts without defined maturities, fair value is
the amount payable on demand. For investment contracts with known
or determined maturities, fair value is estimated using discounted
cash flow analyses. Interest rates used are similar to currently
offered contracts with maturities consistent with those remaining
for the contracts being valued.
POLICY RESERVES ON LIFE INSURANCE CONTRACTS: Included are
disclosures for individual life insurance, universal life insurance
and supplementary contracts with life contingencies for which the
estimated fair value is the amount payable on demand. Also
included are disclosures for the Company's limited payment
policies, which the Company has used discounted cash flow analyses
similar to those used for investment contracts with known
maturities to estimate fair value.
POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER FUNDS:
The carrying amount reported in the consolidated balance sheets for
these instruments approximates their fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
nominal fair value because of the short-term nature of such
commitments. See note 9.
Carrying amount and estimated fair value of financial instruments
subject to SFAS 107 and policy reserves on life insurance contracts
were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Securities available-for-sale:
Fixed maturity securities $12,304,639 12,304,639 12,485,564 12,485,564
Equity securities 59,131 59,131 29,953 29,953
Mortgage loans on real estate, net 5,272,119 5,397,865 4,602,764 4,961,655
Policy loans 371,816 371,816 336,356 336,356
Short-term investments 4,789 4,789 32,792 32,792
Cash 43,784 43,784 9,455 9,455
Assets held in Separate Accounts 26,926,702 26,926,702 18,591,108 18,591,108
LIABILITIES
Investment contracts 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance contracts 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend accumulations 361,401 361,401 348,027 348,027
Other policyholder funds 60,073 60,073 65,297 65,297
Liabilities related to Separate Accounts 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(9) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is
a party to financial instruments with off-balance-sheet risk in the
normal course of business through management of its investment
portfolio. These financial instruments include commitments to
extend credit in the form of loans. These instruments involve, to
varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheets.
<PAGE>
Commitments to fund fixed rate mortgage loans on real estate are
agreements to lend to a borrower, and are subject to conditions
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a deposit. Commitments extended by the Company are
based on management's case-by-case credit evaluation of the
borrower and the borrower's loan collateral. The underlying
mortgage property represents the collateral if the commitment is
funded. The Company's policy for new mortgage loans on real estate
is to lend no more than 75% of collateral value. Should the
commitment be funded, the Company's exposure to credit loss in the
event of nonperformance by the borrower is represented by the
contractual amounts of these commitments less the net realizable
value of the collateral. The contractual amounts also represent
the cash requirements for all unfunded commitments. Commitments on
mortgage loans on real estate of $327,456 extending into 1997 were
outstanding as of December 31, 1996.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants
mainly commercial mortgage loans on real estate to customers
throughout the United States. The Company has a diversified
portfolio with no more than 21% (20% in 1995) in any geographic
area and no more than 2% (2% in 1995) with any one borrower as of
December 31, 1996.
The Company had a significant reinsurance recoverable balance from
one reinsurer as of December 31, 1996 and 1995. See note 6.
The summary below depicts loans by remaining principal balance as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Apartment
Office Warehouse Retail & other Total
-------- ----------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1996:
East North Central $139,518 119,069 549,064 215,038 1,022,689
East South Central 33,267 22,252 172,968 90,623 319,110
Mountain 17,972 43,027 113,292 73,390 247,681
Middle Atlantic 129,077 54,046 160,833 18,498 362,454
New England 33,348 43,581 161,960 - 238,889
Pacific 202,562 325,046 424,295 110,108 1,062,011
South Atlantic 103,889 134,492 482,934 385,185 1,106,500
West North Central 126,467 2,441 75,180 40,529 244,617
West South Central 104,877 120,314 197,090 304,256 726,537
-------- ----------- --------- ------------ ------------
$890,977 864,268 2,337,616 1,237,627 5,330,488
-------- ----------- --------- ------------
-------- ----------- --------- ------------
Less valuation allowances and unamortized discount 58,369
------------
Total mortgage loans on real estate, net $5,272,119
------------
------------
1995:
East North Central $138,965 101,925 514,995 175,213 931,098
East South Central 21,329 13,053 180,858 82,383 297,623
Mountain - 17,219 138,220 45,274 200,713
Middle Atlantic 116,187 64,813 158,252 10,793 350,045
New England 9,559 39,525 148,449 1 197,534
Pacific 183,206 233,186 374,915 105,419 896,726
South Atlantic 106,246 73,541 446,800 278,265 904,852
West North Central 133,899 14,205 78,065 36,651 262,820
West South Central 69,140 92,594 190,299 267,268 619,301
-------- ----------- --------- ------------ ------------
$778,531 650,061 2,230,853 1,001,267 4,660,712
-------- ----------- --------- ------------
-------- ----------- --------- ------------
Less valuation allowances and unamortized discount 57,948
------------
Total mortgage loans on real estate, net $4,602,764
------------
------------
</TABLE>
<PAGE>
(10) PENSION PLAN
The Company is a participant, together with other affiliated
companies, in a pension plan covering all employees who have
completed at least one thousand hours of service within a twelve-
month period and who have met certain age requirements. Benefits
are based upon the highest average annual salary of a specified
number of consecutive years of the last ten years of service. The
Company funds pension costs accrued for direct employees plus an
allocation of pension costs accrued for employees of affiliates
whose work efforts benefit the Company.
Effective January 1, 1995, the plan was amended to provide enhanced
benefits for participants who met certain eligibility requirements
and elected early retirement no later than March 15, 1995. The
entire cost of the enhanced benefit was borne by NMIC and certain
of its property and casualty insurance company affiliates.
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual
Insurance Company Employees' Retirement Plan and the Wausau
Insurance Companies Pension Plan to form the Nationwide Insurance
Enterprise Retirement Plan. Immediately prior to the merger, the
plans were amended to provide consistent benefits for service after
January 1, 1996. These amendments had no significant impact on the
accumulated benefit obligation or projected benefit obligation as
of December 31, 1995.
Pension costs charged to operations by the Company during the years
ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and
$10,063, respectively.
The Company's net accrued pension expense as of December 31, 1996
and 1995 was $1,075 and $1,392, respectively.
The net periodic pension cost for the Nationwide Insurance
Enterprise Retirement Plan as a whole for the year ended December
31, 1996 and for the Nationwide Insurance Companies and Affiliates
Retirement Plan as a whole for the years ended December 31, 1995
and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 75,466 64,524 64,740
Interest cost on projected benefit obligation 105,511 95,283 73,951
Actual return on plan assets (210,583) (249,294) (21,495)
Net amortization and deferral 101,795 143,353 (62,150)
-------- -------- --------
$ 72,189 53,866 55,046
-------- -------- --------
-------- -------- --------
Basis for measurements, net periodic pension cost:
1996 1995 1994
-------- -------- --------
Weighted average discount rate 6.00% 7.50% 5.75%
Rate of increase in future compensation levels 4.25% 6.25% 4.50%
Expected long-term rate of return on plan assets 6.75% 8.75% 7.00%
</TABLE>
<PAGE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,338,554 1,236,730
Nonvested 11,149 26,503
------------ -----------
$1,349,703 1,263,233
------------ -----------
------------ -----------
Net accrued pension expense:
Projected benefit obligation for services rendered to date $1,847,828 1,780,616
Plan assets at fair value 1,947,933 1,738,004
------------ -----------
Plan assets in excess of (less than) projected benefit
obligation 100,105 (42,612)
Unrecognized prior service cost 37,870 42,845
Unrecognized net gains (201,952) (63,130)
Unrecognized net asset at transition 37,158 41,305
------------ -----------
$ (26,819) (21,592)
------------ -----------
------------ -----------
Basis for measurements, funded status of plan:
1996 1995
------------ -----------
Weighted average discount rate 6.50% 6.00%
Rate of increase in future compensation levels 4.75% 4.25%
</TABLE>
Assets of the Nationwide Insurance Enterprise Retirement Plan are
invested in group annuity contracts of NLIC and ELICW.
(11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the defined benefit pension plan, the Company,
together with other affiliated companies, participates in life and
health care defined benefit plans for qualifying retirees.
Postretirement life and health care benefits are contributory and
generally available to full time employees who have attained age 55
and have accumulated 15 years of service with the Company after
reaching age 40. Postretirement health care benefit contributions
are adjusted annually and contain cost-sharing features such as
deductibles and coinsurance. In addition, there are caps on the
Company's portion of the per-participant cost of the postretirement
health care benefits. These caps can increase annually, but not
more than three percent. The Company's policy is to fund the cost
of health care benefits in amounts determined at the discretion of
management. Plan assets are invested primarily in group annuity
contracts of NLIC.
The Company elected to immediately recognize its estimated
accumulated postretirement benefit obligation; however, certain
affiliated companies elected to amortize their initial transition
obligation over periods ranging from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December
31, 1996 and 1995 was $34,884 and $33,537, respectively, and the
net periodic postretirement benefit cost (NPPBC) for 1996, 1995 and
1994 was $3,286, $3,132 and $4,284, respectively.
<PAGE>
The amount of NPPBC for the plan as a whole for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service during the year) $ 6,541 6,235 8,586
Interest cost on accumulated postretirement benefit obligation 13,679 14,151 14,011
Actual return on plan assets (4,348) (2,657) (1,622)
Amortization of unrecognized transition obligation of affiliates 173 2,966 568
Net amortization and deferral 1,830 (1,619) 1,622
-------- -------- --------
$17,875 19,076 23,165
-------- -------- --------
-------- -------- --------
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees $ 92,954 88,680
Fully eligible, active plan participants 23,749 28,793
Other active plan participants 83,986 90,375
-------- --------
Accumulated postretirement benefit obligation (APBO) 200,689 207,848
Plan assets at fair value 63,044 54,325
-------- --------
Plan assets less than accumulated postretirement benefit obligation (137,645) (153,523)
Unrecognized transition obligation of affiliates 1,654 1,827
Unrecognized net gains (23,225) (1,038)
-------- --------
$(159,216) (152,734)
-------- --------
-------- --------
</TABLE>
Actuarial assumptions used for the measurement of the APBO as of
December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
-------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 6.65% 6.75% 8.00% 7.00%
Long-term rate of return on plan
assets, net of tax - 4.80% - 8.00% N/A
Assumed health care cost trend rate:
Initial rate 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in
the assumed health care cost trend rate would increase the APBO as of
December 31, 1996 by $701 and the NPPBC for the year ended
December 31, 1996 by $83.
(12) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance is
determined by a ratio of the company's regulatory total adjusted capital,
as defined by the NAIC, to its authorized control level risk-based
capital, as defined by the NAIC. Companies below specific trigger points
or ratios are classified within certain levels, each of which requires
specified corrective action. NLIC and each of its insurance company
subsidiaries exceed the minimum risk-based capital requirements.
<PAGE>
The statutory capital shares and surplus of NLIC as of December 31,
1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
respectively. The statutory net income of NLIC for the years ended
December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
respectively.
NLIC is limited in the amount of shareholder dividends it may pay
without prior approval by the Department of Insurance of the State
of Ohio (the Department). NLIC's dividend of the outstanding
shares of common stock of certain companies which was declared on
September 24, 1996 and the anticipated $850,000 dividend (as
discussed in note 1) are deemed extraordinary under Ohio insurance
laws. As a result of such dividends, any dividend paid by NLIC
during the 12-month period immediately following the $850,000
dividend would also be an extraordinary dividend under Ohio
insurance laws. Accordingly, no such dividend could be paid
without prior regulatory approval.
In addition, the payment of dividends by NLIC may also be subject
to restrictions set forth in the insurance laws of New York that
limit the amount of statutory profits on NLIC's participating
policies (measured before dividends to policyholders) that can
inure to the benefit of the Company and its stockholder.
The Company currently does not expect such regulatory requirements
to impair its ability to pay operating expenses and stockholder
dividends in the future.
(13) TRANSACTIONS WITH AFFILIATES
The Company leases office space from NMIC and certain of its
subsidiaries. For the years ended December 31, 1996, 1995 and
1994, the Company made lease payments to NMIC and its subsidiaries
of $9,065, $8,986 and $8,133, respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its
direct and indirect subsidiaries, including the Company, NMIC
provides certain operational and administrative services, such as
sales support, advertising, personnel and general management
services, to those subsidiaries. Expenses covered by this
agreement are subject to allocation among NMIC, the Company and
other affiliates. Amounts allocated to the Company were $101,584,
$107,112, and $100,601 in 1996, 1995 and 1994, respectively. The
allocations are based on techniques and procedures in accordance
with insurance regulatory guidelines. Measures used to allocate
expenses among companies include individual employee estimates of
time spent, special cost studies, salary expense, commissions
expense and other methods agreed to by the participating companies
that are within industry guidelines and practices. The Company
believes these allocation methods are reasonable. In addition, the
Company does not believe that expenses recognized under the inter-
company agreements are materially different than expenses that
would have been recognized had the Company operated on a stand
alone basis. Amounts payable to NMIC from the Company under the
cost sharing agreement were $15,111 and $1,186 as of December 31,
1996 and 1995, respectively.
The Company also participates in intercompany repurchase agreements
with affiliates whereby the seller will transfer securities to the
buyer at a stated value. Upon demand or a stated period, the
securities will be repurchased by the seller at the original sales
price plus a price differential. Transactions under the agreements
during 1996 and 1995 were not material. The Company believes that
the terms of the repurchase agreements are materially consistent
with what the Company could have obtained with unaffiliated
parties.
<PAGE>
Intercompany reinsurance contracts exist between NLIC and,
respectively NMIC and ELICW whereby all of NLIC's accident and
health and group life insurance business is ceded on a modified
coinsurance basis. NLIC entered into the reinsurance agreements
during 1996 because the accident and health and group life
insurance business was unrelated to NLIC's long-term savings and
retirement products. Accordingly, the accident and health and
group life insurance business has been accounted for as
discontinued operations for all periods presented. Under modified
coinsurance agreements, invested assets are retained by the ceding
company and investment earnings are paid to the reinsurer. Under
the terms of NLIC's agreements, the investment risk associated with
changes in interest rates is borne by NMIC or ELICW, as the case
may be. Risk of asset default is retained by NLIC, although a fee
is paid by NMIC or ELICW, as the case may be, to NLIC for the
NLIC's retention of such risk. The agreements will remain in force
until all policy obligations are settled. However, with respect to
the agreement between NLIC and NMIC, either party may terminate the
contract on January 1 of any year with prior notice. The ceding of
risk does not discharge the original insurer from its primary
obligation to the policyholder. NLIC believes that the terms of the
modified coinsurance agreements are consistent in all material
respects with what NLIC could have obtained with unaffiliated
parties.
Amounts ceded to ELICW in 1996 are included in ELICW's results of
operations for 1996 which, combined with the results of WCLIC and
NCC, are summarized in note 2. Amounts ceded to ELICW in 1996
include premiums of $224,224, net investment income and other
revenue of $14,833, and benefits, claims and other expenses of
$246,641. Amounts ceded to NMIC in 1996 include premiums of
$97,331, net investment income of $10,890, and benefits, claims and
other expenses of $100,476.
The Company and various affiliates entered into agreements with
Nationwide Cash Management Company (NCMC) and California Cash
Management Company (CCMC), both affiliates, under which NCMC and
CCMC act as common agents in handling the purchase and sale of
short-term securities for the respective accounts of the
participants. Amounts on deposit with NCMC and CCMC were $4,789
and $9,654 as of December 31, 1996 and 1995, respectively, and are
included in short-term investments on the accompanying consolidated
balance sheets.
On April, 5 1996, Nationwide Corp. contributed all of the
outstanding shares, with shareholder equity value of $30, of NISC
to NLIC. NLIC contributed an additional $500 to NISC on August 30,
1996.
On March 1, 1995, Nationwide Corp. contributed all of the
outstanding shares of common stock of Farmland Life Insurance
Company (Farmland) to NLIC. Farmland merged into WCLIC effective
June 30, 1995. The contribution resulted in a direct increase to
consolidated shareholder's equity of $46,918. As discussed in note
2, WCLIC is accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding
shares of common stock of ELICW from Wausau Service Corporation
(WSC) for $155,000. NLIC transferred fixed maturity securities and
cash with a fair value of $155,000 to WSC on December 28, 1994,
which resulted in a realized loss of $19,239 on the disposition of
the securities. The purchase price approximated both the
historical cost basis and fair value of net assets of ELICW. ELICW
has and will continue to share home office, other facilities,
equipment and common management and administrative services with
WSC. As discussed in note 2, ELICW is accounted for as
discontinued operations.
Certain annuity products are sold through three affiliated
companies which are also subsidiaries of Nationwide Corp. Total
commissions and fees paid to these affiliates for the years ended
December 31, 1996, 1995 and 1994 were $76,922, $57,280 and $50,168,
respectively.
(14) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, established a $600,000
revolving credit facility which provides for a $600,000 loan over a
five year term on a fully revolving basis with a group of national
financial institutions. The credit facility provides for several
and not joint liability with respect to any amount drawn by either
NLIC or NMIC. NLIC and NMIC pay facility and usage fees to the
financial institutions to maintain the revolving credit facility.
All previously existing line of credit agreements were canceled.
<PAGE>
(15) CONTINGENCIES
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected
to be material to the Company's financial position or results of
operations.
(16) SEGMENT INFORMATION
The Company has three primary segments: Variable Annuities, Fixed
Annuities and Life Insurance. The Variable Annuities segment
consists of annuity contracts that provide the customer with the
opportunity to invest in mutual funds managed by the Company and
independent investment managers, with the investment returns
accumulating on a tax-deferred basis. The Fixed Annuities segment
consists of annuity contracts that generate a return for the
customer at a specified interest rate, fixed for a prescribed
period, with returns accumulating on a tax-deferred basis. The
Life Insurance segment consists of insurance products that provide
a death benefit and may also allow the customer to build cash value
on a tax-deferred basis. In addition, the Company reports
corporate expenses and investments, and the related investment
income supporting capital not specifically allocated to its product
segments in a Corporate and Other segment. In addition, all
realized gains and losses, investment management fees and other
revenue earned from mutual funds, other than the portion allocated
to the variable annuities and life insurance segments, are reported
in the Corporate and Other segment.
During 1996, the Company changed its reporting segments to better
reflect the way the businesses are managed. Prior periods have
been restated to reflect these changes.
The following table summarizes the revenues and income from
continuing operations before federal income tax expense for the
years ended December 31, 1996, 1995 and 1994 and assets as of
December 31, 1996, 1995 and 1994, by business segment.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Variable Annuities $ 284,638 189,071 132,687
Fixed Annuities 1,092,566 1,051,970 939,868
Life Insurance 435,657 409,135 383,150
Corporate and Other 179,977 148,475 143,794
---------- ---------- -----------
$ 1,992,838 1,798,651 1,599,499
---------- ---------- -----------
---------- ---------- -----------
Income from continuing operations before
federal income tax expense:
Variable Annuities 90,244 50,837 24,574
Fixed Annuities 135,405 137,000 138,950
Life Insurance 67,242 67,590 53,046
Corporate and Other 22,606 32,145 25,288
---------- ---------- -----------
$ 315,497 287,572 241,858
---------- ---------- -----------
---------- ---------- -----------
Assets:
Variable Annuities 25,069,725 17,333,039 11,146,465
Fixed Annuities 13,994,715 13,250,359 11,668,973
Life Insurance 3,353,286 3,027,420 2,752,283
Corporate and Other 5,348,520 4,896,815 3,678,303
---------- ---------- -----------
$ 47,766,246 38,507,633 29,246,024
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
