<PAGE> 1
Nationwide(R) VLI
Separate Account-2
December 31, 1995
[BEST OF AMERICA LOGO]
'95
ANNUAL REPORT
IN COOPERATION WITH:
DREYFUS CORPORATION
FIDELITY INVESTMENTS
NATIONWIDE FINANCIAL SERVICES, INC.
NEUBERGER & BERMAN MANAGEMENT INCORPORATED
OPPENHEIMER MANAGEMENT CORPORATION
STRONG FUNDS
TWENTIETH CENTURY COMPANIES
VAN ECK ASSOCIATES CORPORATION
VAN KAMPEN AMERICAN CAPITAL
WARBURG PINCUS FUNDS
[NATIONWIDE LIFE INSURANCE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
<PAGE> 2
[NATIONWIDE LIFE LOGO]
[PHOTO]
PRESIDENT'S MESSAGE
Nationwide Life Insurance Company is pleased to bring you the 1995 annual report
of the Nationwide VLI Separate Account-2.
Both equity and fixed income investments turned in a stellar performance during
1995. The major market indices ended the year fully one-third or more higher
than their levels at the beginning of the year. These results equate directly to
the returns enjoyed by our variable annuity participants and contract owners.
Low interest rates and modest inflation should provide a continued favorable
environment for stocks and fixed income investments during 1996. Slowing levels
of economic activity and uncertainty about corporate profits may, however,
dampen a repeat of the strong 1995 market performance. The diverse offering of
investment options within your contract should enable you to take advantage of
changing market conditions.
The year 1995 was a record-setting sales year for our variable investment
products. For this we thank you, our valued customer, for your confidence in the
Nationwide Insurance Enterprise and in our products. Please do not hesitate to
let us know how we can better serve your financial planning and retirement
needs.
/S/ Peter F. Frenzer
Peter F. Frenzer, President
2
<PAGE> 3
CONTENTS
<TABLE>
<S> <C>
HOW TO READ THE ANNUAL REPORT .......................................... 4
Explanation on how to read and understand
the various financial reports
A FEW WORDS ABOUT OUR FUNDS ............................................ 6
Fund Objectives and Narratives
written by the fund managers*
FUND PERFORMANCES ...................................................... 31
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY............ 35
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY ............................................. 37
NOTES TO FINANCIAL STATEMENTS .......................................... 38
SCHEDULES OF CHANGES IN UNIT VALUE ..................................... 42
INDEPENDENT AUDITORS' REPORT ........................................... 50
</TABLE>
* The discussions refer to two stock market indexes. The Standard & Poor's 500
Index (S&P 500) is an unmanaged index of 500 U.S. common stocks and the
historical performance assumes the reinvestment of dividends. The Morgan
Stanley Capital International Europe, Australia, Far East (EAFE) index is an
unmanaged index of more than 900 companies from these regions. The EAFE Index
reflects the prices of these common stocks translated into U.S. dollars with
dividends reinvested net of any foreign taxes.
The performance figures quoted by the fund managers do not include the annual
mortality, expense and administration charges of the life insurance contract.
The Fund's portfolio is subject to change.
3
<PAGE> 4
HOW TO READ THE ANNUAL REPORT
This Annual Report is sent to all customers who own a Nationwide life insurance
contract with all or some of the funds in the Nationwide VLI Separate Account-2
(the Account). The Account is a separate account trust which offers investment
options in thirty mutual funds from ten mutual fund houses. An explanation of
the funds and their objectives can be found on pages 6 through 30.
The Annual Report has three major financial sections.
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
This statement, found on page 35, lists all the funds in the Account, the number
of shares owned, the amount paid for the shares (i.e., cost) and their market
value on December 31, 1995. The market value of the assets change as the
underlying mutual fund shares change in value. As contract owners make exchanges
between the funds, the number of shares in each fund increases and decreases.
When money is deposited (withdrawn) by contract owners, shares of the mutual
funds are bought (sold) by the Account. The total market value of the funds is
equal to the Total investments.
Accounts receivable, if applicable, is an asset of the Account for money market
fund shares added to the contract owners' accounts, but not yet added to Total
investments. Total investments plus Accounts receivable equals Total assets.
Accounts payable, if applicable, is a liability of the Account for money market
fund shares deducted from the contract owners' accounts, but not yet deducted
from Total investments.
Total assets minus Accounts payable equals Contract owners' equity. For a
summary of Contract owners' equity by fund series turn to page 36.
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
These statements, found on page 37, show the activity in the Account from
January 1 to December 31, 1995, 1994 and 1993.
The Investment activity section shows the changes in unrealized gain or loss of
the mutual funds in the Account, realized gain or loss as shares of the funds
are bought and sold, and dividends and capital gains earnings from the
underlying mutual funds.
The Equity transactions section illustrates purchase payments received as new
contracts are sold, existing contracts owners deposit additional funds, loans
are processed against the Account, money is withdrawn, contracts are canceled
and death benefits are paid.
Expenses are the charges associated with the contract. Note 2 on pages 39 and 40
outlines these charges.
Net change in contract owners' equity equals Investment activity plus Equity
transactions minus Expenses.
The Contract owners' equity at the beginning of the period plus the Net change
in contract owners' equity equals the Contract owners' equity at the end of the
period. Contract owners' equity at the end of the calendar year will equal the
Contract owners' equity at the beginning of the next year.
4
<PAGE> 5
SCHEDULES OF CHANGES IN UNIT VALUE
As a contract owner, you invest in the mutual funds offered in your life
insurance contract. However, you do not buy shares of the mutual fund. Instead,
the Account buys shares of the fund and you in turn purchase units of the
Account. Except for the units surrendered for the annual contract maintenance
charge, the number of units you own will not change unless you contribute to or
withdraw money from your account. The value of your contract can change based on
the value of the units you own. For example, if you purchase 100 units at $10
per unit, the value of your contract is $1,000. If the value of the units
increases to $12 per unit, your contract value increases to $1,200. Therefore,
to determine the value of your account, multiply the number of units of each
fund you own by the fund's unit value.
The Schedules of Changes in Unit Value show you the unit value at the beginning
of the period and at the end of the period. The percentage increase (decrease)
in unit value shows how it changed in value. This is computed by subtracting the
beginning unit value from the ending unit value and dividing the difference by
the beginning unit value. This can be used as a measure of the performance of
the funds over the three annual periods reported.
As you review the following pages of the Annual Report, the Notes to Financial
Statements on page 38 will also help explain and clarify the various statements
and schedules.
5
<PAGE> 6
A FEW WORDS ABOUT OUR FUNDS
[DREYFUS LOGO]
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
OBJECTIVE - To provide capital growth by investing in stocks that enhance the
quality of life in America.
NARRATIVE BY DREYFUS CORPORATION
The Dreyfus Socially Responsible Growth Fund, Inc. performed nicely in 1995. The
Fund's stellar results make the Dreyfus Socially Responsible Growth Fund, Inc.
one of the top-performing socially-responsible equity funds. The Fund's returns
also compare quite favorably with the Lipper universe of equity mutual funds
putting it easily in the top of the second quartile of growth funds and in the
second quartile of all equity funds. In our shareholder letter dated June, 1995
we stated our high level of confidence in achieving a superior level of returns
and performance. We have begun to achieve that. As we look to 1996, we remain
confident that the portfolio is positioned to continue this level of solid
performance.
In terms of the economic sectors of the Fund, we made several changes in the
weightings. The primary areas of focus for the fund have been Consumer Staples,
Technology, and Financials. During the last six months we have increased the
weightings in Technology and Financials, maintained the exposure to the Consumer
Staples, while reducing the weightings in the Industrial sector. These thematic
changes are indicative of our overall view of what is driving the current
economic environment. The shift in Technology weight from 19% to 27% represents
our belief that this traditional growth sector is experiencing a secular
improvement in demand driven by global competition and productivity growth. We
moved the Financials from 11% to 18% believing that the Fed would continue to
lower interest rates and that our positions would continue to benefit from the
consolidation trend in the industry. We reduced our weighting in the Industrial
stocks due to continued concerns over the strength in the economy as well as
valuation, both of which indicated that better opportunities were elsewhere.
Consequently, we increased the average growth rate of securities in the
Portfolio by focusing on more traditional growth sectors of the economy.
Year-to-date there are many individual securities that have contributed nicely
to the positive performance trends of the Fund. In the Consumer Cyclical sector,
Regal Cinemas, Capital Cities ABC, Walt Disney, Nike, and Phillips Electronics
have had superior performance. These names represent secular growth stocks that
will grow regardless of the economic environment because of globally-oriented,
diversified operations. Among Consumer Staple stocks in the portfolio that have
contributed to performance, Coca-Cola, Cordis, Amgen, Medtronic, Becton
Dickinson, Bristol Myers and Merck are a few standouts. The food, beverage and
household products companies have benefited from more positive investor
sentiment toward their long term, globally-driven growth rates. The health care
stocks benefited from an improved outlook for their operations due to the rising
optimism for new drug approvals and investor confidence in the consistency of
their growth.
Stock selection in the Financial area contributed mightily to the Funds positive
results as did a more benign interest rate outlook. Advanta, a credit card
company, and banks such as Citicorp, Bank of New York, Baybanks and Midlantic,
and specialty financial services companies such as Green Tree Financial, a
provider of mobile home financing, and Federal National Mortgage Corp. performed
beautifully for the majority of the fiscal year. Additionally, insurers American
International Group and Allstate rose on expectations of lower interest rates
and possible industry consolidation.
+ "Standard & Poor's 500", "S&P 500(R)" are trademarks of the Standard &
Poor's Corporation and have been licensed for use. The fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's Corporation.
++ Formerly the Dreyfus Life and Annuity Index Fund.
6
<PAGE> 7
SOCIALLY RESPONSIBLE GROWTH FUND, INC. (CONT'D)
Our focus in the Technology sector was in stocks of companies with fairly
established market positions, superior technology, and outstanding management
teams. Individual issues such as 3Com, Applied Materials, Hewlett Packard,
Linear Technology, and SunMicrosystems, were all stellar performers. Each of
these companies stand to benefit not just from demand for a single product, but
a broad, diversified product offering with multiple down-stream beneficiaries.
These qualities lower the risk profile of the Fund's technology weighting
relative to the typical technology stock and lowers the general level of
volatility in that sector.
Overall, from a stock selection standpoint the Fund has benefited from the
rising tide of takeovers that has been prevalent this year. Companies are under
pressure to grow revenues in a very competitive environment and are therefore
buying other firms to broaden and deepen their product offerings. Several Fund
holdings were taken over this year: Cordis, a medical technology firm; Baybank,
a large regional banking firm; Capital Cities ABC, broadcasting company, and
Scott Paper, paper manufacturer. There are several other names in the Portfolio
that we believe will benefit from this theme over the coming years.
Going forward we feel that the Federal Reserve's hold on the market will
persist, however, this time we expect that the Fed's action will benefit stocks
because rates will actually be reduced rather than raised, as the economy shows
signs of slowing. The Dreyfus Socially Responsible Growth Fund, Inc. is well
positioned to benefit from such a trend. We are confident that the Fund is
positioned to achieve performance superior to funds that do not have our
socially-responsible charter. Now that the transition of fiscal 1995 is over, we
are getting down to the business of providing superior returns to our
shareholders while honoring your socially-responsible investment objectives. We
are confident in the outlook for the Fund and appreciative of the demonstrated
confidence of our shareholders. We take your socially-responsible directives
seriously as we endeavor to provide the maximum return on and return of
shareholder capital.
DREYFUS STOCK INDEX FUND++
OBJECTIVE - To provide investment results that correspond to the price and yield
performance of the S&P 500.+
NARRATIVE BY DREYFUS CORPORATION
The objective of the Stock Index Fund is to provide investment results that
correspond to the price and yield performance of publicly traded common stocks
in the aggregate, as represented by the Standard & Poor's 500 Composite Price
Index, better known as the S&P 500.
The manager generally selects stocks for the Fund's portfolio in the order of
their weightings in the S&P 500, beginning with the heaviest weighted stocks.
With respect to the Fund's assets invested in the stocks in the S&P 500, the
percentage of such assets invested in each stock is approximately the same as
the percentage it represents in the S&P 500.
The Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the S&P 500 of at least 0.95, without taking into account
expenses. The Fund's ability to correlate its performance with the S&P 500 may
be affected by, among other things, changes in securities markets, the manner in
which the S&P 500 is calculated by Standard & Poor's Corporation, the timing of
purchases and redemptions, the size of the Fund's portfolio, and the size of
cash flow into and out of the Fund. There can be no assurance that the Fund's
investment objective will be achieved and an investment in the Fund involves
risks similar to those of investing in common stocks.
7
<PAGE> 8
[FIDELITY INVESTMENTS LOGO]
VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
OBJECTIVE - To seek reasonable income by investing primarily in income-producing
equity securities.
AN INTERVIEW WITH BETTINA DOULTON, PORTFOLIO MANAGER
Q. HOW DID THE FUND PERFORM, BETTINA?
A. Compared to its peers, the Fund did very well over the past 12 months.
However, it slightly trailed the performance of the Standard & Poor's Composite
Index for the 12-month period. The index had a total return of 37.58% for the 12
months ended December 31, 1995. The stock market rally in 1995 was narrow - led
by the technology and finance sectors, as well as large-cap and blue-chip stocks
- - and many funds did not beat the performance of the index during the past 12
months.
Q. WHAT HELPED THE FUND'S PERFORMANCE?
A. The Fund's performance came from a number of sectors, including finance and
telephone utilities, as well as from some of the larger holdings, including the
Fund's largest investment, Philip Morris. This company's business was propelled
by gains in market share for its Marlboro brand domestically, and by increased
volumes and profits in its international tobacco business.
Q. LET'S TAKE A LOOK AT YOUR INVESTMENTS IN THE FINANCE SECTOR. WHICH STOCKS
HAVE TURNED OUT WELL?
A. The Fund's finance investments are fairly diverse. I pick the stocks for the
fund one-by-one, but many of the top performers over the past 12 months came
from this sector. Among them, Citicorp benefited from growth in its emerging
market credit card business. Fannie Mae - the Federal National Mortgage
Association - was helped by improved business conditions, a strong supply of
mortgages and widening spreads, such that profit growth was solid. And American
Express, having restructured in order to reduce costs, posted strong and
consistent earnings growth from improved marketing of its existing and new
credit card products. Beyond that, some of the Fund's insurance stocks - GenRe,
American International Group, Aetna and CIGNA - contributed well to the Fund's
return.
Q. HOW ABOUT TELEPHONE UTILITIES?
A. I've owned several of the regional Bell operating companies, such as
Ameritech, BellSouth, Bell Atlantic, NYNEX and SBC Communications. The
regulatory environment is improving on a state-by-state basis, allowing these
companies to focus more on profitability and competitiveness. They've also been
able to improve revenues by offering value-added services, such as call waiting
and caller identification, cellular services, and additional access lines for
computer modem use.
Q. WHICH STOCKS DIDN'T TURN OUT AS WELL AS YOU WOULD HAVE LIKED?
A. A couple of areas were disappointing. First, Wal-Mart struggled as it went
through a major transition. It was upgrading and expanding its older, most
profitable stores, converting them into so-called super centers - general
merchandise stores with grocery stores attached. The negative impact on the
company's profits associated with this process - as well as the difficult retail
environment - was worse and more prolonged than anticipated. Second, despite
better managing their account bases and internal operations, WMX Technologies
and Browning-Ferris Industries - broadly based pollution control companies -
were hurt by the weakening economy, such that the pace of revenue and profit
growth was not as strong as expected.
Q. GENERAL ELECTRIC WAS ONE OF THE FUND'S TOP FIVE STOCKS AT THE END OF THE
PERIOD. WHY WAS IT ATTRACTIVE TO YOU?
A. GE offered a diverse business portfolio, shareholder-oriented management and
a consistent earnings history, qualities that appeared attractive given the
economic climate. I felt the same way about Emerson Electric and Allied Signal.
These companies - through geographical expansion and improvements in
productivity - were able to sustain consistent earnings and free cash flow. I
believed the economy was weakening to an extent that the relative performance
expected from these companies would be rewarded.
8
<PAGE> 9
EQUITY-INCOME PORTFOLIO (CONT'D)
Q. DOES THAT MEAN YOUR OUTLOOK IS COLORED BY CONCERNS FOR THE ECONOMY?
A. Yes it does. Economic indicators point out that the economy is slowing. Wages
have been stagnant and consumers' disposable income is down. Interest rates will
have to decline, in part so that capital will flow back into the developing
economies, believed to be a prime driver for future global economic growth
including U.S. exports. As it stands at the end of 1995, economies outside of
the U.S. also have slowed, leading me to believe that demand for U.S. exports
will wane. Given this backdrop, I have concerns about corporate profitability in
1996 and think it will be a tough investing environment. As a result, I'll be
looking for companies with aspects to their business that will enable them to
sustain good earnings growth despite a weakening economy.
GROWTH PORTFOLIO
OBJECTIVE - Seeks to achieve capital appreciation.
AN INTERVIEW WITH LAWRENCE GREENBERG, PORTFOLIO MANAGER
Q. LARRY, HOW DID THE FUND PERFORM?
A. Although the Fund did very well compared to its peers, it slightly lagged the
Standard & Poor's Index, which returned 37.58% for the 12-month period ended
December 31, 1995.
Q. WHY WAS THE STOCK MARKET SO STRONG IN 1995?
A. In my opinion, two things really drive the equity market: strong earnings and
declining interest rates. During most of 1995, we had both. This really played
into the hands of the kinds of growth stocks the Fund owns. Many of these stocks
represent fast-growing companies which are able to grow faster than other
companies in a slow but expanding economic environment. They also can benefit
more from a declining interest rate environment.
Q. THE FUND'S TECHNOLOGY WEIGHTING HAS BEEN REDUCED, BUT, AT APPROXIMATELY
32.7%, IT REMAINED THE LARGEST SECTOR AS OF DECEMBER 31, 1995. DO YOU THINK THIS
AREA OF THE MARKET CAN KEEP UP THE TORRID PACE OF GROWTH WE SAW IN 1995?
A. Probably not. What we saw in 1995 was strength across the board. For the most
part, earnings grew as fast as the stock prices went up. Therefore, despite good
appreciation, multiples (price-to-earnings) didn't go up that much. I don't
think investors can expect the same level of growth in 1996 as they did in 1995.
I think investors can expect to see more of an environment of the haves and
have-nots, with specific companies leaving others behind.
Q. SO HOW WILL YOU MANAGE THE FUND'S TECHNOLOGY HOLDINGS GOING FORWARD?
A. I intend to approach the technology sector on a more selective basis, looking
at individual areas showing strength. For example, corporate America's move from
mainframe computing to client-server computing, along with the rise of the
Internet, may continue to benefit networking and database companies. These
companies provide the hardware and software for the new corporate networks.
Q. WHAT WAS THE ATTRACTION TO UTILITY STOCKS, WHICH MADE UP 9.4% OF THE FUND'S
INVESTMENTS AT THE END OF DECEMBER?
A. All of the Fund's utility holdings are in the telecommunications industry. I
believe the telecommunications industry offers excellent growth opportunities
both domestically and abroad as diversification, privatization, globalization
and proliferation of wireless communications continue to create a strong demand
outlook.
Q. IN THE FUND'S SEMIANNUAL REPORT, YOU DISCUSSED THAT YOU HAD CUT BACK ON THE
FUND'S HEALTH CARE EXPOSURE BECAUSE OF CONCERNS SURROUNDING FEDERAL HEALTH CARE
REFORM. WHAT'S HAPPENED SINCE THEN?
A. I slowly raised the Fund's stake in health care stocks as values presented
themselves. Congress and the president continue to haggle over the future of
Medicare and Medicaid, but I anticipate that government cutbacks in spending
could force more Medicare users toward HMOs. Therefore, I added more HMOs to the
portfolio.
9
<PAGE> 10
GROWTH PORTFOLIO (CONT'D)
Q. WERE THERE ANY DISAPPOINTMENTS IN 1995?
A. Sure. Disappointments came on two fronts. First, in September, the technology
sector slowed somewhat as several corporate earnings disappointments fueled
investors' concerns that the sector had become overvalued. As this occurred,
investors moved to more defensive, consumer-oriented stocks such as Coca-Cola,
PepsiCo, Merck and Pfizer. In hindsight, I wish I had been able to make this
shift earlier. Second, the underperformance of several of the Fund's retail
stocks hindered performance. Building supply companies Home Depot and Lowe's,
for example, were hurt by falling lumber prices and a drop in demand with the
slowdown in the housing market.
Q. SO WHAT'S YOUR OUTLOOK?
A. As I mentioned earlier, the real fuel for a strong market - good corporate
earnings and declining interest rates - will probably not be as strong in 1996
as it was in 1995. Given what we know now, though, I believe, barring any
unforeseen changes, the market environment may still be constructive for stocks
this year.
HIGH INCOME PORTFOLIO
OBJECTIVE - Seeks to obtain a high level of current income by investing
primarily in high risk, lower-rated, high-yielding, fixed income securities,
while also considering growth of capital.
AN INTERVIEW WITH BARRY COFFMAN, PORTFOLIO MANAGER
Q. HOW HAS THE FUND PERFORMED, BARRY?
A. It did well relative to its peers and to its benchmark. For the 12 months
ended December 31, 1995, the Merrill Lynch High Yield Master Index returned
19.91%.
Q. WHAT KIND OF YEAR WAS 1995 FOR THE HIGH-YIELD MARKET?
A. 1995 was very strong in absolute terms, but it was unusual in that it was the
first time in several years that the high-yield bond market underperformed both
the Treasury and stock markets. Some of the same factors that boosted the
Treasury market - namely concerns about a slowing economy and fears of a
recession - kept high yield bonds from performing as well as Treasuries. That's
because investors feared that a slowing economy would translate into lower
earnings and deteriorating credit quality for some high yield companies. In
addition, a slight increase in the number of companies that defaulted on their
debt last year - and rising expectations that the default rate will increase
slightly in 1996 - caused the high-yield market to underperform the stock
market.
Q. WAS THERE ANY PARTICULAR REASON THE FUND OUTPERFORMED BOTH ITS PEERS AND ITS
BENCHMARK?
A. I think it's important to point out that the Fund outperformed even though it
was underweighted, relative to the index, in securities rated "Ba". Those
securities outperformed as a group due to their higher sensitivity to interest
rates and the widening of credit spreads during the year. The key to the Fund's
better performance can be attributed to the strength of its individual holdings
and its lower exposure to some sectors - like retail - which significantly
underperformed. The Fund's largest holding at the end of the period - PanAmSat
Corp., which operates an international satellite communications system and
provides satellite services to the broadcasting and business communications
market, performed quite well. The company launched a third satellite and
continued to have a large backlog of contracted time from companies, including
ESPN and Viacom, for its existing and yet-to-be-launched satellites. Another of
the Fund's strong performers was Big Flower Press, a large specialty printer of
advertising inserts, comics and television guides. I invested in the bonds and
equity of this company, both of which did well as its fortunes improved.
Q. HOW DID THE FUND'S GAMING HOLDINGS DO?
A. Performance was mixed. On one hand, there were few new jurisdictions that
approved gaming facilities in 1995. That lack of new competition and good growth
in the Atlantic City market, in particular, helped many of our casino holdings.
On the other hand, Harrah's Jazz was a disappointment. In November, the company
filed for bankruptcy protection. I eliminated the bonds after the bankruptcy
declaration. However, Harrah's problems don't appear to have had any residual
effects on other casino holdings.
10
<PAGE> 11
HIGH INCOME PORTFOLIO (CONT'D)
Q. WHAT TYPES OF INVESTMENTS DID YOU ADD OVER THE PAST SIX MONTHS?
A. I focused on finding smaller companies that didn't have much visibility in
the market - meaning that few investors followed them. I bought companies in
which I developed a high degree of confidence regarding their future business
plans. As an example, one recent addition to the Fund was Mother's Work, the
largest retailer of maternity clothes. In 1995, the company bought two of its
primary competitors and now controls more than half of the country's maternity
stores.
Q. WHAT'S YOUR OUTLOOK?
A. The high-yield market's performance will obviously be dependent on the health
of the economy. And in my view, there's no way of knowing for sure what the
outcome will be. So I'll continue to look at each company, attempting to assess
how it's likely to do in a variety of economic environments. I'll focus on
finding companies that are properly capitalized, with sufficient financial
flexibility and business fundamentals that can withstand a downturn in the
economy.
OVERSEAS PORTFOLIO
OBJECTIVE - To seek long term growth of capital primarily through investments in
foreign securities.
AN INTERVIEW WITH JOHN HICKLING, PORTFOLIO MANAGER
Q. JOHN, HOW HAS THE FUND PERFORMED?
A. For the 12 months ended December 31, 1995, the Fund's performance slightly
trailed that of the Morgan Stanley EAFE Index - a broad measure of stocks in
Europe, Australia and the Far East. The index had a total return of 11.21% for
the 12-month period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. I think the main factor was that I thought the effects of slowing economic
growth on earnings estimates would have an impact on stock prices somewhat
before their effect was really felt. For example, I avoided cyclical stocks -
those that tend to rise and fall with the economy, such as paper and forest
product companies - but they didn't start to come down until the fourth quarter.
Instead, I focused the Fund on what I would call defensive stocks. These
investments included Unilever, a consumer nondurable stock that tends to post
solid earnings regardless of the economic climate; and financial investments
such as ING Groep, which generally benefit from the interest rate declines we've
seen during the year. These stocks helped the Fund, but not until the fourth
quarter.
Q. LET'S TAKE A CLOSER LOOK AT HOW YOU POSITIONED THE FUND DURING THE PAST YEAR.
A. Most of 1995 was frustrating because, historically, markets around the world
have shown a higher correlation to the U.S. market than we've seen this year. In
addition, foreign stock market performance generally did not coincide with the
strong performance seen in many bond markets. The slowdown experienced by many
economies led to lower interest rates, an environment that generally is
supportive for stock markets as well. That's because lower rates can reduce
companies' borrowing costs and make alternatives to stock investing less
attractive. Furthermore, the good performance in several foreign markets was
narrow, driven by the strength of only a few stocks. Looking specifically at the
Fund, more investments were in Japan than elsewhere - 21.2% at the end of the
period - although the Fund held less there than is included in the EAFE index.
This is a market that struggled through most of the year, although it rebounded
in the fourth quarter. The Japanese banking sector performed well through the
first part of the year and in the fourth quarter. However, the Fund didn't
participate, because its Japanese investments were focused on exporters;
companies with electronics or technology-oriented businesses, such as Matsushita
Electric, Hitachi and Omron; retailers such as Ito-Yodako; and financial stocks
such as Nomura Securities. In the second half of the year, though, some of these
stocks rebounded, because the yen started to weaken versus the dollar, making
these companies' products less expensive abroad.
11
<PAGE> 12
OVERSEAS PORTFOLIO (CONT'D)
Q. YOU ALSO INVESTED A FAIR AMOUNT IN THE UNITED KINGDOM...
A. That's right, 12.8%, about as much as is included in the EAFE index. This has
been one of the best performing markets outside of the U.S., led, for the most
part, by financial stocks including Barclays and National Westminster Bank. In
the early part of 1995, a number of consumer non-durable stocks helped the Fund,
including brewers Bass and Whitbread.
Q. LET'S TURN TO EMERGING MARKETS...
A. At the end of last year, when emerging markets dropped sharply after Mexico's
devaluation of the peso, I had minimal investments in emerging markets. I
started adding some emerging market stocks in May, including Mexican banks as
well as investments in Brazil, Chile and Southeast Asia. One stock that turned
in a very good performance was Sampoerna, an Indonesian cigarette company. One
of the main reasons I own this stock and Matahari, an Indonesian retailer, is
that the standard of living for many Indonesians is on the rise. With wages and
disposable income growing, demand for items such as cigarettes, beer, toothpaste
and clothing has been increasing. The Fund's investments in Unilever and Nestle
also gave it some exposure to this growth in consumer nondurable spending in
emerging markets.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. At the end of the year, overseas markets started to catch up to the U.S.
market. Investors have started to become more actively interested in
opportunities abroad, attracted by, among other things, cheap stock valuations.
Prospects for foreign markets seem to be improving, in absolute terms and
relative to the U.S. After the mixed performance we've seen from international
markets over the past few years, a contrarian investor might become more
interested in foreign markets from a risk/reward perspective. Foreign markets
could outperform the domestic market for the first time in a long time.
VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
OBJECTIVE - To seek high total return with reduced risk over the long-term by
allocating its assets among stocks, bonds and short term fixed income
securities.
AN INTERVIEW WITH ANDY OFFIT, PORTFOLIO MANAGER
Q. ANDY, HOW DID THE FUND PERFORM?
A. Quite well in absolute terms, reasonably well in relative terms, during a
year in which the performance standard was unusually high. During 1995, Asset
Manager produced an impressive, double-digit total return, in line with the
average for all global funds that invest in stocks and bonds. Looking back,
there was both good news and bad news. The good news had to do with asset
allocation. When I took over the Fund in early spring, only about 30% of the
Fund's assets were invested in stocks. I immediately set about increasing that
allocation, nearly reaching Asset Manager's 60% cap on stocks by the end of May,
and the Fund profited as a result. The bad news had to do with country
allocation. Asset Manager included both foreign and domestic stocks in its mix,
and during 1995, foreign markets failed to keep pace.
Q. HOW WERE THE FUND'S ASSETS DISTRIBUTED AT THE END OF THE PERIOD?
A. About 58% stocks, 30% bonds and 12% cash equivalents. Foreign investments,
mostly stocks, totaled 28% of the Fund's assets. Those numbers have not changed
appreciably during the past six months. Compared to a year ago, however, the
Fund has significantly more stocks, fewer bonds and less cash. Also, the Fund
had an 18% stake in emerging markets one year ago, but only 4% at the end of the
period.
12
<PAGE> 13
ASSET MANAGER PORTFOLIO (CONT'D)
Q. HOW DID YOU APPROACH INVESTING IN TECHNOLOGY STOCKS?
A. I certainly didn't ignore the sector. At one time, technology stocks totaled
almost 10% of the Fund's assets. I look for compelling situations where the
potential for gain exceeds the potential for loss. When I find those companies,
I like to make large commitments. That's evident in the declining number of
individual stocks in the Fund - about 250 at the end of the period, down from
over 500 six months ago. Using my bottom-up criteria, I saw opportunities in
several technology stocks early in the year, and staked out big positions in
companies such as IBM, Compaq, Intel and Microsoft. However, as the summer wore
on, my outlook shifted. I began to see more room for technology stocks to fall
if things went wrong than to continue rising if things went well. At that point
I began taking profits and investing the proceeds elsewhere. In retrospect, it
was the right call, but too early.
Q. WHERE ELSE DID YOU LOOK FOR VALUE IN U.S. STOCKS DURING 1995?
A. Several of the Fund's best investments were defense stocks, including
Northrop Grumman and General Dynamics. Both have achieved strong positions in a
consolidating industry by generating cash and using that cash to pay down debt
and make acquisitions. The Fund also did well with energy stocks, including
Kerr-McGee, an oil company, and two oil-service companies: Reading & Bates and
Tidewater. Unfortunately, several of the Fund's larger positions, including
Chrysler, were flat performers.
Q. WHERE WAS THE FUND'S FOREIGN EXPOSURE?
A. Mainly in Japan, about 18% of total assets. While results so far have been
disappointing, I see Japan as a classic example of an investment opportunity
where the potential for gain exceeds the potential for loss. The yen has started
to weaken, consumer sentiment is improving and the economy is beginning to grow
for the first time in five years. I began last spring investing in Japanese
consumer electronics companies, including Mitsubishi Electric, and Hitachi.
Lately my focus has shifted to cyclical sectors that could benefit from an
economic rebound.
Q. WHAT WAS YOUR BOND STRATEGY?
A. Earlier in the year, the Fund had fairly large exposure to so-called junk
bonds - those with credit ratings below "Baa" or "Bbb" from one of the bond
rating agencies. Most did quite well, but as the economy has slowed down, I've
moved increasingly into U.S. Treasuries. As the difference between long-term and
short-term interest rates has narrowed, I've concentrated on securities in the
middle of the yield curve, with maturities between 10 and 15 years. They seem to
offer the best balance between attractive yield and the potential for price
gains going forward.
Q. WHAT'S THE OUTLOOK?
A. Promising. Moderate growth and benign inflation mean interest rates could
head still lower in the months ahead, providing an attractive backdrop for both
stocks and bonds. Another key in 1996 will be how well foreign stocks perform,
especially the fund's stake in Japan. I believe Japan, rather than Europe or the
United States, has the greatest potential for gain in the months ahead.
CONTRAFUND PORTFOLIO
OBJECTIVE - Seeks to achieve capital appreciation.
AN INTERVIEW WITH WILL DANOFF, PORTFOLIO MANAGER
Q. HOW DID THE FUND PERFORM, WILL?
A. The Fund performed well. Since its inception on January 3, 1995 through the
end of the period December 31, 1995, the Fund outperformed the S&P 500 Index,
which rose 37.58% during the same period.
Q. WHAT FACTORS INFLUENCED THE FUND'S PERFORMANCE?
A. The Fund beat the average growth fund in 1995 primarily because it invested
heavily in technology stocks in the first three quarters of the year and took
profits earlier than most funds in the fourth quarter. The Fund also
de-emphasized sectors sensitive to the consumer and the economy, such as
retailing and transportation, which performed poorly in 1995. The second half of
the year was dominated by the slowing U.S. economy, which boosted prices of
bonds and interest rate-sensitive
13
<PAGE> 14
CONTRAFUND PORTFOLIO (CONT'D)
stocks, but caused many companies, particularly those sensitive to the economy,
to report disappointing earnings. The major factor influencing results of the
Fund and the overall market in the second half of the year was the peaking of
the technology sector. The Fund reduced its weighting in technology stocks from
32% at the end of June to about 18% at the end of the year.
Q. YOU CONTINUED TO INCREASE THE FUND'S HOLDINGS IN THE ENERGY SECTOR DURING THE
PERIOD. WHAT WAS YOUR STRATEGY?
A. Expectations in the sector were low. I recently read an article in The Wall
Street Journal entitled, "For Oil Traders, 1996 Is Looking Bad or Worse." This
headline captured the market's pessimistic view of oil prices and also was
indicative of its negative bias toward energy stocks. Most energy service stocks
have traded sideways for the last five years, performing dramatically worse than
the average stock, which has more than doubled during the same period. But,
while oil and gas prices have held steady, many of the energy service companies
have improved their operations significantly. Many of these companies, including
the Fund's holdings Schlumberger and Camco International, have cut costs and
capital needs meaningfully, increased market shares by acquiring smaller
competitors or watching them go out of business, and strengthened their product
lines by introducing or acquiring new, often high tech solutions for their
customers.
Q. WHERE ELSE DID YOU FIND INVESTMENT OPPORTUNITIES?
A. The Fund has raised its weightings in Japan during the past six months,
accounting for about 3% of the fund at the end of 1995. Japan has been in a bear
market for the last five years and the average stock has fallen more than 50%
during that time. Expectations for the market and the economy have been
extremely low, with many local investors having put their savings everywhere but
the Japanese stock market despite near record low valuations on many stocks. In
contrast to the lousy investor sentiment, corporate fundamentals have been
improving. Forced by the strengthening yen and the weak domestic economy,
Japanese companies have cut costs significantly to stay competitive in the world
marketplace and stabilize their eroding profits.
Q. WHAT INVESTMENTS HAVEN'T WORKED OUT AS YOU WOULD HAVE LIKED?
A. The biggest disappointment during the past six months was not selling the
technology holdings sooner and faster. The investing environment was
characterized by excessive optimism, as seen in the record numbers of initial
public offerings of small technology companies, the media excitement over
Microsoft's Windows 95 and the growing popularity of the Internet, as well as
record asset growth for technology sector mutual funds and extremely high
valuations relative to corporate profits.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. The Fund is positioned cautiously for the first half of the year. Last year's
near record bond market performance, which helped propel the stock market to new
highs throughout the year, is unlikely to repeat itself. The Federal Reserve
Board has already cut interest rates twice in the last six months so the
economy, although weak in spots, will probably not deteriorate further. A
stronger - or better than expected - economy should push interest rates up and
could force the stock market to fall. In addition, the stock market has been
trading at very high historic valuation levels relative to corporate earnings
and dividends. The market has gone without a 12% correction for over five years
- - the longest streak ever. Given the expensive prices of U.S. stocks currently,
the Fund is positioned conservatively for opportunities if the market falls this
year.
14
<PAGE> 15
[NATIONWIDE FINANCIAL SERVICES, INC. LOGO]
NATIONWIDE(R) SEPARATE ACCOUNT TRUST
CAPITAL APPRECIATION FUND
OBJECTIVE - To obtain long-term growth.
NARRATIVE BY CHARLES BATH, FUND MANAGER
The Capital Appreciation Fund benefited from the excellent performance of the
broadcasting sector due to several high profile acquisitions in this industry.
CBS was one of the largest holdings in the Capital Appreciation Fund prior to
its acquisition by Westinghouse. I have invested in the broadcasting industry
for several years due to the industry's significant free cash flow, reasonable
valuation, and shareholder-oriented managements. These investments have paid off
handsomely. I am attempting to maintain significant investments in the
broadcasting industry through ownership of Disney (Walt) Co. and Tribune Co.
These are diversified media companies with significant broadcasting investments.
These companies are also characterized by strong free cash flow and solid
managements.
I have continued to maintain minimal investments in technology stocks. IBM was
recently purchased due to its attractive valuation and strong balance sheet.
However, I anticipate the Capital Appreciation Fund's technology weighting will
remain low. Companies in this sector are often characterized by intense
competition and speculative valuation. While these stocks have performed very
well the past few years, I feel it would be a mistake to make significant
investments in this highly volatile market sector.
The cyclical exposure in the Capital Appreciation Fund was increased with the
recent purchases of Bowater and Champion International. Cyclical stocks
performed poorly in the second half of 1995 due to concerns regarding the
strength of the economy. It has consistently been my strategy to focus on
attractive values rather than to make economic predictions. While these paper
companies will probably remain small holdings, their modest valuations provide
an attractive investment opportunity.
GOVERNMENT BOND FUND
OBJECTIVE - To provide as high a level of income as is consistent with the
preservation of capital.
NARRATIVE BY WAYNE FRISBEE, FUND MANAGER
During 1995 those bond market investors that stayed invested during a difficult
prior year were rewarded for their patience. Long-term interest rates dropped by
approximately 190 basis points during the year resulting in significantly higher
prices for bonds and bond funds. Intermediate-term interest rates dropped by
even more than long-term rates with rates on the five-year U.S. Treasury note,
for example, falling from 7.83 percent to 5.37 percent. The Government Bond Fund
participated in this rally by maintaining market exposure as interest rates
declined during the year.
The rally in the fixed-income markets has been due to the confluence of several
factors. The most notable of these are the perception of an improving fiscal
policy in the United States, and a Federal Reserve that is given credit for
engineering an economy that has continued to expand without igniting inflation
concerns. Continued reports of subdued inflation have been interpreted both as
signs of successful Federal Reserve policy and as indications of continued value
in the bond market.
The Government Bond Fund continues to be invested in sectors of the government,
agency, and mortgage-backed markets perceived to be undervalued. Approximately
one-third of portfolio assets are invested in the Collateralized Mortgage
Obligation (CMO) market. The additional yield on these conservatively-structured
investments continues to make them attractive portfolio holdings.
15
<PAGE> 16
MONEY MARKET FUND
OBJECTIVE - To seek as high a level of current income as is considered
consistent with the preservation of capital and liquidity by investing primarily
in money market instruments.
NARRATIVE BY KAREN MADER, FUND MANAGER
Short-term interest rates rose during the first half of 1995. The Federal
Reserve increased rates due to both an expanding economy and concern about
inflation. By July 1995, the scenario had changed. Expansion and inflation
concerns had diminished leading to a reduction in the Fed Funds rate to the
current rate of 5.50% from 6.00%. The Federal Reserve reduced the Fed Funds by
25 basis points in both July and December of 1995. In the near future, the
Federal Reserve may decide to lower rates again if economic indicators point to
a slowing economy.
The Separate Account Money Market Fund continues to invest in only the highest
rated money market instruments. An internal credit review is completed on every
company that the Fund invests in. The Fund's yield remains competitive with the
other funds included in Donoghue's Taxable First Tier Money Market Group.
SMALL COMPANY FUND
OBJECTIVE - To seek long-term growth of capital by investing in equity
securities of small-capitalization companies.
NARRATIVE BY NATIONWIDE FINANCIAL SERVICES, INC.
The Small Company Fund commenced operations on October 23, 1995. The Fund
combines the efforts of five investment managers that provide sub-advisory
services: Dreyfus Corporation, Neuberger & Berman, L.P., Strong Capital
Management, Inc., Van Eck Associates Corporation, and Warburg Pincus
Counsellors, Inc. Cash is allocated to each sub-adviser who then manage their
portion of the portfolio on a discretionary basis. Van Eck works with Pictet
International Management Limited to invest primarily in non-U.S. securities. The
other four managers principally invest in domestic companies.
As of December 31, 1995, total net assets were approximately $17.2 million with
73% invested in domestic securities and 11% invested internationally. Under
normal market conditions, the Fund will invest at least 65% of its assets in
equity securities of companies with market capitalizations of less than $1
billion at time of purchase.
The Fund will be measured against the Russell 2000 Index, a widely accepted
benchmark for small capitalization performance. This benchmark represents an
unmanaged index of 2000 small capitalization stocks which includes reinvestment
of dividends.
TOTAL RETURN FUND
OBJECTIVE - To obtain a reasonable long term total return (i.e., earnings growth
plus potential dividend yield) on invested capital from a flexible combination
of current return and capital gains through investments in common stocks,
convertible issues, money market instruments and bonds with a primary emphasis
on common stocks.
NARRATIVE BY JOHN M. SCHAFFNER, FUND MANAGER
In 1995, the stock market was led upward for the first three quarters by
exceptional strength in the technology sector. In the final quarter, technology
stocks were weak but the market as a whole continued upwards, as leadership
shifted to blue chip stocks.
The Total Return Fund's performance in 1995 was influenced significantly by
strength in energy stocks, where the Fund, with about 14% of assets, is
overweighted. Financial stocks, where the Fund has a weighting of about 11%,
also recorded strong year over year performance as did telecommunications, where
the Fund's asset weighting is about 10%. Several of the stocks the Fund
categorizes as conglomerates, such as Eastman Kodak, Honeywell, Rockwell
International and EG&G also performed well. Holdings in chemicals, especially
specialty chemicals, lagged the market, as did the Fund's holdings in the auto
industry and machinery and capital goods.
16
<PAGE> 17
TOTAL RETURN FUND (CONT'D)
The Fund is currently shifting its emphasis in the financial sector. Weightings
in commercial banks are being reduced in favor of increased holdings of
insurance stocks. Bank stocks in general are selling at multiples of book, close
to recent premiums paid in takeovers. In addition, most banks are not positioned
as well as insurance companies to take advantage of future asset accumulation as
the population ages and saves more for retirement. The Fund has also increased
its exposure to technology on recent weakness in this sector, buying IBM and
adding to Intel. The policy to control exposure to this sector, outlined in the
previous report, remains in effect. The Fund's technology holdings are only in
the strongest companies, with reasonable valuations and good capital gain
potential, with a limited commitment of total assets.
NEUBERGER & BERMAN
MANAGEMENT INC.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
GROWTH PORTFOLIO
OBJECTIVE - The Portfolio seeks capital growth through investments in common
stocks of companies that the investment adviser believes will have above average
potential for long-term capital appreciation.
NARRATIVE BY MARK GOLDSTEIN, PORTFOLIO MANAGER
The Growth Portfolio benefited from a strong bull market in 1995, as many of our
highest sector weightings fully participated in the market's rise. Lower
interest rates and strong earnings results provided the major impetus for equity
markets. Among the best performing sectors were financial, technology, health
care, and certain specialty retailers. The most significant purchases in 1995
were in the HMO industry, as Wall Street analysts abandoned the sector earlier
in the year due to worries about more competitive pricing and rising medical
costs. As the HMO valuations fell to historically low levels relative to its 20%
industry growth rate, we added significantly to our HMO holdings. In the fourth
quarter of the year the HMO industry provided some of the best returns in the
Portfolio.
Within the financial services sector, CITICORP, Wells Fargo, Finova Group, and
Capital One Financial provided strong returns. CITICORP and Wells Fargo exceeded
earnings expectations and both companies continued to aggressively repurchase
their own shares. Finova Group is a major commercial finance company which has
made several acquisitions in recent years. Capital One Financial is a credit
card issuer that has been growing rapidly.
Technology, our best performing sector through September, included major
positions in Intel, Texas Instruments, and Micron Technology. This sector
weakened during the final quarter as pricing concerns surfaced due to rising
capacity additions in the Far East. With production costs falling 25%-30% per
year, we believe industry margins should remain stable for the foreseeable
future. We have recently added to our positions.
In spite of a weak retail sector, our specialty retail positions contributed
positively to performance. Staples and Viking Office Products in the business
sector, General Nutrition Companies and Rite Aid in the health care sector, and
Circuit City, the leader in consumer electronics, all posted strong gains.
Overall, we are pleased with how 1995 turned out for the Portfolio, despite a
drop-off in fourth quarter performance due to weakness in technology, finance,
gaming and restaurant stocks. We hope to continue to provide shareholders with
excellent long-term returns by tackling each stock individually on a fundamental
value ("Bottom-up") basis, and in doing so uncover fast-growing companies with
entrepreneurial managements and pristine balance sheets.
17
<PAGE> 18
LIMITED MATURITY BOND PORTFOLIO
OBJECTIVE: To provide the highest level of total return, consistent with
preservation of capital.
NARRATIVE BY THERESA HAVELL & THOMAS WOLFE, PORTFOLIO CO-MANAGERS
1995 produced outstanding returns in the Portfolio, a result of a dramatic
lowering of yields as the market perceived a slowing economy and a lessening of
inflationary pressures. The Federal Reserve Board appeared to agree with the
market's view and lowered the Fed Funds rate by 25 basis points in early July
and again in December.
The duration (the measure of how bond prices respond to shifts in interest
rates, taking into account maturity, coupon, call protection and other factors)
of the Portfolio was extended in the first half, then held steady during the
summer months as the rally subsided as market participants became concerned
about a pickup in economic activity. However, by the end of the third quarter
inflationary expectations declined and rates resumed a downward trend. We again
extended duration in October, which greatly benefited fourth quarter
performance.
Our fundamental view remains bullish. The inflation outlook for the U.S. is the
best it has been in years. We believe that monetary policy remains somewhat
restrictive and the budget that comes out of Washington will be positive for
fixed income markets.
During the fourth quarter, we added investment-grade corporate bonds and
high-quality asset-backed securities to the Portfolio. This allowed us to take
advantage of slightly higher yield premiums, which were available at reasonable
prices. We believe the fundamentals of these two sectors remain solid and that
significant incremental returns will result from our relatively heavy
weightings. We remained underweighted in mortgages throughout the year as the
interest rate rally resulted in their under-performance versus other sectors. We
will stick to our discipline of holding primarily investment-grade credits and
not attempting to predict the direction of rates, as well as stressing the
preservation of principal and steady income production.
PARTNERS PORTFOLIO
OBJECTIVE - The Portfolio seeks capital growth through an investment approach
that is designed to increase capital with reasonable risk.
NARRATIVE BY MICHAEL KASSEN & ROBERT GENDELMAN, PORTFOLIO CO-MANAGERS
1995 was a splended year of total return gains for AMT Partners Portfolio,
fostered by extraordinary appreciation in the domestic equities markets and,
consequently, a majority of the Portfolio's holdings.
The Portfolio kept broad exposure to the bull market, and found investments in
many industry types and market capitalizations. Financial and industrial
cyclical stocks kept a large presence in the Portfolio, where numerous
high-quality value stocks were found. These, plus a number of technology and
health care stocks, wended their way to new highs as the equity markets reached
one record after another.
In the first half of 1995, we increased our position in Progressive Corporation,
a leading underwriter of property and casualty insurance, after seeing strong
intrinsic value and an overdue rebound lying beneath certain tarnished finance
stocks. The company extended its superb long-term earnings growth record and its
share price rose steadily.
In health care, Columbia/HCA Healthcare was well positioned to take advantage of
the consolidation in the nation's health care delivery systems. The company
aggressively expanded its market presence through joint ventures and
acquisitions, and its share price bounded back from first quarter lows
significantly by year's end.
Technology and paper stocks such as Texas Instruments and Georgia-Pacific
climbed all year until the fourth quarter. Both were weak in the fourth quarter;
technology gave up some ground after mid-October as investors grew worried about
high valuations and opted to lock in some profits, and paper concerns had a
tandem climb with the commodity's price until abrupt short-term weakness
occurred during the Fall.
18
<PAGE> 19
PARTNERS PORTFOLIO (CONT'D)
We have taken a new position in Crown Cork & Seal, a mundane industrial goods
concern we feel has the earnings power to justify a significantly higher share
price within two years. It suffered due to disappointing near-term earnings and
confusion over merger plans. Like most of the stocks in Partners Portfolio, we
feel we have gotten in on Crown Cork before the perceived turnaround, and have
not relied solely on Wall Street research on the firm. We met with management to
understand both the current problems and the long-term prospects. Finally, we
always look for managers who behave like owners - that was the case at Crown
Cork.
Potential and existing holdings will be examined (and re-examined) one at a time
in 1996. Careful scrutiny of earnings, a good balance sheet, a high return on
equity, solid management, and future growth prospects remain the foundation of
our approach.
[OPPENHEIMER FUNDS LOGO]
OPPENHEIMER VARIABLE ACCOUNT FUNDS
OPPENHEIMER BOND FUND
OBJECTIVE - Primarily seeks a high level of current income from investments in
high yield fixed income securities rated "Baa" or better by Moody's or "BBB" or
better by Standard & Poor's. Secondarily, the Fund seeks capital growth when
consistent with its primary objective of high current income.
NARRATIVE BY DAVID NEGRI, FUND MANAGER
Over the course of the year, Oppenheimer Bond Fund's performance was very good
mainly due to the combination of declining interest rates and low inflation,
which led to an exceptionally strong rally in the bond market in 1995. The
Fund's performance was also helped by our corporate bond holdings which reacted
favorably to the successes of their underlying companies.
The decline in interest rates led to a very strong rally in Treasury securities,
especially in the first half of 1996, with the Fund benefiting from holdings in
this area. Since July, however, we've been reducing our Treasury allocation to
slowly rework our assets toward emphasizing investments in different categories
of U.S. government and corporate bonds. This strategy has allowed us to pursue
good income producing investments while adding to the Fund's diversification and
thereby helping to reduce risk.
Our strategy over the past six months has been to invest primarily in the U.S.
market. To that end, we've broadened our investments to include new asset
categories that we believe will help us target the best opportunities in the
market and achieve our goal of providing the potential for a higher yield and
higher total return. By having more flexibility, we can take advantage of a
broader range of investment opportunities, and thereby decrease the overall
volatility of the Fund by increasing diversification across asset classes.
With an expectation for continued slower growth in the economy, we've reduced
our holdings in utilities and cyclical companies such as mining and metals
companies. We currently favor companies that should expect to experience
earnings growth in excess of the growth rate of the economy - such as cable,
telecommunications, broadcasting, and media firms. We expect these companies to
profit most in the coming year.
Our outlook for the Fund is good. Looking ahead, we expect a continuation of the
current soft landing scenario - a period of slow but steady economic growth with
low inflation, which should be a good environment overall for bonds. In terms of
the Treasury market, where we've seen the best performance over the past year,
we believe most of the gains have already been experienced. We feel we have
positioned the portfolio to perform well in terms of both yield and return as
the coming year unfolds.
19
<PAGE> 20
OPPENHEIMER GLOBAL SECURITIES FUND
OBJECTIVE - Seeks capital growth by investing in a diversified portfolio of
foreign and domestic stocks.
NARRATIVE BY GEORGE EVANS, FUND MANAGER
Over the past twelve months the Fund has performed well, primarily the result of
a large position in U.S. stocks which helped to offset the lagging performance
of foreign markets. The Fund, once again, benefited from the flexibility to
change its portfolio weightings depending on the Manager's outlook for specific
sectors.
Another equally important factor in the Fund's good performance is your
Manager's disciplined "theme based" approach to searching out companies in the
U.S. and around the world that stand to benefit from one or more key global
themes. These worldwide trends such as telecommunications expansion, emerging
consumer markets, infrastructure development and global integration among others
are themes that your Manager believes define the future growth of global
economies and have allowed the Fund to capitalize on significant growth trends
around the world.
Although most overseas markets have underperformed the U.S. market over the last
year or so, your Manager believes that the underperformance of investments
outside the U.S. is about to change. As falling interest rates and a more stable
U.S. dollar have begun to help dollar based emerging markets in general, and
specifically large international companies that export to the U.S., there are
outstanding growth opportunities at inexpensive prices. As a result, the Fund
has increased its exposure to Japanese and European export oriented companies
with a focus on high-quality technology stocks. A stronger dollar is beneficial
to overseas exporters because their goods are more competitively priced in world
markets.
Looking ahead, your Manager believes the outlook for the Fund is extremely
positive. Last year the U.S. stock market was the clear winner. Next year it
could be Europe, Asia, or even Latin America - but by being able to diversify
the Fund's investments throughout the world and by sticking to a theme-based
approach for finding the best companies around the world, your Manager feels
confident that the Fund is positioned to participate in any environment.
OPPENHEIMER MULTIPLE STRATEGIES FUND
OBJECTIVE - Seeks a total investment return (including current income and
capital appreciation in the value of its shares) from investments in a
combination of stocks, bonds and "money market" securities. The current
allocation of the Fund's portfolio aims to take advantage of current economic
conditions while managing risk.
NARRATIVE BY RICHARD RUBINSTEIN, FUND MANAGER
The Fund has performed well over the year, primarily due to our broad
diversification. Because different types of securities will perform better at
different times, we employ five complementary investment strategies and invest
in both stocks and bonds. This approach to investing has allowed us to turn in
another year of solid results with lower than average risk.
This year the Fund's performance was driven primarily by our holdings in
domestic stocks and bonds. The Fund's large positions in the stocks of
technology and healthcare companies had a very positive impact on performance.
Both of these areas outperformed the market due to expectations for continued
strong earnings in what has become a slower-growing economy. In addition, we're
increasing our positions in companies with stock prices we consider low based on
our evaluation of the company and with managements that are maintaining a tight
reign on costs. Also, we're always looking for opportunities to buy stocks that
are temporarily out of favor but have dominant market positions and strong
balance sheets. As for our investments in domestic bonds, declining interest
rates had a positive effect on the Portfolio particularly the longer-term issues
such as long term Treasuries and dollar denominated foreign bonds.
As of year-end, the Fund's holdings were strategically positioned fairly equally
across U.S. Treasuries, foreign bonds and corporate high yield bonds. As U.S.
interest rates came down causing prices to go up on U.S. Treasuries over the
year, we began to sell our holdings in Treasuries and to increase our positions
in foreign bonds. Yields outside of the U.S. are currently much more attractive
than domestic yields, and though foreign investing subjects the Fund to greater
risks and expenses such as the risk of adverse currency fluctuation, it offers
both solid growth potential and an opportunity for strategic diversification.
20
<PAGE> 21
OPPENHEIMER MULTIPLE STRATEGIES FUND (CONT'D)
Our outlook for the Fund remains optimistic. Over the past year, the domestic
markets have performed very well, and we expect them to continue to provide
solid opportunities to diversified investors like ourselves. While corporate
earnings growth are likely to slow from what we've seen over the past two years,
we believe they will remain strong - and continued low interest rates should
bode well for prices of both stocks and bonds.
[STRONG FUNDS LOGO]
STRONG FUNDS
STRONG VARIABLE INSURANCE PRODUCTS FUNDS
STRONG DISCOVERY FUND II, INC.
OBJECTIVE - To seek maximum capital appreciation through investments in a
diversified portfolio of securities.
NARRATIVE BY RICHARD STRONG, FUND MANAGER
As I begin my thirtieth year in this business, I appreciate more than ever what
it takes to survive - and to thrive - as a money manager. My experience has
taught me to be like a fox ... to work with the pack without blindly following
the herd ... to bide my time, always ready to pounce and take advantage of the
extraordinary opportunity when it presents itself.
I believe there are extraordinary opportunities out there right now for
incisive, agile money managers. A number of great, young growth companies - in
America and abroad - are poised to break away from their competition.
It is our goal to break away with them, using their strength and momentum to
create rewards for our shareholders.
MARKET SUMMARY
STOCKS. In 1995, two of the most influential factors that drive stock prices -
earnings and interest rates - came together to create a nearly perfect
environment for U.S. common stocks. The rally was a fairly steady one, with the
S&P hitting 88 new highs during the twelve months. Most small stocks, though
they lagged their larger brethren a bit, produced solid gains, as well.
LONG BONDS. Moderate inflation and slow economic growth also helped to fuel a
robust rally in long-term bonds. The benchmark 30-year Treasury bond's yield
dropped to 5.95% by December 31 from 7.88% a year ago.
SHORT BONDS. Interest rates fell at the short end of the market, too. Although,
thanks primarily to the Federal Reserve's moderated monetary policy, they
dropped less than long rates did. After raising rates in February, the central
bank lowered its federal funds rate twice, in July and in December. The easing,
however, totaled just 50 basis points (0.50%) for the year, leaving the yield
curve - the spread between short- and long-term rates - fairly flat.
Overall, 1995 was an excellent year for most investments, and we're proud to be
able to include the Strong Discovery Fund II among that group. By balancing the
Fund's holdings among a mix of resurgent, blue-chip companies and smaller,
rapidly growing companies, we were able to create an excellent return for the
year.
STRATEGY REVIEW
STEADFAST COMMITMENT TO STOCKS. Throughout the year, we maintained a bullish
exposure to U.S. common stocks. Three key factors led us to hold our course:
(1) two years of robust corporate-earnings growth,
(2) the poor performance of the market in 1994, and
(3) our view that interest rates would decline.
Our willingness to stick with a market that many believed was topping out helped
the Fund participate fully in the market's year-long rally.
SELECTED THEMES. As ever, our approach to managing the portfolio included
healthy measures of both bottom-up stock selection and theme-oriented research.
For example, with the help of our energetic staff of analysts, we were able to
take advantage of the year's strong surge in technology stocks.
21
<PAGE> 22
STRONG DISCOVERY FUND II, INC. (CONT'D)
In fact, a number of our holdings in this sector were among the portfolio's top
performers. Examples include McAfee Associates, a California firm that
specializes in computer-virus software, and CBT Group PLC, which develops,
publishes, and markets software for networked and stand-alone personal
computers.
By year end, however, we had begun taking profits, reducing our technology
exposure significantly. As of December 31, technology issues accounted for 23.6%
of the portfolio, down from a high of 50.8% at the end of September.
In addition to identifying sectors we believe show greater-than-average
opportunity, we also seek to identify areas of the market that may be headed for
trouble. The aging baby-boom generation, if it follows historical patterns,
should soon begin to consume less and save more. This is not good news for most
U.S. retailers. As a result, we have significantly under-weighted this sector in
the portfolio.
OPPORTUNISTIC USE OF BONDS. Late in the year, with the economy slowing and
interest rates headed down further, we moved a portion of the portfolio into
long-term bonds. As a result, we were able to lock in some attractive long-term
yields.
OUR OUTLOOK
Overall, our outlook for U.S. stocks remains favorable. All the key variables
are pointed in the right direction: growth is moderate, inflation is low, and we
expect interest rates to ease further.
We all must keep in mind, however, that the market's huge run up in 1995 is a
lot for the system to digest. Unless the Fed is willing to take more aggressive
action to fuel the economy, the prospects for corporate earnings are, if not
dim, certainly diminished, especially when compared to last year.
Still, we wholeheartedly believe that there are terrific investment
opportunities out there for those investors who know where to look.
STRONG INTERNATIONAL STOCK FUND II, INC.
OBJECTIVE - To seek capital growth. The Fund invests primarily in the equity
securities of issuers located outside the United States.
NARRATIVE BY ANTHONY L.T. CRAGG, FUND MANAGER
By investing primarily in the stocks of companies based outside the United
States, the Strong International Stock Fund II, Inc. pursues capital growth. The
Fund provides convenient access to growth opportunities world-wide and, when
added to a domestic portfolio, will increase diversification, while providing
the potential for higher returns compared to a U.S.-only portfolio.
INTERNATIONAL MARKETS
Following a turbulent first quarter, international stock markets became less
volatile later in the year. The effects of the Mexican peso devaluation
subsided, and the dollar turned the corner, strengthening substantially against
the Japanese yen. The Japanese market also bounced back significantly, driven by
renewed foreign buying as the government stimulated the country's economy and
the yen weakened.
HIGHLIGHTING ASIA
Since the Fund's inception in October of this year, we have weighted the
portfolio heavily toward Asia, where we see better long-term opportunities,
strong growth, and moderate inflation. Many Pacific Basin countries boast
fast-growing economies and feature markets with valuations between 15 and 20
times earnings. New Zealand, with its solid economic growth and under-control
inflation, remains particularly attractive.
We have also invested the Fund more heavily in Japan, which we believe has begun
to recover, aided by a weakened yen and efforts to correct its banking problems.
One of the Fund's top performers to date has been Nomura Securities Company,
Ltd., the leading Japanese stock-brokerage firm. At year-end, 21.56% of the Fund
was invested in Japanese securities - close to our benchmark of 25% to be
invested in that country.
22
<PAGE> 23
STRONG INTERNATIONAL STOCK FUND II, INC. (CONT'D)
Several small-to mid-cap European companies have also been attractive additions
to the Fund. Top performers to date include Gucci Group NV, an Italian
manufacturer of fine leather goods, and De Rigo Spa, an Italian eyeglass frame
maker. We have not found good value in larger European stocks since the Fund's
inception, due to the continent's difficult macro-economic environment and
continuing struggle toward a unified currency.
The Fund has tapped emerging markets, within reason, by diversifying into
Indonesia, China, Malaysia, Korea, Brazil and Thailand. At year-end, 13.57% of
the Fund was invested in these emerging markets. As always, however, we retained
our "bottom up" approach by attending to country weightings only after first
identifying value in individual companies.
CYCLE MAY BENEFIT LONG-TERM INVESTORS
At year end, assets under management in the Strong International Stock Fund II,
Inc. approached $1 million. The Fund held approximately 50 stocks, and cash
represented 16.1% of the Fund. When the Fund reaches $2 million to $3 million,
it will more closely mirror the Strong International Stock Fund, hold more
individual stocks, and carry a smaller cash reserve.
We believe the Fund was launched at an opportune time for international stocks.
We are very optimistic about the prospects for international markets, especially
in light of Wall Street's maturing bull market. Attention could return to the
international markets in 1996 as investors who previously have kept their funds
invested solely in U.S. stocks may be more inclined to plug into the faster
growth rates in international and emerging markets.
Shareholders should keep in mind, however, that the Fund is likely to be more
volatile than a U.S.-only fund, due to changes in stock-market conditions,
currency values, interest rates, local regulations and economic and political
conditions. But given the value currently available in international markets, we
believe foreign equities offer long-term investors an attractive opportunity.
STRONG SPECIAL FUND II, INC.
OBJECTIVE - To seek capital appreciation through investments in a diversified
portfolio of equity securities.
NARRATIVE BY RICHARD WEISS & MARINA CARLSON, FUND MANAGERS
In pursuit of capital growth, the Strong Special Fund II, Inc. invests at least
70% of its total assets in equity securities. It currently emphasizes
medium-sized companies that the Fund's advisor believes are under-researched and
attractively valued.
NEAR-PERFECT ENVIRONMENT FOR STOCKS
Low interest rates, combined with moderate inflation and healthy corporate
earnings provided a near-perfect environment for U.S. common stocks in 1995, and
contributed to the stock market rally that ran practically unabated through
year-end. Technology and financial stocks led this momentum-driven market, aided
by large inflows into equity mutual funds.
Large companies which, measured by the S&P 500, were up 37.58% through year-end,
saw the biggest gains as investors favored traditional large-cap stocks through
much of the year. Though mid-cap stocks slightly lagged larger counterparts,
they also posted significant gains, as reflected by the S&P MidCap 400's 30.94%
total return for the same period.
The Fund had good exposure to some of the best performing sectors this year -
especially publishing, broadcasting, and technology.
A DISCIPLINED APPROACH TO INVESTING
Our investing style remained consistent through the year - we do not believe in
chasing market momentum. Rather, we continue to evaluate existing and
prospective holdings by analyzing their "private value." That simply means we
evaluate companies as if we were private buyers - determining how much we would
be willing to pay to own the entire company. In doing so, we have a disciplined
way to view the company's inherent value and impartially evaluate potential
winners and losers.
23
<PAGE> 24
STRONG SPECIAL FUND II, INC. (CONT'D)
We look at underfollowed stocks - those with low institutional ownership and low
analyst coverage - because we believe they tend to be undervalued by the market.
We take a close look at unpopular, or "quiet," sectors because we think that, in
a market increasingly dominated by institutions, unpopular sectors can yield
superior returns for those willing to look beyond this year's favorites.
Some of the Fund's top performers this year include Paging Network, Inc., a
provider of paging services in the U.S., and Sun Microsystems, Inc., a computer
hardware manufacturer.
This year, a number of companies in the Fund received takeover bids at a price
very close to our private market value. In the publishing and broadcasting
sector alone, we own two companies that received takeover bids. Both companies,
Capital Cities/ABC, Inc. and CBS, Inc., obtained bids within several dollars of
our private market valuations. The Capital Cities/ABC takeover is awaiting a
vote by shareholders in January, and the CBS takeover is complete.
CYCLE MAY REWARD MID-CAP STOCKS
We believe the stage now may be set for a longer-term cycle during which mid-cap
stocks have the potential to outperform large-cap issues. Given this year's
rally in large caps, we find mid-cap issues very attractive, based on their
relative value and expected earnings growth.
We are, however, somewhat cautious going into the new year, and are not totally
convinced that the much talked-about "soft landing" has occurred. Even with the
Fed's bias toward easing credit, the economy is sluggish, and it remains unclear
whether this slowdown will evolve into a recession. The market has already
basically discounted for slow growth but, if growth is slower than anticipated,
the stock market could react negatively.
Looking ahead, we will continue to place emphasis on underfollowed, growing
firms selling at significant discounts from their private market values. This
attention to discipline and value should help to protect the Fund from sharp
declines if the market turns down - while providing the potential for upside
appreciation in the meantime.
[TWENTIETH CENTURY MUTUAL FUNDS LOGO]
A MEMBER OF THE TWENTIETH CENTURY FAMILY OF MUTUAL FUNDS.
TCI BALANCED
OBJECTIVE - To seek capital growth and current income.
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
TCI Balanced seeks to provide investors with opportunities for capital growth
and current income through a combination of 60% common stocks and 40% investment
grade fixed income securities. For the 12 month period ended December 31, 1995,
the Fund posted the best calendar year gain since its May 1, 1991, inception.
The Fund did, however, trail its benchmark blended index, which gained 28.65%
for the period. The S&P 500 index gained 37.58%.
TCI Balanced's common stock holdings are targeted to the shares of larger,
well-established companies demonstrating earnings and revenue acceleration. For
most of the year this approach proved rewarding and shareholders benefited from
strong returns in such industries as healthcare, pharmaceuticals and technology.
Yet, as concerns about a slowing U.S. economy developed late in the period, many
investors moved to more defensively postured firms characterized by steady
(albeit unspectacular) earnings growth. Most such firms do not meet the fund's
standards for accelerating growth, but they were major components of the S&P
500's solid gains in the fourth quarter of 1995. History shows us that over time
investors will favor companies with the above-average earnings growth we seek on
your behalf.
The Federal Reserve Board raised interest rates early in the period and lowered
rates later in the year. Responding to falling interest rates, the bond market
experienced a sharp price rebound from 1994 declines, which translated into
relatively strong performance for the year. The fixed income markets especially
favored longer-term bonds. TCI Balanced focuses on less volatile short- and
intermediate-term bonds. As a result, while it provided steady income and good
performance, it did not fully share in the bond market's appreciation.
24
<PAGE> 25
TCI BALANCED (CONT'D)
Because it is designed to be a more conservative investment than some other
Twentieth Century funds, TCI Balanced is not likely to match major stock indices
in a year like 1995. Its portfolio design of large company stocks and bonds,
however, does give it strong potential for holding its value during down market
years.
TCI Balanced continues to pursue its original goal of providing shareholders
with the opportunity to invest in a portfolio of growing companies while using
bonds to reduce shareprice fluctuations along the way. We will continue to
target accelerating growth in earnings and revenues for our stock holdings,
while limiting our bond holdings to investment-grade issues. We remain confident
that the fund has the potential to provide shareholders with a long-term rate of
return that could comfortably outpace the rate of inflation.
TCI GROWTH
OBJECTIVE - To seek capital growth by investing in common stocks (including
securities convertible into common stocks) that meet certain fundamental and
technical standards of selection and, in the opinion of the Fund's management,
have better than average potential for appreciation.
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
TCI Growth reported a strong gain for the 12 months ended December 31, 1995,
reflecting the year's powerful market climb. According to Lipper Analytical
Services, the average total return for funds with growth investment objectives
was 30.79% during the period. The S&P 500 index returned 37.58% for the 12
months.
TCI Growth's best gains came during the year's first three quarters. It climbed
steadily in the first half of the period and surged sharply in the third
quarter. Hot selling new technologies, the introduction of Windows 95 in August,
for example, contributed to the market's extended rally during this period. With
nearly half of its portfolio in technology stocks during the 12-month period,
the Fund made the most of this trend. Moderate holdings in international stocks
provided a positive effect on returns as well.
In the face of growing economic uncertainty late in the year, many investors
moved from technology stocks to stocks of large, more established companies with
steady earnings, which investors typically consider to be defensive. This change
in emphasis clipped Fund performance, especially in comparison with the positive
return of the S&P, which was heavily influenced by the returns of large "steady
growers" in the index.
TCI Growth, which invests in the stocks of small, medium and large companies, is
designed for investors seeking capital growth. To meet that objective the Fund
seeks to single out companies with earnings and revenue acceleration because we
have found that such an approach can provide attractive returns over the long
run.
TCI Growth's continued performance (despite the recent setback in
technology-oriented companies) reaffirms to us the potential of combining
growth-oriented stocks with a disciplined buying and selling process. We
strongly believe that this strategy has the potential to provide significant
benefits to those shareholders investing to achieve long-term financial goals.
TCI INTERNATIONAL
OBJECTIVE - To seek capital growth by investing primarily in an internationally
diversified portfolio of common stocks that are considered by management to have
prospects for appreciation.
NARRATIVE BY TWENTIETH CENTURY COMPANIES, INC.
Most international stocks performed modestly during 1995 in contrast to
double-digit gains by the U.S. market. Successful investment opportunities were
often overshadowed by difficult market trends during the period. Relatively high
interest rates in Europe, economic setbacks in Japan and continued weakness in
most emerging markets contributed to erratic performance by many international
indices.
TCI International's largest country weighting for the period was Japan, which
slowed gains initially but ultimately contributed significantly to the Fund's
return. With the Japanese economy showing strong signs of recovery, we began to
increase the weightings of these issues in the Fund's portfolio.
25
<PAGE> 26
TCI INTERNATIONAL (CONT'D)
Unfortunately, the strengthening yen, which makes Japanese products more
expensive overseas, reduced earnings for many of the Fund's stock selections
early in the year. By midyear, however, as the yen declined in relation to the
dollar, Japanese holdings made strong gains.
Our search for companies with accelerating earnings and revenues had led to some
of the best performing sectors of the Japanese market-media, technology and
capital goods stocks. Stocks like video game maker Nintendo and semiconductor
producer Advantest took advantage of the global demand for new entertainment and
technology products, while a capital goods firm like machine-tool maker Fantic
responded to the internal economic recovery.
The Fund's European holdings were another important contributor to the Fund's
progress in 1995. The Fund's best-performing investements were mainly in
industries that enjoy worldwide demand- especially media and pharmaceuticals. In
general, although European economies were mixed, European investors favored
solid growth companies-a trend that strongly benefited TCI International.
Although the U.S. market outperformed international markets this year, we
continue to believe that many of the best growth opportunities in the world
exist outside the United States. Asia's emerging market economies, for example,
are expanding up to three times faster than that of the U.S. And, unlike the
U.S. equities market, many foreign stock markets today are trading at lower
valuations than they were two years ago.
Looking ahead, we see opportunities to invest in fast-growing companies around
the world. We are excited by these opportunities, and we like to believe that,
over the long term, the exporting of Twentieth Century's long-held growth
investing philosophy carries significant investment potential.
[VAN ECK GLOBAL LOGO]
GOLD AND NATURAL RESOURCES FUND
OBJECTIVE - To seek long-term capital appreciation by investing in equity and
debt securities of companies engaged in the exploration, development, production
and distribution of gold and other natural resources, such as strategic and
other metals, minerals, forest products, oil, natural gas and coal.
NARRATIVE BY HARRY J. BINGHAM, FUND MANAGER
During 1995 gold itself traded in the range of $395.20 an ounce to $371.50 and
closed at $387.10 an ounce up $3.90 for the year. The high occurred on April
18th when the Bank of Japan followed Germany in lowering interest rates to
support the dollar after its sharp 20% decline against the yen. Subsequent
rallies appear to have been capped by heavy forward selling by gold mines using
leased central bank gold through intermediary bullion banks to deliver into the
cash market. Considering that global fabricated demand is estimated to have
risen 15% in 1995 and is running 25% above mine production plus scrap recoveries
it appears that only the availability of central bank gold for lease cleared the
market at prevailing prices.
Late in November, however, the rate at which central banks lease gold, after
rising erratically since June from 1% to 3%, rose sharply to 6% for normal three
month delivery. This caused gold for future delivery to fall below the cash
price for the first time since the volatile 1979 markets. The Bank of England
then succeeded in eliciting additional gold to supply the market. Lease rates
declined but remained far above the levels that prevailed prior to June. A
warning has been issued that there is risk in selling gold forward. Most gold
leases are renewable every three months whereas forward sales contracts extend
for at least a year and often for much longer. The exposure to widely
fluctuating lease rates and therefore a potentially lower net forward price may
reduce the attractiveness of large scale long term forward selling to all except
those companies needing to ensure a minimum cash flow.
26
<PAGE> 27
GOLD AND NATURAL RESOURCES FUND (CONT'D)
This activity, in our opinion, has contributed to the undervaluation of the
purchasing power of gold. During 1995 the price of gold averaged approximately
$384 an ounce, about the same as in 1989, despite a 23% rise in the U.S.
consumer price index. Simply reducing the rate at which the mining companies add
to their forward sales positions and the rate at which central bank leased gold
enters the market would likely cause the gold price to rise to a significantly
higher purchasing power equilibrium.
North American mining shares, several of which have active exploration,
development and/or acquisition programs to add to gold reserves, production and
earning power, were the best performing geographical sector of the fund. As
measured by the Philadelphia Gold/Silver Index North American shares rose 9.1%
for the year. These shares account for approximately 43% of assets.
WORLDWIDE BOND FUND+++
OBJECTIVE - To seek high total return through a flexible policy of investing
globally, primarily in debt securities.
NARRATIVE BY MADIS SENNER, FUND MANAGER
We are pleased to report that 1995 was an outstanding year for bond markets
worldwide as economic growth began to show signs of weakness and key interest
rates were lowered in the U.S., Europe and Japan.
BOND REVIEW
As the year began, investors were cautious on the outlook for bonds after rising
short-term U.S. interest rates and the Mexican peso debacle in December resulted
in a tumultuous 1994. During the first quarter the Portfolio was weighted toward
the strengthening U.S. bond market (on a duration basis), with lesser exposures
to Europe and Japan, and durations were temporarily lowered as a defensive
strategy. Holdings in the peripheral, less stable bond markets such as Spain and
Italy were liquidated at that time.
Toward the end of the first quarter, however, it appeared that economic growth
in both the U.S. and Europe was faltering and that inflation was not a threat.
The German discount rate was cut in March and as expectations of further rate
cuts rose, the bond market rally went into full swing and our positioning became
less defensive - we again added Spanish and Italian bond positions during the
second quarter and increased the average duration of the Portfolio to almost
five years. While we maintained a fairly heavy weighting toward the U.S.
throughout the year, at this time we decreased the position somewhat (again, on
a duration basis), taking profits, cautious after the first quarter U.S. rally.
Bond markets overall continued to perform exceptionally well as interest rate
trends reversed - the federal funds target rate was reduced from 6% to 5.75% in
the beginning of July while the German Lombard rate, was lowered from 6% to 5.5%
in August, and both rates were again decreased in December, while the German
discount rate continued to come down. Further boosting bonds, U.S. bonds in
particular, and helping spur confidence in all the global financial markets, the
Bank of Japan began aggressively purchasing Treasury bonds with the proceeds
from the Bank's intervention to support the dollar and stem the yen's rise.
The Portfolio has remained very underweighted throughout the year in Japanese
bonds. The Japanese position accounted for only 6.2% of the Portfolio at the
start of the year, was increased to almost 12% by mid-year after a spectacular
first half, and declined to 3.5% during the second quarter after we sold into a
strong first-half rally. Despite an auspicious start to the year, sustained very
low interest rates and credit risk due to the continuing Japanese financial and
real estate crisis, continue to make Japanese bonds unattractive relative to
other markets. The Japanese market substantially underperformed other bond
markets for the year, despite a gain of 9.6% in U.S. dollar terms for the year.
Most bond markets ended the year with gains that rivaled, and in many cases,
even beat the global stock markets. The German bond market (13.3% of portfolio
holdings by year-end), for example, posted gains of 25.9% in U.S. dollar terms,
while the U.S. bond market (almost 33% of the portfolio at December 31) was up
18.3%, and the Danish bond market (over 6% of the Fund), was up 30.6% for the
twelve months ended December 31.
+++Formerly Global Bond Fund
27
<PAGE> 28
WORLDWIDE BOND FUND (CONT'D)
CURRENCY REVIEW
World currencies, which are a key component of global bond returns, also had a
dramatic year. The U.S. dollar witnessed a historic decline in the beginning of
the year, beleaguered by uncertainty over U.S. fiscal policy, rising deficits
and the U.S.'s $20 billion support package for the Mexican peso. The greenback
rapidly declined against most foreign currencies, hitting post-World War II lows
against both the German mark and the Japanese yen in April. The Portfolio was
effectively over 80% in stronger foreign currencies during the first months of
the year as we hedged the dollar, a strategy that greatly benefited performance.
In the end of April, after the dollar had hit its low, we began to increase the
dollar position, increasing exposure to 70% by July 31 as the dollar bounced
back. However, we were not convinced that the rally would be sustained and we
sold dollars into the rally in August. Since that time, we have maintained a
foreign currency position of approximately 55-70% of the Portfolio, expecting
the dollar to retreat again. This position, however, has dampened Fund returns
somewhat since the dollar ended the year with a sharp rebound against the yen,
and showing mild strength against the mark. Given the double-digit returns of
the bond markets, a fairly high cash (short-term bond) position also had a
negative effect.
THE OUTLOOK
While the spectacular bond returns of 1995 will probably not be repeated in the
near future, we believe there are several reasons for optimism in the year
ahead. We expect continued economic weakness and further easing of interest
rates, particularly in Europe, which of course, would be positive for European
bonds. While our expectations of another dollar decline were early, we believe a
strengthening of foreign currencies versus the dollar remains on the horizon.
The Portfolio is positioned to take advantage of these moves. In our opinion,
1996 will be a year of selective opportunities - it will be necessary to
reassess the markets and reallocate positions quickly, and, as always, we will
remain flexible in our outlook as economic circumstances shift.
[VAN KAMPEN AMERICAN CAPITAL LOGO]
REAL ESTATE SECURITIES FUND
OBJECTIVE - Long-term growth of capital and income by investing principally in
securities of companies operating in the real estate industry. Current income is
a secondary consideration. Under normal market conditions, at least 65% of the
Fund's total assets will be invested in real estate securities, primarily equity
securities of real estate investment trusts.
NARRATIVE BY VAN KAMPEN AMERICAN CAPITAL
Despite healthy stock and bond market performance, REIT stock performance has
been uninspiring due to the continued deceleration of cash flow growth relative
to the unsustainable rates of growth experienced in the prior two years.
1996 could be an interesting year, however, as the normalized level of total
return for REITs could outpace that of the broader market.
Our current investment strategy is to emphasize the hotel and office/industrial
sectors because of the attractive supply/demand characteristics inherent in both
and expectations for above group average cash flow growth. We are continuing to
de-emphasize the retail sector as the sluggish retail sales of late could
negatively impact cash flow growth in 1996.
28
<PAGE> 29
[WARBURG PINCUS LOGO]
INTERNATIONAL EQUITY PORTFOLIO
OBJECTIVE - Seeks long-term capital appreciation by investing in equity
securities of non-U.S. issuers.
NARRATIVE BY WARBURG PINCUS FUNDS
The year 1995 saw fairly wide divergences in performance among foreign markets.
Most European bourses recorded solid gains, while many of the emerging markets,
particularly in Asia, suffered losses. Japan, after falling sharply in the
year's first six months, staged a powerful recovery at midyear and finished the
year at breakeven.
As 1996 begins, our outlook on international equity markets is, in general,
positive, and we believe that the Portfolio is well-positioned with regard to
its regional and country allocations and its specific holdings. The Portfolio's
largest commitment to a single country remains Japan (30% of the portfolio), and
we are encouraged by developments in the Japanese economy. The Bank of Japan
continues to pursue a reflationary monetary policy; the Ministry of Finance has
taken credible steps toward a resolution of the housing-loan problem, which will
pave the way for a broader restructuring of the banking system; and most
encouraging is the strength in corporate profits, which should have a spillover
effect on the general economy, particularly in consumption and capital spending.
Among other developed Asian/Pacific markets, we remain positive on New Zealand.
Its macroeconomic environment is good and improving, with inflation below 2%,
falling interest rates (though real rates remain high), a trade surplus, and
income-tax cuts due to take effect in June of this year.
In Europe, we continue to find attractive opportunities on a selective basis,
though Europe as a whole is at a difficult point in its economic cycle. Growth
has slowed sharply, consumer confidence is weak, unemployment is high, job
formation is poor, and there are fears that the continent may slip back into
recession. Compounding these woes are the fiscal restraints imposed on
governments seeking to qualify for European monetary union. With government
spending limited, central banks across Europe have lowered interest rates in an
effort to spur growth in their respective countries. Our belief is that Europe
will not fall back into recession, rather that it is undergoing a mid-cycle
correction similar to what the U.S. went through. We are cautious, though, and
hold relatively few European stocks that are purely cyclical companies.
Emerging markets, collectively, suffered in 1995, and as a result valuations are
now lower than they have been in several years. We see many attractive
opportunities in emerging markets as 1996 begins, particularly in Asia, which
represents the major focus of the Portfolio's emerging-market exposure.
The Portfolio has maintained a relatively light weighting in Latin America,
owing to the number of attractive opportunities to be found in Asia. An
exception to that general rule is Argentina (3.9% of the portfolio), which we
believe has the best prospects among Latin American markets in 1996. The country
remains mired in recession, but there are a number of very encouraging signs as
well: positive developments on the political front, an end to rising
unemployment, and the return of capital back into the economy.
SMALL COMPANY GROWTH PORTFOLIO
OBJECTIVE - Seeks capital growth by investing in equity securities of
small-sized domestic companies.
NARRATIVE BY WARBURG PINCUS FUNDS
The fourth quarter witnessed an abrupt correction in technology stocks,
particularly semiconductor shares, which had been the market's unchallenged
leaders since the year began. Bucking the trend in the technology group, in
dramatic fashion, were Internet-related stocks, several of which ran up
spectacular gains during the quarter. This, despite the fact that few of these
companies have thus far demonstrated anything measurable in the way of earnings,
a fact not lost on some of the more bearish analysts and financial commentators.
29
<PAGE> 30
SMALL COMPANY GROWTH PORTFOLIO (CONT'D)
There were few other major surprises by sector during the quarter. Noteworthy,
though, was the resurgence in health-care and biotechnology stocks,
beneficiaries of accelerated merger activity within the industry, the successful
release of new, innovative products, and the reduced likelihood of
government-imposed health-care reform.
OUTLOOK AND STRATEGY
Technology stocks' recent stumble notwithstanding, we remain bullish on the
long-term prospects of many companies, and they will continue to figure
prominently in the portfolio. That said, selectivity will likely play a more
important role in 1996 than it did in 1995.
Other industries in which we continue to find attractive opportunities are
health care, especially in the pharmaceutical and physician practice management
areas; business and financial services; energy; media/telecommunications; and
industrial construction, which stands to benefit significantly from the
continued benign interest-rate environment. We will likely build our positions
in these areas as 1996 progresses.
The outlook for the small-cap sector as a whole in 1996 is, in our view, quite
positive. While we expect the economy to slow somewhat relative to 1995, the
slowdown or moderation of growth will have a much more pronounced impact on the
earnings of large, S&P 500 companies than on those of smaller companies, which
typically are growing at much faster rates. The relatively stronger earnings of
these smaller companies will, we believe, draw investors' attention and allow
the small-cap sector to outperform the broader market, after trailing it in
1995.
Another factor likely to drive small-cap stocks higher in 1996 is the trend
toward mergers and acquisitions, which we expect to continue, supported by an
environment of low interest rates and low borrowing costs. Many smaller
companies will prove attractive targets for large companies seeking to boost
their growth rates incrementally, and this will have a positive impact on
small-company share prices.
The likelihood of a reduction in the capital-gains tax also augurs well for the
small-cap market, though initially it might prompt a bout of selling by
investors looking to take profits. Ultimately, however, a lower capital-gains
tax would prove a boon to small-company stocks, in 1996 and beyond, and its
prospect makes an already-attractive backdrop for the small-cap market that much
more compelling.
30
<PAGE> 31
FUND PERFORMANCES-THE BEST OF AMERICA(R)
LIFE PLANNING SERIES(SM)
FOR SINGLE PREMIUM CONTRACTS
ISSUED ON OR AFTER APRIL 16, 1990
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN: ASSUMING CONTRACT NOT SURRENDERED**
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
- ---------------------------------------------------------------------------------------------------------------------------------
NON-ANNUALIZED PERCENT CHANGE+ ANNUALIZED PERCENT
PERCENT CHANGE+ CHANGE***
INCEPTION 1 YR. TO 5 YR. TO INCEPTION TO 5 YR. TO INCEPTION TO
FUNDS +++ DATE++ 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
- ---------------------------------------------------------------------------------------------------------------------------------
DREYFUS CORPORATION
<S> <C> <C> <C> <C> <C> <C>
Socially Responsible Growth Fund, Inc. 10/06/93 32.83% NA* 42.42% NA* 17.15%
Stock Index Fund 09/29/89 35.02% 96.58% 90.67% 14.47% 10.87%
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 33.35% 146.29% 181.51% 19.75% 11.87%
Growth Portfolio 10/09/86 33.62% 140.76% 217.73% 19.21% 13.35%
High Income Portfolio 09/19/85 19.05% 123.13% 173.23% 17.41% 10.27%
Overseas Portfolio 01/28/87 8.26% 38.53% 67.01% 6.73% 5.92%
Asset Manager Portfolio 09/06/89 15.45% 70.78% 80.58% 11.30% 9.81%
Contrafund Portfolio 01/03/95 NA* NA* 37.83% NA* 38.19%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 27.69% NA* 41.62% NA* 9.84%
Government Bond Fund 11/08/82 17.22% 48.40% 196.19% 8.22% 8.61%
Money Market Fund 11/10/81 4.29% 15.61% 121.72% 2.94% 5.79%
Small Company Fund 10/23/95 NA* NA* 14.10% NA* 101.60%
Total Return Fund 11/08/82 27.43% 103.12% 420.99% 15.23% 13.38%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 30.03% 77.93% 248.96% 12.21% 11.69%
Limited Maturity Bond Portfolio 09/10/84 9.51% 29.57% 120.73% 5.32% 7.25%
Partners Portfolio 03/22/94 34.71% NA* 30.30% NA* 16.09%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 15.49% 52.20% 147.19% 8.76% 8.85%
Global Securities Fund 11/12/90 .92% 47.72% 48.05% 8.12% 7.94%
Multiple Strategies Fund 02/09/87 19.80% 65.51% 126.77% 10.60% 9.65%
STRONG VIP FUNDS
Discovery Fund II, Inc. 05/08/92 33.52% NA* 62.15% NA* 14.18%
International Stock Fund II, Inc. 10/20/95 NA* NA* 2.36% NA* 12.61%
Special Fund II, Inc. 05/08/92 24.20% NA* 80.74% NA* 17.63%
TCI PORTFOLIOS, INC
TCI Balanced 05/01/91 19.56% NA* 45.64% NA* 8.40%
TCI Growth 11/20/87 29.41% 87.42% 139.58% 13.39% 11.37%
TCI International 05/01/94 10.77% NA* 4.32% NA* 2.57%
VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund 09/01/89 9.56% 51.98% 39.44% 8.73% 5.39%
Worldwide Bond Fund ++++ 09/01/89 15.79% 31.07% 44.33% 5.56% 5.97%
VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
Real Estate Securities Fund 07/03/95 NA* NA* 7.66% NA* 16.18%
WARBURG PINCUS TRUST
International Equity Portfolio 06/30/95 NA* NA* 6.62% NA* 13.91%
Small Company Growth Portfolio 06/30/95 NA* NA* 24.31% NA* 55.63%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance information is not available for the fund for part or all
of the period indicated. See Fund Inception Date.
** SEC and NASD regulations require that any reporting of product
performance be accompanied by standardized data and other important
disclosures on the following page. Please review this information and a
product prospectus before investing.
*** Percent change in unit value price represents total return after the
deduction of a 1.30% asset charge for mortality and expense risk,
administrative charges and premium tax recovery.
+ Percent change in unit value price represents total return after the
deduction of a 1.30% asset charge for mortality and expense risk,
administrative charges and premium tax recovery. Numbers in these
columns represent the total percentage change in the unit value for the
period indicated. This is not an annual return figure.
++ Performance includes hypothetical performance for periods before the
fund was available in The BEST OF AMERICA, where applicable, applying
contract charges to actual fund NAV's to determine the performance the
fund would have achieved inside the separate account.
+++ Funds are neither insured nor guaranteed by the U.S. Government. For
the Money Market Fund, there is no assurance that a stable $1 fund NAV
(used to calculate Unit Value) can be maintained. Figures quoted
represent past performance and returns can fluctuate.
+++ Formerly Global Bond Fund.
31
<PAGE> 32
FUND PERFORMANCES-THE BEST OF AMERICA(R) LIFE PLANNING SERIES(SM)
FOR SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
(CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN: ASSUMING CONTRACT SURRENDERED
APPROXIMATE CONTRACT VALUE WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
- ----------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS
FUNDS +++ INCEPTION 12/31/94 12/31/90
DATE++ TO 12/31/95 TO 12/31/95
AV CSV AV CSV
- ----------------------------------------------------------------------------------------------------
DREYFUS CORPORATION
<S> <C> <C> <C> <C> <C>
Socially Responsible Growth Fund, Inc. 10/06/93 $65,660 $61,410 NA* NA*
Stock Index Fund 09/29/89 $66,758 $62,508 $92,988 $ 89,238
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 $65,921 $61,671 $117,786 $114,036
Growth Portfolio 10/09/86 $68,262 $64,012 $119,078 $115,328
High Income Portfolio 09/19/85 $58,810 $54,560 $107,053 $103,303
Overseas Portfolio 01/28/87 $53,413 $49,163 $ 64,360 $ 60,610
Asset Manager Portfolio 09/06/89 $56,993 $52,743 $ 80,751 $ 77,001
Contrafund Portfolio 01/03/95 NA* NA* NA* NA*
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 $61,296 $57,046 NA* NA*
Government Bond Fund 11/08/82 $57,290 $53,040 $ 68,705 $ 64,955
Money Market Fund 11/10/81 $51,271 $47,021 $ 53,099 $ 49,349
Small Company Fund 10/23/95 NA* NA* NA* NA*
Total Return Fund 11/08/82 $62,260 $58,010 $ 95,569 $ 91,819
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 $64,307 $60,057 $ 84,038 $ 80,288
Limited Maturity Bond Portfolio 09/10/84 $54,050 $49,800 $ 60,180 $ 56,430
Partners Portfolio 03/22/94 $66,612 $62,362 NA* NA*
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 $57,029 $52,779 $ 71,355 $ 67,605
Global Securities Fund 11/12/90 $49,774 $45,524 $ 68,968 $ 65,218
Multiple Strategies Fund 02/09/87 $59,183 $54,933 $ 77,816 $ 74,066
STRONG VIP FUNDS
Discovery Fund II, Inc. 05/08/92 $65,994 $61,744 NA* NA*
International Stock Fund II, Inc. 10/20/95 NA* NA* NA* NA*
Special Fund II, Inc. 05/08/92 $61,352 $57,102 NA* NA*
TCI PORTFOLIOS, INC.
TCI Balanced 05/01/91 $59,054 $54,804 NA* NA*
TCI Growth 11/20/87 $63,977 $59,727 $88,764 $ 85,014
TCI International 05/01/94 $54,648 $50,398 NA* NA*
VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund 09/01/89 $54,050 $49,800 $ 70,699 $ 66,949
Worldwide Bond Fund ++++ 09/01/89 $57,204 $52,954 $ 60,788 $ 57,038
VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
Real Estate Securities Fund 07/03/95 NA* NA* NA* NA*
WARBURG PINCUS TRUST
International Equity Portfolio 06/30/95 NA* NA* NA* NA*
Small Company Growth Portfolio 06/30/95 NA* NA* NA* NA*
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
10 YEARS LIFE OF
FUNDS +++ 12/31/85 FUND
TO 12/31/95 TO 12/31/95
AV CSV AV CSV
- --------------------------------------------------------------------------------------
DREYFUS CORPORATION
<S> <C> <C> <C> <C>
Socially Responsible Growth Fund, Inc. NA* NA* $ 69,145 $ 65,145
Stock Index Fund NA* NA* $ 87,400 $ 84,400
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio NA* NA* $125,469 $125,469
Growth Portfolio NA* NA* $144,265 $144,265
High Income Portfolio $113,823 $113,823 $120,698 $120,698
Overseas Portfolio NA* NA* $ 71,972 $ 69,972
Asset Manager Portfolio NA* NA* $ 83,388 $ 80,388
Contrafund Portfolio NA* NA* $ 54,573 $ 50,323
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund NA* NA* $ 66,948 $ 62,948
Government Bond Fund $ 95,250 $ 95,250 $127,467 $127,467
Money Market Fund $ 65,728 $ 65,728 $ 91,173 $ 91,173
Small Company Fund NA* NA* $ 56,865 $ 52,615
Total Return Fund $126,240 $126,240 $239,930 $239,930
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio $122,910 $122,910 $159,310 $159,310
Limited Maturity Bond Portfolio $ 79,194 $ 79,194 $ 96,311 $ 96,311
Partners Portfolio NA* NA* $ 63,498 $ 59,248
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund $ 93,661 $ 93,661 $109,384 $109,384
Global Securities Fund NA* NA* $ 68,842 $ 65,342
Multiple Strategies Fund NA* NA* $102,059 $100,059
STRONG VIP FUNDS
Discovery Fund II, Inc. NA* NA* $ 77,290 $ 73,290
International Stock Fund II, Inc. NA* NA* $ 51,004 $ 46,754
Special Fund II, Inc. NA* NA* $ 86,859 $ 82,859
TCI PORTFOLIOS, INC.
TCI Balanced NA* NA* $ 68,309 $ 64,559
TCI Growth NA* NA* $109,127 $107,127
TCI International NA* NA* $ 50,831 $ 46,581
VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund NA* NA* $ 62,124 $ 59,124
Worldwide Bond Fund ++++ NA* NA* $ 65,608 $ 62,608
VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
Real Estate Securities Fund NA* NA* $ 53,472 $ 49,222
WARBURG PINCUS TRUST
International Equity Portfolio NA* NA* $ 52,959 $ 48,709
Small Company Growth Portfolio NA* NA* $ 77,014 $ 72,764
- --------------------------------------------------------------------------------------
</TABLE>
This is neither an offer to sell, nor a solicitation to buy securities. This
material is authorized for distribution to prospective investors only when
preceded or accompanied by a current prospectus which contains more complete
information. You should read the prospectus carefully before investing. These
performance illustrations represent past fund performance based on a
hypothetical single premium of $50,000 for a 50-year-old male non-smoker.
Investment return and the principal value of such investments are not guaranteed
and will fluctuate so that an investor's shares/units, when redeemed, may be
worth more or less than their original cost. Past performance does not guarantee
future returns. The performance figures reflect a mortality and expense risk
charge, applicable cost of insurance charges, surrender charges, an annual
administrative charge, and applicable investment advisory fees. Please refer to
the current prospectus for details regarding these charges.
* Certain funds are less than 1, 5 or 10 years old, therefore such figures
are not available for these funds.
++ Performance includes hypothetical performance for periods before the fund
was available in THE BEST OF AMERICA Life Planning Series(SM), where
applicable, applying contract charges to actual fund NAV's to determine
the performance the fund would have achieved in the separate account.
+++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
++++ Formerly Global Bond Fund.
AV means Accumulated Value. CSV means Cash Surrender Value.
32
<PAGE> 33
FUND PERFORMANCES-THE BEST OF AMERICA(R)
LIFE PLANNING SERIES(SM)
FOR FLEXIBLE PREMIUM CONTRACTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN: ASSUMING CONTRACT NOT SURRENDERED**
APPROXIMATE PERCENT CHANGE IN NET ASSETS WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
- -------------------------------------------------------------------------------------------------------------------------------
NON-ANNUALIZED PERCENT CHANGE+ ANNUALIZED PERCENT CHANGE***
INCEPTION 1 YR. TO 5 YR. TO INCEPTION TO 5 YR. TO INCEPTION TO
FUNDS+++ DATE++ 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Socially Responsible Growth Fund, Inc. 10/06/93 33.49% NA* 44.02% NA* 17.74%
Stock Index Fund 09/29/89 35.69% 101.58% 96.76% 15.05% 11.43%
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 34.02% 152.58% 195.01% 20.36% 12.44%
Growth Portfolio 10/09/86 34.29% 146.91% 232.96% 19.81% 13.93%
High Income Portfolio 09/19/85 19.65% 128.83% 187.88% 18.01% 10.83%
Overseas Portfolio 01/28/87 8.81% 42.07% 74.75% 7.28% 6.45%
Asset Manager Portfolio 09/06/89 16.03% 75.15% 86.45% 11.86% 10.37%
Contrafund Portfolio 01/03/95 NA* NA* 38.52% NA* 38.89%
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 28.33% NA* 44.29% NA* 10.39%
Government Bond Fund 11/08/82 17.80% 52.20% 216.68% 8.76% 9.17%
Money Market Fund 11/10/81 4.81% 18.58% 138.29% 3.47% 6.33%
Small Company Fund 10/23/95 NA* NA* 14.21% NA* 102.59%
Total Return Fund 11/08/82 28.07% 108.31% 457.03% 15.81% 13.96%
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 30.68% 82.48% 269.61% 12.78% 12.26%
Limited Maturity Bond Portfolio 09/10/84 10.05% 32.88% 133.79% 5.85% 7.80%
Partners Portfolio 03/22/94 35.39% NA* 31.45% NA* 16.67%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 16.07% 56.09% 160.94% 9.31% 9.41%
Global Securities Fund 11/12/90 1.43% 51.48% 51.92% 8.66% 8.49%
Multiple Strategies Fund 02/09/87 20.39% 69.74% 137.24% 11.16% 10.21%
STRONG VIP FUNDS
Discovery Fund II, Inc. 05/08/92 34.18% NA* 65.15% NA* 14.75%
International Stock Fund II, Inc. 10/20/95 NA* NA* 2.46% NA* 13.16%
Special Fund II, Inc. 05/08/92 24.82% NA* 84.09% NA* 18.22%
TCI PORTFOLIOS, INC
TCI Balanced 05/01/91 20.16% NA* 49.11% NA* 8.94%
TCI Growth 11/20/87 30.06% 92.21% 149.64% 13.96% 11.94%
TCI International 05/01/94 11.32% NA* 5.19% NA* 3.09%
VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund 09/01/89 10.11% 55.87% 43.98% 9.28% 5.93%
Worldwide Bond Fund++++ 09/01/89 16.37% 34.43% 49.03% 6.10% 6.50%
VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
Real Estate Securities Fund 07/03/95 NA* NA* 7.92% NA* 16.76%
WARBURG PINCUS TRUST
International Equity Portfolio 06/30/95 NA* NA* 6.88% NA* 14.48%
Small Company Growth Portfolio 06/30/95 NA* NA* 24.61% NA* 56.40%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance information is not available for the fund for part or all of
the period indicated. See Fund Inception Date.
** SEC and NASD regulations require that any reporting of product performance
be accompanied by standardized data and other important disclosures.
Please review this information and a product prospectus before investing.
*** Percent change in unit value price represents total return after the
deduction of an .80% asset charge for mortality and expense risk,
administrative charges and premium tax recovery.
+ Percent change in unit value price represents total return after the
deduction of a .80% asset charge for mortality and expense risk,
administrative charges and premium tax recovery. Numbers in these columns
represent the total percentage change in the unit value for the period
indicated. This is not an annual return figure.
++ Performance includes hypothetical performance for periods before the fund
was available in The BEST OF AMERICA, where applicable, applying contract
charges to actual fund NAV's to determine the performance the fund would
have achieved inside the separate account.
+++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
++++ Formerly Global Bond Fund.
33
<PAGE> 34
FUND PERFORMANCES-THE BEST OF AMERICA(R) LIFE PLANNING SERIES(SM)
FOR FLEXIBLE PREMIUM CONTRACTS (CONT'D)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN: ASSUMING CONTRACT SURRENDERED
APPROXIMATE CONTRACT VALUE WITH CAPITAL GAINS AND INCOME DIVIDENDS REINVESTED
- ----------------------------------------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS LIFE OF
FUNDS+++ INCEPTION 12/31/94 12/31/90 12/31/85 FUND
DATE++ TO 12/31/95 TO 12/31/95 TO 12/31/95 TO 12/31/95
AV CSV AV CSV AV CSV AV CSV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DREYFUS CORPORATION
Socially Responsible Growth Fund, Inc. 10/06/93 $10,861 $6,055 NA* NA* NA* NA* $ 31,889 $ 27,564
Stock Index Fund 09/29/89 $11,064 $6,258 $62,751 $59,387 NA* NA* $ 91,028 $ 88,625
FIDELITY VIP FUND & VIP FUND II
Equity-Income Portfolio 10/09/86 $10,905 $6,099 $72,361 $68,997 NA* NA* $161,923 $161,923
Growth Portfolio 10/09/86 $10,978 $6,172 $68,392 $65,028 NA* NA* $167,787 $167,787
High Income Portfolio 09/19/85 $ 9,669 $4,863 $63,123 $59,758 $154,929 $154,929 $164,865 $164,865
Overseas Portfolio 01/28/87 $ 8,679 $3,874 $51,719 $48,354 NA* NA* $104,094 $102,652
Asset Manager Portfolio 09/06/89 $ 9,312 $4,507 $54,300 $50,936 NA* NA* $ 80,088 $ 77,685
Contrafund Portfolio 01/03/95 NA* NA* NA* NA* NA* NA* $ 11,338 $ 6,532
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund 04/15/92 $10,374 $5,568 NA* NA* NA* NA* $ 43,453 $ 39,608
Government Bond Fund 11/08/82 $ 9,497 $4,692 $51,178 $47,814 $128,018 $128,018 $208,810 $208,810
Money Market Fund 11/10/81 $ 8,359 $3,553 $44,316 $40,951 $100,505 $100,505 $172,791 $172,791
Small Company Fund 10/23/95 NA* NA* NA* NA* NA* NA* $ 10,376 $ 5,570
Total Return Fund 11/08/82 $10,396 $5,590 $61,337 $57,973 $156,633 $156,633 $288,921 $288,921
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
Growth Portfolio 09/10/84 $10,679 $5,873 $57,144 $53,780 $151,379 $151,379 $185,663 $185,663
Limited Maturity Bond Portfolio 09/10/84 $ 8,818 $4,012 $47,061 $43,697 $111,407 $111,407 $140,389 $140,389
Partners Portfolio 03/22/94 $11,046 $6,240 NA* NA* NA* NA* $ 21,218 $ 16,412
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Bond Fund 04/30/85 $ 9,344 $4,538 $51,907 $48,543 $129,132 $129,132 $147,593 $147,593
Global Securities Fund 11/12/90 $ 8,063 $3,257 $52,774 $49,410 NA* NA* $ 62,453 $ 59,569
Multiple Strategies Fund 02/09/87 $ 9,737 $4,931 $55,376 $52,012 NA* NA* $118,953 $117,511
STRONG VIP FUNDS
Discovery Fund II, Inc. 05/08/92 $10,905 $6,099 NA* NA* NA* NA* $ 46,843 $ 42,998
International Stock Fund II, Inc. 10/20/95 NA* NA* NA* NA* NA* NA* $ 9,297 $ 4,491
Special Fund II, Inc. 05/08/92 $10,086 $5,280 NA* NA* NA* NA* $ 47,283 $ 43,439
TCI PORTFOLIOS, INC
TCI Balanced 05/01/91 $ 9,697 $4,891 NA* NA* NA* NA* $ 52,377 $ 49,013
TCI Growth 11/20/87 $10,592 $5,786 $58,577 $55,212 NA* NA* $124,952 $123,510
TCI International 05/01/94 $ 8,882 $4,076 NA* NA* NA* NA* $ 17,759 $ 12,954
VAN ECK WORLDWIDE INSURANCE TRUST
Gold and Natural Resources Fund 09/01/89 $ 8,778 $3,972 $56,541 $53,177 NA* NA* $ 74,424 $ 72,021
Worldwide Bond Fund++++ 09/01/89 $ 9,410 $4,604 $48,106 $44,742 NA* NA* $ 69,739 $ 67,336
VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
Real Estate Securities Trust 07/03/95 NA* NA* NA* NA* NA* NA* $ 9,404 $ 4,598
WARBURG PINCUS TRUST
International Equity Portfolio 06/30/95 NA* NA* NA* NA* NA* NA* $ 9,322 $ 4,516
Small Company Growth Portfolio 06/30/95 NA* NA* NA* NA* NA* NA* $ 10,921 $ 6,115
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This is neither an offer to sell, nor a solicitation to buy securities. This
material is authorized for distribution to prospective investors only when
preceded or accompanied by a current prospectus which contains more complete
information. You should read the prospectus carefully before investing. These
performance illustrations represent past fund performance based on a
hypothetical annual premium of $10,000 for a 45-year-old male non-smoker
preferred with a level death benefit and an initial specified amount of $495,941
(based on a guideline-level premium of $10,000 issued on a preferred basis).
Investment return and the principal value of such investments are not guaranteed
and will fluctuate so that an investor's shares/units, when redeemed, may be
worth more or less than their original cost. Past performance does not guarantee
future returns. The performance figures reflect a premium load, a mortality and
expense risk charge, applicable cost of insurance charges, surrender charges, a
monthly administrative charge, and applicable investment advisory fees. Please
refer to the current prospectus for details regarding these charges.
* Certain funds are less than 1, 5 or 10 years old, therefore such figures
are not available for these funds.
++ Performance includes hypothetical performance for periods before the fund
was available in THE BEST OF AMERICA Life Planning Series(SM), where
applicable, applying contract charges to actual fund NAV's to determine
the performance the fund would have achieved in the separate account.
+++ Funds are neither insured nor guaranteed by the U.S. Government. For the
Money Market Fund, there is no assurance that a stable $1 fund NAV (used
to calculate Unit Value) can be maintained. Figures quoted represent past
performance and returns can fluctuate.
++++ Formerly Global Bond Fund.
AV means Accumulated Value. CSV means Cash Surrender Value.
34
<PAGE> 35
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
ASSETS:
Investments at market value:
<S> <C>
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro)
62,614 shares (cost $1,038,589) ............................................ $ 1,083,848
Dreyfus Stock Index Fund (DryStkIx)
271,861 shares (cost $4,342,422) ........................................... 4,676,009
Fidelity VIP - Equity-Income Portfolio (FidEqInc)
1,479,252 shares (cost $24,428,367) ........................................ 28,505,182
Fidelity VIP - Growth Portfolio (FidGro)
1,134,365 shares (cost $33,508,734) ........................................ 33,123,460
Fidelity VIP - High Income Portfolio (FidHiInc)
825,519 shares (cost $9,365,281) ........................................... 9,947,503
Fidelity VIP - Overseas Portfolio (FidOSeas)
676,060 shares (cost $10,850,506) .......................................... 11,526,815
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
1,172,533 shares (cost $16,833,524) ........................................ 18,514,290
Fidelity VIP-II - Contrafund Portfolio (FidContP)
195,404 shares (cost $2,668,754) ........................................... 2,692,665
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
212,307 shares (cost $2,582,301) ........................................... 2,861,899
Nationwide SAT - Government Bond Fund (NWGvtBd)
467,280 shares (cost $4,984,922) ........................................... 5,308,298
Nationwide SAT - Money Market Fund (NWMyMkt)
25,831,056 shares (cost $25,831,056) ....................................... 25,831,056
Nationwide SAT - Small Company Fund (NWSmCoFd)
30,450 shares (cost $339,903) .............................................. 347,742
Nationwide SAT - Total Return Fund (NWTotRet)
1,926,298 shares (cost $20,615,292) ........................................ 22,229,482
Neuberger & Berman - Growth Portfolio (NBGro)
351,272 shares (cost $8,083,142) ........................................... 9,083,899
Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat)
211,743 shares (cost $2,994,517) ........................................... 3,114,733
Neuberger & Berman - Partners Portfolio (NBPart)
216,170 shares (cost $2,643,081) ........................................... 2,859,928
Oppenheimer - Bond Fund (OppBdFd)
342,871 shares (cost $3,867,584) ........................................... 4,059,588
Oppenheimer - Global Securities Fund (OppGlSec)
397,052 shares (cost $5,971,306) ........................................... 5,955,777
Oppenheimer - Multiple Strategies Fund (OppMult)
349,048 shares (cost $4,730,069) ........................................... 5,078,650
Strong VIP - Strong Discovery Fund II, Inc. (StDisc2)
403,468 shares (cost $4,727,581) ........................................... 5,422,616
Strong VIP - Strong International Stock Fund II, Inc. (StIntStk2)
9,631 shares (cost $97,747) ................................................ 98,431
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
672,585 shares (cost $10,088,689) .......................................... 11,460,850
TCI Portfolios - TCI Balanced (TCIBal)
217,142 shares (cost $1,372,140) ........................................... 1,528,680
TCI Portfolios - TCI Growth (TCIGro)
868,667 shares (cost $8,887,302) ........................................... 10,476,124
TCI Portfolios - TCI International (TCIInt)
208,270 shares (cost $1,082,648) ........................................... 1,110,078
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
244,680 shares (cost $3,489,920) ........................................... 3,528,286
Van Eck - Worldwide Bond Fund (VEWrldBd)
182,821 shares (cost $1,985,685) ........................................... 2,036,622
Van Kampen American Capital - Real Estate Securities Fund (VKACRESec)
28,825 shares (cost $299,720) .............................................. 309,583
Warburg Pincus - International Equity Portfolio (WPIntEq)
158,334 shares (cost $1,656,897) ........................................... 1,686,256
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
273,996 shares (cost $3,188,845) ........................................... 3,427,686
------------
Total assets ........................................................... 237,886,036
ACCOUNTS PAYABLE ................................................................ 816,393
------------
CONTRACT OWNERS' EQUITY ......................................................... $237,069,643
============
</TABLE>
35
<PAGE> 36
Contract owners' equity represented by:
<TABLE>
<CAPTION>
UNITS UNIT VALUE
--------- ----------
<S> <C> <C> <C>
Single Premium contracts issued prior to April 16, 1990:
Fidelity VIP - Equity-Income Portfolio ....................................... 13,681 $26.373971 $ 360,822
Fidelity VIP - Growth Portfolio .............................................. 9,046 30.259267 273,725
Fidelity VIP - High Income Portfolio ......................................... 3,417 21.685282 74,099
Fidelity VIP - Overseas Portfolio ............................................ 9,048 17.526172 158,577
Fidelity VIP-II - Asset Manager Portfolio .................................... 1,075 18.081878 19,438
Nationwide SAT - Government Bond Fund ........................................ 2,984 19.357639 57,763
Nationwide SAT - Money Market Fund ........................................... 9,556 14.287454 136,531
Nationwide SAT - Total Return Fund ........................................... 1,195 22.138653 26,456
Neuberger & Berman - Growth Portfolio ........................................ 5,776 22.976381 132,712
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 4,610 15.906671 73,330
Oppenheimer - Global Securities Fund ......................................... 1,656 11.503363 19,050
Strong VIP - Strong Special Fund II, Inc. .................................... 319 18.309087 5,841
TCI Portfolios - TCI Growth .................................................. 8,480 25.381408 215,234
Van Eck - Gold and Natural Resources Fund .................................... 4,617 12.839256 59,279
Van Eck - Worldwide Bond Fund ................................................ 23 14.458585 333
Van Kampen American Capital - Real Estate Securities Fund .................... 4,203 10.784280 45,326
Single Premium contracts issued on or after April 16, 1990:
The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 10,235 14.242220 145,769
Dreyfus Stock Index Fund ..................................................... 57,341 13.621789 781,087
Fidelity VIP - Equity-Income Portfolio ....................................... 508,482 21.648958 11,008,105
Fidelity VIP - Growth Portfolio .............................................. 435,011 20.999607 9,135,060
Fidelity VIP - High Income Portfolio ......................................... 124,646 22.388295 2,790,611
Fidelity VIP - Overseas Portfolio ............................................ 299,548 12.667544 3,794,537
Fidelity VIP-II - Asset Manager Portfolio .................................... 354,042 17.721708 6,274,229
Fidelity VIP-II - Contrafund Portfolio ....................................... 63,736 11.071965 705,683
Nationwide SAT - Capital Appreciation Fund ................................... 16,446 14.444672 237,557
Nationwide SAT - Government Bond Fund ........................................ 221,416 16.104612 3,565,819
Nationwide SAT - Money Market Fund ........................................... 1,202,213 12.028786 14,461,163
Nationwide SAT - Small Company Fund .......................................... 18,120 11.410311 206,755
Nationwide SAT - Total Return Fund ........................................... 136,950 19.154939 2,623,269
Neuberger & Berman - Growth Portfolio ........................................ 167,819 16.264834 2,729,548
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 80,410 13.684722 1,100,388
Neuberger & Berman - Partners Portfolio ...................................... 59,329 13.495873 800,697
Oppenheimer - Bond Fund ...................................................... 91,827 16.056725 1,474,441
Oppenheimer - Global Securities Fund ......................................... 103,965 11.413379 1,186,592
Oppenheimer - Multiple Strategies Fund ....................................... 124,127 16.404926 2,036,294
Strong VIP - Strong Discovery Fund II, Inc. .................................. 130,968 16.214896 2,123,632
Strong VIP - Strong International Stock Fund II, Inc. ........................ 2,862 10.226632 29,269
Strong VIP - Strong Special Fund II, Inc. .................................... 162,203 18.074367 2,931,717
TCI Portfolios - TCI Balanced ................................................ 38,974 12.914886 503,345
TCI Portfolios - TCI Growth .................................................. 229,772 17.116040 3,932,787
TCI Portfolios - TCI International ........................................... 41,356 10.403803 430,260
Van Eck - Gold and Natural Resources Fund .................................... 118,139 14.230388 1,681,164
Van Eck - Worldwide Bond Fund ................................................ 55,939 14.170551 792,686
Van Kampen American Capital - Real Estate Securities Fund .................... 12,834 10.765797 138,168
Warburg Pincus - International Equity Portfolio .............................. 68,691 10.661502 732,349
Warburg Pincus - Small Company Growth Portfolio .............................. 93,602 12.430586 1,163,528
Multiple Payment contracts and Flexible Premium contracts:
The Dreyfus Socially Responsible Growth Fund, Inc. ........................... 65,138 14.401809 938,105
Dreyfus Stock Index Fund ..................................................... 282,759 13.775382 3,895,113
Fidelity VIP - Equity-Income Portfolio ....................................... 771,429 22.215745 17,137,870
Fidelity VIP - Growth Portfolio .............................................. 1,116,041 21.256059 23,722,633
Fidelity VIP - High Income Portfolio ......................................... 339,950 20.852993 7,088,975
Fidelity VIP - Overseas Portfolio ............................................ 554,741 13.645033 7,569,459
Fidelity VIP-II - Asset Manager Portfolio .................................... 764,633 15.982529 12,220,769
Fidelity VIP-II - Contrafund Portfolio ....................................... 179,024 11.099135 1,987,012
Nationwide SAT - Capital Appreciation Fund ................................... 178,373 14.713230 2,624,443
Nationwide SAT - Government Bond Fund ........................................ 112,463 14.984933 1,685,251
Nationwide SAT - Money Market Fund ........................................... 887,531 11.714295 10,396,800
Nationwide SAT - Small Company Fund .......................................... 12,345 11.420759 140,989
Nationwide SAT - Total Return Fund ........................................... 1,076,286 18.192762 19,580,615
Neuberger & Berman - Growth Portfolio ........................................ 389,800 15.962482 6,222,175
Neuberger & Berman - Limited Maturity Bond Portfolio ......................... 148,223 13.096811 1,941,249
Neuberger & Berman - Partners Portfolio ...................................... 151,517 13.591346 2,059,320
Oppenheimer - Bond Fund ...................................................... 170,613 15.164813 2,587,314
Oppenheimer - Global Securities Fund ......................................... 411,619 11.542134 4,750,962
Oppenheimer - Multiple Strategies Fund ....................................... 188,985 16.100377 3,042,730
Strong VIP - Strong Discovery Fund II, Inc. .................................. 199,781 16.514850 3,299,353
Strong VIP - Strong International Stock Fund II, Inc. ........................ 6,756 10.236021 69,155
Strong VIP - Strong Special Fund II, Inc. .................................... 463,043 18.408627 8,523,986
TCI Portfolios - TCI Balanced ................................................ 77,950 13.155049 1,025,436
TCI Portfolios - TCI Growth .................................................. 391,898 16.149061 6,328,785
TCI Portfolios - TCI International ........................................... 64,755 10.477472 678,469
Van Eck - Gold and Natural Resources Fund .................................... 114,539 15.612002 1,788,183
Van Eck - Worldwide Bond Fund ................................................ 93,956 13.253457 1,245,242
Van Kampen American Capital - Real Estate Securities Fund .................... 11,685 10.792212 126,107
Warburg Pincus - International Equity Portfolio .............................. 89,255 10.687672 953,928
Warburg Pincus - Small Company Growth Portfolio .............................. 181,701 12.461074 2,264,190
====== ========== ------------
$237,069,643
============
</TABLE>
See accompanying notes to financial statements.
===============================================================================
36
<PAGE> 37
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends ......................... $ 6,764,208 3,376,057 974,676
------------- ------------ ------------
Gain (loss) on investments:
Proceeds from redemption of mutual fund shares ............ 163,574,836 184,340,809 115,961,691
Cost of mutual fund shares sold ........................... (154,208,870) (184,441,475) (113,135,035)
------------- ------------ ------------
Realized gain (loss) on investments ....................... 9,365,966 (100,666) 2,826,656
Change in unrealized gain (loss) on investments ........... 17,134,325 (3,604,010) 1,224,589
------------- ------------ ------------
Net gain (loss) on investments ....................... 26,500,291 (3,704,676) 4,051,245
------------- ------------ ------------
Net investment activity ......................... 33,264,499 (328,619) 5,025,921
------------- ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners ................ 106,694,208 77,172,455 31,008,045
Surrenders (note 2d) ........................................... (4,970,867) (1,308,994) (559,275)
Death benefits (note 4) ........................................ (143,265) (15,398) (360,580)
Policy loans (net of repayments) (note 5) ...................... (2,529,830) (2,980,396) (1,781,013)
------------- ------------ ------------
Net equity transactions ......................... 99,050,246 72,867,667 28,307,177
------------- ------------ ------------
EXPENSES:
Deductions for surrender charges (note 2d) ..................... (364,725) (116,899) (24,490)
Redemptions to pay cost of insurance charges
and administrative charges (notes 2b and 2c) .............. (14,110,656) (5,382,393) (1,539,443)
Deductions for asset charges (note 3) .......................... (1,747,342) (879,737) (430,173)
------------- ------------ ------------
Total expenses .................................. (16,222,723) (6,379,029) (1,994,106)
------------- ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY .............................. 116,092,022 66,160,019 31,338,992
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ........................ 120,977,621 54,817,602 23,478,610
------------- ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD .............................. $ 237,069,643 120,977,621 54,817,602
============= =========== ==========
</TABLE>
See accompanying notes to financial statements.
===============================================================================
37
<PAGE> 38
================================================================================
NATIONWIDE VLI SEPARATE ACCOUNT-2
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
The Nationwide VLI Separate Account-2 (the Account) was established
pursuant to a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on May 7, 1987. The Account has been registered as a unit
investment trust under the Investment Company Act of 1940.
The Company offers Modified Single Premium and Flexible Premium Variable
Life Insurance Policies through the Account. The primary distribution for the
contracts is through the brokerage community; however, other distributors may be
utilized.
(b) The Contracts
Prior to December 31, 1990, only contracts without a front-end sales
charge, but with a contingent deferred sales charge and certain other fees, were
offered for purchase. Beginning December 31, 1990, contracts with a front-end
sales charge, a contingent deferred sales charge and certain other fees, are
offered for purchase. See note 2 for a discussion of policy charges, and note 3
for asset charges.
Contract owners may invest in the following:
The Dreyfus Socially Responsible Growth Fund, Inc. (DrySRGro);
Dreyfus Stock Index Fund (DryStkIx)(formerly Dreyfus Life and Annuity Index
Fund, Inc. (DLAI));
Portfolios of the Fidelity Variable Insurance Products Fund (Fidelity VIP);
Fidelity VIP - Equity-Income Portfolio (FidEqInc)
Fidelity VIP - Growth Portfolio (FidGro)
Fidelity VIP - High Income Portfolio (FidHiInc)
Fidelity VIP - Overseas Portfolio (FidOSeas)
Portfolios of the Fidelity Variable Insurance Products Fund II (Fidelity
VIP-II);
Fidelity VIP-II - Asset Manager Portfolio (FidAsMgr)
Fidelity VIP-II - Contrafund Portfolio (FidContP)
Funds of the Nationwide Separate Account Trust (Nationwide SAT) (managed
for a fee by an affiliated investment advisor);
Nationwide SAT - Capital Appreciation Fund (NWCapApp)
Nationwide SAT - Government Bond Fund (NWGvtBd)
Nationwide SAT - Money Market Fund (NWMyMkt)
Nationwide SAT - Small Company Fund (NWSmCoFd)
Nationwide SAT - Total Return Fund (NWTotRet)
Portfolios of the Neuberger & Berman Advisers Management Trust (Neuberger &
Berman);
Neuberger & Berman - Growth Portfolio (NBGro)
Neuberger & Berman - Limited Maturity Bond Portfolio (NBLtdMat)
Neuberger & Berman - Partners Portfolio (NBPart)
Funds of the Oppenheimer Variable Account Funds (Oppenheimer);
Oppenheimer - Bond Fund (OppBdFd)
Oppenheimer - Global Securities Fund (OppGlSec)
Oppenheimer - Multiple Strategies Fund (OppMult)
Funds of the Strong Variable Insurance Products Funds (Strong VIP);
Strong VIP - Strong Discovery Fund II, Inc. (StDisc2)
Strong VIP - Strong International Stock Fund II, Inc. (StIntStk2)
Strong VIP - Strong Special Fund II, Inc. (StSpec2)
38
<PAGE> 39
Portfolios of the TCI Portfolios, Inc. (TCI Portfolios);
TCI Portfolios - TCI Balanced (TCIBal)
TCI Portfolios - TCI Growth (TCIGro)
TCI Portfolios - TCI International (TCIInt)
Funds of the Van Eck Worldwide Insurance Trust (Van Eck) (formerly Van Eck
Investment Trust);
Van Eck - Gold and Natural Resources Fund (VEGoldNR)
Van Eck - Worldwide Bond Fund (VEWrldBd) (formerly Van Eck - Global
Bond Fund (VEGlobBd))
Fund of the Van Kampen American Capital Life Investment Trust (Van Kampen
American Capital);
Van Kampen American Capital - Real Estate Securities Fund
(VKACRESec)
Portfolios of the Warburg Pincus Trust (Warburg Pincus);
Warburg Pincus - International Equity Portfolio (WPIntEq)
Warburg Pincus - Small Company Growth Portfolio (WPSmCoGr)
At December 31, 1995, 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 policy charges (see
notes 2 and 3). The accompanying financial statements include only contract
owners' purchase payments pertaining to the variable portions of their contracts
and exclude any purchase payments for fixed dollar benefits, the latter being
included in the accounts of the Company.
(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, 1995. Fund purchases and sales are
accounted for on the trade date (date the order to buy or sell is executed). The
cost of investments sold is determined on a specific identification basis, and
dividends (which include capital gain distributions) are accrued as of the
ex-dividend date.
(d) Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the
operations of the Company, which is taxed as a life insurance company under the
provisions of the Internal Revenue Code.
Currently, no charge is being made to the Account for Federal income taxes,
or reserves for such taxes, which may be attributed to the Account. However, the
Company reserves the right to make such charges in the future.
(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.
(2) POLICY CHARGES
(a) Deductions from Premiums
On multiple payment contracts and flexible premium contracts, the Company
deducts a charge for state premium taxes equal to 2.5% of all premiums received
to cover the payment of these premium taxes. The Company also deducts a sales
load from each premium payment received not to exceed 3.5% of each premium
payment. The Company may at its sole discretion reduce this sales loading.
(b) Cost of Insurance
A cost of insurance charge is assessed monthly against each contract by
liquidating units. The amount of the charge is based upon age, sex, rate class
and net amount at risk (death benefit less total contract value).
(c) Administrative Charges
For single premium contracts, the Company deducts an annual administrative
charge which is determined as follows:
Contracts issued prior to April 16, 1990:
Purchase payments totalling less than $25,000 - $10/month
Purchase payments totalling $25,000 or more - none
39
<PAGE> 40
Contracts issued on or after April 16, 1990:
Purchase payments totalling less than $25,000 - $90/year ($65/year in
New York)
Purchase payments totalling $25,000 or more - $50/year
For multiple payment contracts, the Company currently deducts a monthly
administrative charge of $5 (may deduct up to $7.50, maximum) to recover policy
maintenance, accounting, record keeping and other administrative expenses.
For flexible premium contracts, the Company currently deducts a monthly
administrative charge of $25 during the first policy year and $5 per month
thereafter (may deduct up to $7.50, maximum) to recover policy maintenance,
accounting, record keeping and other administrative expenses. Additionally, the
Company deducts an increase charge of $2.04 per year per $1,000 applied to any
increase in the specified amount during the first 12 months after the increase
becomes effective.
The above charges are assessed against each contract by liquidating units.
(d) Surrenders
Policy surrenders result in a redemption of the contract value from the
Account and payment of the surrender proceeds to the contract owner or designee.
The surrender proceeds consist of the contract value, less any outstanding
policy loans, and less a surrender charge, if applicable. The charge is
determined according to contract type.
For single premium contracts, the charge is determined based upon a
specified percentage of the original purchase payment. For single premium
contracts issued prior to April 16, 1990, the charge is 8% in the first year and
declines to 0% after the ninth year. For single premium contracts issued on or
after April 16, 1990, the charge is 8.5% in the first year, and declines to 0%
after the ninth year.
For multiple payment contracts and flexible premium contracts, the amount
charged is based upon a specified percentage of the initial surrender charge,
which varies by issue age, sex and rate class. The charge is 100% of the initial
surrender charge in the first year, declining to 0% after the ninth year.
The Company may waive the surrender charge for certain contracts in which
the sales expenses normally associated with the distribution of a contract are
not incurred.
(3) ASSET CHARGES
For single premium contracts, the Company deducts a charge from the
contract to cover mortality and expense risk charges related to operations, and
to recover policy maintenance and premium tax charges. For contracts issued
prior to April 16, 1990, the charge is equal to an annual rate of .95% during
the first ten policy years, and .50% thereafter. A reduction of charges on these
contracts is possible in policy years six through ten for those contracts
achieving certain investment performance criteria. For single premium contracts
issued on or after April 16, 1990, the charge is equal to an annual rate of
1.30% during the first ten policy years, and 1.00% thereafter.
For multiple payment contracts and flexible premium contracts the Company
deducts a charge equal to an annual rate of .80%, with certain exceptions, to
cover mortality and expense risk charges related to operations.
The above charges are assessed through the daily unit value calculation.
(4) DEATH BENEFITS
Death benefits result in a redemption of the contract value from the
Account and payment of the death benefit proceeds, less any outstanding policy
loans (and policy charges), to the legal beneficiary. The excess of the death
benefit proceeds over the contract value on the date of death is paid by the
Company's general account.
(5) POLICY LOANS (NET OF REPAYMENTS)
Contract provisions allow contract owners to borrow up to 90% (50% during
first year of single premium contracts) of a policy's cash surrender value. For
single premium contracts issued prior to April 16, 1990, 6.5% interest is due
and payable annually in advance. For single premium contracts issued on or after
April 16, 1990, multiple payment contracts and flexible premium contracts, 6%
interest is due and payable in advance on the policy anniversary when there is a
loan outstanding on the policy.
40
<PAGE> 41
At the time the loan is granted, the amount of the loan is transferred from
the Account to the Company's general account as collateral for the outstanding
loan. Collateral amounts in the general account are credited with the stated
rate of interest in effect at the time the loan is made, subject to a guaranteed
minimum rate. Loan repayments result in a transfer of collateral, including
interest, back to the Account.
(6) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for determining contract owners' equity. This schedule is
presented for each series, as applicable, in the following format:
- Beginning unit value - Jan. 1
- Reinvested dividends and capital gains (This amount reflects the
increase in the unit value due to dividend and capital gain
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.)
- Asset charges
(This amount reflects the decrease in the unit value due to the
charges discussed in note 3.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
===============================================================================
41
<PAGE> 42
===============================================================================
Schedule I
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
FIDEQINC FIDGRO FIDHIINC FIDOSEAS
-------- ------ -------- --------
1995
<S> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $19.708533 22.566466 18.151674 16.131866
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.542607 .124738 1.314664 .123427
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.341041 7.828480 2.410020 1.428229
- ------------------------------------------------------------------------------------------------------------
Asset charges (.218210) (.260417) (.191076) (.157350)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $26.373971 30.259267 21.685282 17.526172
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 34% 34% 19% 9%
============================================================================================================
1994
Beginning unit value - Jan. 1 $18.583057 22.785679 18.612185 16.009316
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.395798 1.371061 1.706032 .082663
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.087894) (1.381165) (1.991707) .196908
- ------------------------------------------------------------------------------------------------------------
Asset charges (.182428) (.209109) (.174836) (.157021)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.708533 22.566466 18.151674 16.131866
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 6% (1)% (2)% 1%
============================================================================================================
1993
Beginning unit value - Jan. 1 $15.870837 19.270345 15.591886 11.777024
- ------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .463717 .428707 1.282532 .275295
- ------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.415095 3.287237 1.901458 4.091447
- ------------------------------------------------------------------------------------------------------------
Asset charges (.166592) (.200610) (.163691) (.134450)
- ------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.583057 22.785679 18.612185 16.009316
- ------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 17% 18% 19% 36%
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDASMGR NWGVTBD NWMYMKT NWTOTRET
-------- ------- ------- --------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 15.607540 16.457035 13.652006 17.312690
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .327932 1.167149 .768745 1.720678
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.304058 1.903991 .000000 3.293404
- ----------------------------------------------------------------------------------------------------------
Asset charges (.157652) (.170536) (.133297) (.188119)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 18.081878 19.357639 14.287454 22.138653
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 16% 18% 5% 28%
==========================================================================================================
1994
Beginning unit value - Jan. 1 16.778042 17.168348 13.267517 17.291720
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .815806 1.079469 .512535 .875020
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.832732) (1.633239) .000000 (.688478)
- ----------------------------------------------------------------------------------------------------------
Asset charges (.153576) (.157543) (.128046) (.165572)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.607540 16.457035 13.652006 17.312690
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (7)% (4)% 3% 0%
==========================================================================================================
1993
Beginning unit value - Jan. 1 13.992516 15.826033 13.035884 15.738275
- ----------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .649736 1.013212 .357335 .643850
- ----------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.280467 .488744 .000000 1.067081
- ----------------------------------------------------------------------------------------------------------
Asset charges (.144677) (.159641) (.125702) (.157486)
- ----------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 16.778042 17.168348 13.267517 17.291720
- ----------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* 20% 8% 2% 10%
==========================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as asset charges do not
include the policy charges discussed in note 2.
42
<PAGE> 43
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED PRIOR TO APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NBGRO NBLTDMAT OPPGLSEC STSPEC2 TCIGRO
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $17.608267 14.475203 11.358489 14.690448 19.544976
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .623265 .804090 .298934 .761035 .022491
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 4.945641 .771696 (.045712) 3.013032 6.032555
- -------------------------------------------------------------------------------------------------------
Asset charges (.200792) (.144318) (.108348) (.155428) (.218614)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $22.976381 15.906671 11.503363 18.309087 25.381408
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
unit value*(a) 30% 10% 1% 25% 30%
=======================================================================================================
1994
Beginning unit value - Jan. 1 $18.709214 14.635617 12.162716 14.315226 19.964524
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 2.255334 .618309 .214436 .411358 .002137
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (3.185612) (.641424) (.903773) .103258 (.236035)
- -------------------------------------------------------------------------------------------------------
Asset charges (.170669) (.137299) (.114890) (.139394) (.185650)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $17.608267 14.475203 11.358489 14.690448 19.544976
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (6)% (1)% (7)% 3% (2)%
=======================================================================================================
1993
Beginning unit value - Jan. 1 $17.686598 13.856975 ** ** 18.270571
- -------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .409995 .569917 .049805
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .782366 .345457 1.825395
- -------------------------------------------------------------------------------------------------------
Asset charges (.169745) (.136732) (.181247)
- -------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $18.709214 14.635617 19.964524
- -------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 6% 6% 9%
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGOLDNR VEWRLDBD VKACRESEC
--------- --------- ---------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 11.677805 12.443161 10.000000
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .115292 1.008475 .092106
- ----------------------------------------------------------------------------
Unrealized gain (loss) 1.160549 1.138120 .740132
- ----------------------------------------------------------------------------
Asset charges (.114390) (.131171) (.047958)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 12.839256 14.458585 10.784280
- ----------------------------------------------------------------------------
Percentage increase (decrease)
unit value*(a) 10% 16% 8%(b)
============================================================================
1994
Beginning unit value - Jan. 1 12.382561 12.729709 **
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .062321 .051271
- ----------------------------------------------------------------------------
Unrealized gain (loss) (.652194) (.220753)
- ----------------------------------------------------------------------------
Asset charges (.114883) (.117066)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.677805 12.443161
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) (6)% (2)%
============================================================================
1993
Beginning unit value - Jan. 1 7.583732 ** **
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .035765
- ----------------------------------------------------------------------------
Unrealized gain (loss) 4.857738
- ----------------------------------------------------------------------------
Asset charges (.094674)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 12.382561
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 63%
============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
43
<PAGE> 44
===============================================================================
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DRYSRGRO DRYSTKLX FIDEQINC FIDGRO FIDHIINC FIDOSEAS FIDASMGR
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .392053 .36133 1.269479 .086841 1.361583 .089493 .322418
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.289798 3.326196 4.390826 5.444880 2.491513 1.033414 2.260958
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.161906) (.154595) (.245506) (.247716) (.270417) (.155890) (.211783)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.242220 13.621789 21.648958 20.999607 22.388295 12.667544 17.721708
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 35% 33% 34% 19% 8% 15%
==================================================================================================================================
1994
Beginning unit value - Jan. 1 $10.702403 10.131165 15.360584 15.923752 19.350153 11.652241 16.559029
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .276372 .283260 1.152726 .957853 1.773098 .060146 .804872
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.117327) (.195255) (.073161) (.966373) (2.069306) .144272 (1.806726)
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.139173) (.130321) (.205990) (.199630) (.248329) (.156132) (.207060)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.722275 10.088849 16.234159 15.715602 18.805616 11.700527 15.350115
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% 0% 6% (1)% (3)% 0% (7)%
==================================================================================================================================
1993
Beginning unit value - Jan. 1 ** $10.000000 13.165400 13.515048 16.267831 8.602313 13.859040
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains 1.497818 .383884 .300564 1.337665 .201014 .643313
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.334006) 2.000061 2.300317 1.977956 2.983042 2.252405
- ----------------------------------------------------------------------------------------------------------------------------------
Asset charges (.032647) (.188761) (.192177) (.233299) (.134128) (.195729)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.131165 15.360584 15.923752 19.350153 11.652241 16.559029
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1%(b) 17% 18% 19% 35% 19%
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDCONTP NWCAPAPP NWGVTBD
--------- --------- ---------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 10.000000 11.312336 13.739287
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .142783 .642275 .972265
- ----------------------------------------------------------------------------
Unrealized gain (loss) .998389 2.653961 1.587542
- ----------------------------------------------------------------------------
Asset charges (.069207) (.163900) (.194482)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.071965 14.444672 16.104612
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 11%(b) 28% 17%
============================================================================
1994
Beginning unit value - Jan. 1 ** 11.563943 14.383265
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .182742 .902346
- ----------------------------------------------------------------------------
Unrealized gain (loss) (.286826) (1.366016)
- ----------------------------------------------------------------------------
Asset charges (.147523) (.180308)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.312336 13.739287
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (2)% (4)%
============================================================================
1993
Beginning unit value - Jan. 1 ** 10.688742 13.305926
- ----------------------------------------------------------------------------
Reinvested dividends and capital gains .260088 .849957
- ----------------------------------------------------------------------------
Unrealized gain (loss) .755302 .410720
- ----------------------------------------------------------------------------
Asset charges (.140189) (.183338)
- ----------------------------------------------------------------------------
Ending unit value - Dec. 31 11.563943 14.383265
- ----------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% 8%
============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note
2; and
(b) This investment option was not utilized for the entire year
indicated.
** This investment option was not available or was not utilized.
===============================================================================
44
<PAGE> 45
===============================================================================
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NWMYMKT NWSMCOFD NWTOTRET NBGRO NBLTDMAT NBPART OPPBDFD
----------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $11.534440 10.000000 15.031721 12.508337 12.496729 10.018146 13.903136
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .648458 .017459 1.489410 .442496 .693794 .081860 .956955
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418328 2.856936 3.508824 .664378 3.550382 1.391543
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.154112) (.025476) (.223128) (.194823) (.170179) (.154515) (.194909)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $12.028786 11.410311 19.154939 16.264834 13.684722 13.495873 16.056725
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 4% 14%(b) 27% 30% 10% 35% 15%
=================================================================================================================================
1994
Beginning unit value - Jan. 1 $11.249231 ** 15.066007 13.336899 12.679406 10.000000 14.362878
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .433762 .760244 1.607088 .535454 .000000 .809172
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.597472) (2.269450) (.555628) .072562 (1.086058)
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.148553) (.197058) (.166200) (.162503) (.054416) (.182856)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.534440 15.031721 12.508337 12.496729 10.018146 13.903136
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)% 0%(b) (3)%
=================================================================================================================================
1993
Beginning unit value - Jan. 1 $11.092030 ** 13.761364 12.652864 12.047601 ** 12.872824
- ---------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .303567 .561430 .293188 .495297 .894915
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .931322 .556715 .298894 .774891
- ---------------------------------------------------------------------------------------------------------------------------------
Asset charges (.146366) (.188109) (.165868) (.162386) (.179752)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.249231 15.066007 13.336899 12.679406 14.362878
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 9% 5% 5% 12%
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
OPPGLSEC OPPMULT STDISC2
---------- ---------- ----------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 11.309050 13.693997 12.144445
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .297396 1.103154 .211667
- -------------------------------------------------------------------------------
Unrealized gain (loss) (.045694) 1.805769 4.042004
- -------------------------------------------------------------------------------
Asset charges (.147373) (.197994) (.183220)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.413379 16.404926 16.214896
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 20% 34%
===============================================================================
1994
Beginning unit value - Jan. 1 12.152136 14.148115 13.003547
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .214078 .720350 .971167
- -------------------------------------------------------------------------------
Unrealized gain (loss) (.900362) (.993926) (1.670283)
- -------------------------------------------------------------------------------
Asset charges (.156802) (.180542) (.159986)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 11.309050 13.693997 12.144445
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (7)% (3)% (7)%
===============================================================================
1993
Beginning unit value - Jan. 1 10.000000 12.362293 10.796269
- -------------------------------------------------------------------------------
Reinvested dividends and capital gains .000000 .546245 .809234
- -------------------------------------------------------------------------------
Unrealized gain (loss) 2.187580 1.411883 1.546688
- -------------------------------------------------------------------------------
Asset charges (.035444) (.172306) (.148644)
- -------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.152136 14.148115 13.003547
- -------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 22%(b) 14% 20%
===============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
45
<PAGE> 46
Schedule I, Continued
NATIONWIDE VLI SEPARATE ACCOUNT-2
SINGLE PREMIUM CONTRACTS ISSUED ON OR AFTER APRIL 16, 1990
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
STINTSTK2 STSPEC2 TCIBAL TCIGRO TCIINT VEGOLDNR VEWRLDBD
----------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.000000 14.552799 10.801955 13.226279 9.392654 12.988341 12.237880
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .041085 .753037 .305779 .015219 .000000 .127947 .990055
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .209467 2.978850 1.961461 4.076606 1.136602 1.287916 1.118852
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.023920) (.210319) (.154309) (.202064) (.125453) (.173816) (.176236)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.226632 18.074367 12.914886 17.116040 10.403803 14.230388 14.170551
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 2%(b) 24% 20% 29% 11% 10% 16%
================================================================================================================================
1994
Beginning unit value - Jan. 1 ** $14.230663 10.876445 13.557427 10.000000 13.820369 12.563474
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .407898 .260556 .001450 .000000 .069418 .050533
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .103521 (.194370) (.160376) (.554327) (.726294) (.218292)
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.189283) (.140676) (.172222) (.053019) (.175152) (.157835)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.552799 10.801955 13.226279 9.392654 12.988341 12.237880
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 2% (1)% (2)% (6)%(b) (6)% (3)%
================================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.518529 10.232336 12.451309 ** 8.494453 11.809827
- --------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .057229 .193813 .033826 .039957 .949184
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.823424 .587650 1.241015 5.430795 (.037350)
- --------------------------------------------------------------------------------------------------------------------------------
Asset charges (.168519) (.137354) (.168723) (.144836) (.158187)
- --------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.230663 10.876445 13.557427 13.820369 12.563474
- --------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 24% 6% 9% 63% 6%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VKACRESEC WPINTEQ WPSMCOGR
---------- ---------- ----------
<S> <C> <C> <C>
1995
Beginning unit value - Jan. 1 10.000000 10.000000 10.000000
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains .091962 .077347 .000000
- ------------------------------------------------------------------------------
Unrealized gain (loss) .739397 .650501 2.501606
- ------------------------------------------------------------------------------
Asset charges (.065562) (.066346) (.071020)
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31 10.765797 10.661502 12.430586
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a) 8%(b) 7%(b) 24%(b)
==============================================================================
1994
Beginning unit value - Jan. 1 ** ** **
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains
- ------------------------------------------------------------------------------
Unrealized gain (loss)
- ------------------------------------------------------------------------------
Asset charges
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a)
==============================================================================
1993
Beginning unit value - Jan. 1 ** ** **
- ------------------------------------------------------------------------------
Reinvested dividends and capital gains
- ------------------------------------------------------------------------------
Unrealized gain (loss)
- ------------------------------------------------------------------------------
Asset charges
- ------------------------------------------------------------------------------
Ending unit value - Dec. 31
- ------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value*(a)
==============================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2;
and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
46
<PAGE> 47
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DrySRGro DryStkIx FidEqInc FidGro FidHiInc
-------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.788547 10.151919 16.576413 15.828463 17.428943
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .396430 .364933 1.297971 .087506 1.262495
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.317353 3.354508 4.496038 5.494030 2.316172
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.100521) (.095978) (.154677) (.153940) (.154617)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.401809 13.775382 22.215745 21.256059 20.852993
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 33% 36% 34% 34% 20%
====================================================================================================================================
1994
Beginning unit value - Jan. 1 $10.715005 10.143796 15.606442 15.958341 17.844401
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .278073 .284601 1.172669 .960381 1.635883
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.118575) (.195976) (.073581) (.966828) (1.910067)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.085956) (.080502) (.129117) (.123431) (.141274)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.788547 10.151919 16.576413 15.828463 17.428943
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% 0% 6% (1)% (2)%
====================================================================================================================================
1993
Beginning unit value - Jan. 1 $10.000000 10.000000 13.308899 13.476298 14.926526
- ------------------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .031142 1.499665 .389191 .299849 1.227974
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .703426 (1.335764) 2.026087 2.300419 1.821967
- ------------------------------------------------------------------------------------------------------------------------------------
Asset charges (.019563) (.020105) (.117735) (.118225) (.132066)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.715005 10.143796 15.606442 15.958341 17.844401
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 7%(b) 1%(b) 17% 18% 20%
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FidOSeas FidAsMgr FidContP NWCapApp NWGvtBd
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 12.540728 13.774855 10.000000 11.465403 12.720514
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .095965 .289466 .143118 .653781 .903001
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.111417 2.035460 .998657 2.696528 1.472503
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.103077) (.117252) (.042640) (.102482) (.111085)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.645033 15.982529 11.099135 14.713230 14.984933
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 9% 16% 11%(b) 28% 18%
========================================================================================================================
1994
Beginning unit value - Jan. 1 12.426854 14.785784 ** 11.662121 13.250482
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .064174 .719044 .184927 .833925
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .152413 (1.615920) (.289863) (1.261429)
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.102713) (.114053) (.091782) (.102464)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.540728 13.774855 11.465403 12.720514
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 1% (7)% (2)% (4)%
========================================================================================================================
1993
Beginning unit value - Jan. 1 9.128094 12.312732 ** 10.725293 12.196370
- ------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .213405 .571816 .261975 .781559
- ------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.173177 2.008516 .761628 .376228
- ------------------------------------------------------------------------------------------------------------------------
Asset charges (.087822) (.107280) (.086775) (.103675)
- ------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.426854 14.785784 11.662121 13.250482
- ------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 36% 20% 9% 9%
========================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
47
<PAGE> 48
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NWMyMkt NWSmCoFd NWTotRet NBGro NBLtdMat
------- -------- -------- ----- --------
1995
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $11.176411 10.000000 14.205723 12.214794 11.900389
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .629782 .017475 1.413734 .432461 .661221
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 1.418968 2.703396 3.432609 .635177
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.091898) (.015684) (.130091) (.117382) (.099976)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.714295 11.420759 18.192762 15.962482 13.096811
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 5% 14%(b) 28% 31% 10%
=============================================================================================================================
1994
Beginning unit value - Jan. 1 $10.845265 ** 14.167308 12.959107 12.014277
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .419275 .717782 1.562441 .507651
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 (.565055) (2.207122) (.526553)
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.088129) (.114312) (.099632) (.094986)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $11.176411 14.205723 12.214794 11.900389
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (6)% (1)%
=============================================================================================================================
1993
Beginning unit value - Jan. 1 $10.639809 ** 12.875439 12.232618 11.358230
- -----------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .291848 .527331 .283612 .467224
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .000000 .873117 .541815 .283278
- -----------------------------------------------------------------------------------------------------------------------------
Asset charges (.086392) (.108579) (.098938) (.094455)
- -----------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.845265 14.167308 12.959107 12.014277
- -----------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2% 10% 6% 6%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NBPart OppBdFd OppGlSec OppMult StDisc2
------ ------- -------- ------- -------
1995
<S> <C> <C> <C> <C> <C>
Beginning unit value - Jan. 1 $10.038887 13.065574 11.379737 13.372968 12.307607
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .082096 .902009 .299595 1.079776 .215562
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.565899 1.310232 (.045711) 1.766931 4.106245
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.095536) (.113002) (.091487) (.119298) (.114564)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.591346 15.164813 11.542134 16.100377 16.514850
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 35% 16% 1% 20% 34%
=========================================================================================================================
1994
Beginning unit value - Jan. 1 $10.000000 13.430475 12.167250 13.747705 13.112678
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .000000 .759284 .214589 .702216 .983647
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .072401 (1.018698) (.905246) (.968729) (1.689193)
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.033514) (.105487) (.096856) (.108224) (.099525)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.038887 13.065574 11.379737 13.372968 12.307607
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 0% (3)% (6)% (3)% (6)%
=========================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.976650 10.000000 11.952042 10.832134
- -------------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .835328 .000000 .529802 .814568
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .721678 2.189077 1.368631 1.557980
- -------------------------------------------------------------------------------------------------------------------------
Asset charges (.103181) (.021827) (.102770) (.092004)
- -------------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $13.430475 12.167250 13.747705 13.112678
- -------------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 12% 22%(b) 15% 21%
=========================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available or was not utilized.
48
<PAGE> 49
SCHEDULE I, CONTINUED
NATIONWIDE VLI SEPARATE ACCOUNT-2
MULTIPLE PAYMENT CONTRACTS AND FLEXIBLE PREMIUM CONTRACTS
SCHEDULES OF CHANGES IN UNIT VALUES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
StIntStk2 StSpec2 TCIBal TCIGro TCIInt
--------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $10.000000 14.748256 10.948128 12.417011 9.412116
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .041121 .764407 .310910 .014289 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .209625 3.027469 1.992508 3.834812 1.142911
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.014725) (.131505) (.096497) (.117051) (.077555)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $10.236021 18.408627 13.155049 16.149061 10.477472
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 2%(b) 25% 20% 30% 11%
=======================================================================================================================
1994
Beginning unit value - Jan. 1 ** $14.350073 10.968814 12.664593 10.000000
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .412806 .263602 .001356 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .103139 (.196764) (.149703) (.555221)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117762) (.087524) (.099235) (.032663)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.748256 10.948128 12.417011 9.412116
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 3% 0% (2)% (6)%(b)
=======================================================================================================================
1993
Beginning unit value - Jan. 1 ** $11.556788 10.267347 11.572833 **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .057587 .195102 .031592
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 2.840017 .591395 1.156915
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.104319) (.085030) (.096747)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $14.350073 10.968814 12.664593
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 24% 7% 9%
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VEGoldNR VEWrldBd VKACRESec WPIntEq WPSmCoGr
-------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 14.178501 11.388987 10.000000 10.000000 10.000000
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .140115 .923751 .092168 .077521 .000000
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.410450 1.041904 .740443 .651025 2.504833
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117064) (.101185) (.040399) (.040874) (.043759)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.612002 13.253457 10.792212 10.687672 12.461074
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 10% 16% 8%(b) 7%(b) 25%(b)
=======================================================================================================================
1994
Beginning unit value - Jan. 1 15.011706 11.633841 ** ** **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .075618 .046884
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (.791458) (.201583)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.117365) (.090155)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.178501 11.388987
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (6)% (2)%
=======================================================================================================================
1993
Beginning unit value - Jan. 1 9.180337 10.880964 ** ** **
- -----------------------------------------------------------------------------------------------------------------------
Reinvested dividends and capital gains .043340 .876895
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 5.884613 (.034094)
- -----------------------------------------------------------------------------------------------------------------------
Asset charges (.096584) (.089924)
- -----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 15.011706 11.633841
- -----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 64% 7%
=======================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Asset charges do not include the policy charges discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not available.
See note 6.
- --------------------------------------------------------------------------------
49
<PAGE> 50
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Contract Owners of
Nationwide VLI Separate Account-2
Nationwide Life Insurance Company:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide VLI Separate Account-2 as of December 31,
1995, 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 included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and 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 VLI Separate Account-2 as of December 31, 1995, 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 6, 1996
- --------------------------------------------------------------------------------
50
<PAGE> 51
This report is for the information of contract owners with funds in the
Nationwide VLI Separate Account-2. It may also be used, from time to time, as
sales literature, but only when accompanied or preceded by the current
prospectus, which contains complete information about the contracts which invest
in the separate account, and their fees, charges and expenses. If this report is
used as sales literature after March 31, 1996, it must be accompanied by the
fund performance report reflecting performances for the most recently completed
calendar quarter. Prospective investors should read the prospectus carefully
before investing.
51
