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Securities Act Registration No. 333-11797
Investment Company Act Registration No. 811-07805
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933|_|
PRE-EFFECTIVE AMENDMENT NO. 3 |X|
---------------------------------
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940|_|
Amendment No. 3 |X|
NATIONWIDE ASSET ALLOCATION TRUST
(Exact Name of Registrant as Specified in Charter)
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(Address of Principal Executive Office)(Zip Code)
Registrant's Telephone Number, including Area Code: (614) 249-7111
Send Copies of Communications to:
MS. RAE I. MERCER ELIZABETH A. DAVIN
ONE NATIONWIDE PLAZA DRUEN, RATH & DIETRICH
COLUMBUS, OHIO 43215 ONE NATIONWIDE PLAZA
(NAME AND ADDRESS OF AGENT FOR SERVICE) COLUMBUS, OHIO 43215
Approximate Date of Proposed Public Offering: (Upon the effective date of
this Registration Statement: January 16, 1998 requested)
In accordance with Rules 24f-1 and 24f-2 under the Investment Company Act of
1940, upon the effective date of its registration statement, the Registrant
shall be deemed to have registered an indefinite amount of securities and will
pay registration fees no later than 90 days after its fiscal year end.
The Registrant hereby amends this Registration Statement Under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
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NATIONWIDE ASSET ALLOCATION TRUST
THE AGGRESSIVE PORTFOLIO
THE MODERATELY AGGRESSIVE PORTFOLIO
THE MODERATE PORTFOLIO
THE MODERATELY CONSERVATIVE PORTFOLIO
THE CONSERVATIVE PORTFOLIO
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CROSS REFERENCE SHEET
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N-1A Item No. Location
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PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Highlights
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant Investment Objectives and Policies;
Description of the Underlying Funds
and Other Permissible Investments
Item 5. Management of the Fund Management of the Trust
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Additional Information; Tax Status
Item 7. Purchase of Securities Being Offered Investment in Fund Shares; Net
Income and Distributions
Item 8. Redemption or Repurchase Share Redemption
Item 9. Pending Legal Proceedings *
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information and History
Item 13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Registrant Trustees and Officers of the Trust
Item 15. Control Persons and Principal Major Shareholders
Holders of Securities
Item 16. Investment Advisory and Other Investment Advisory and Other
Services Services
Item 17. Brokerage Allocation Brokerage Allocation
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Item 18. Capital Stock and Other Securities Additional Information
Item 19. Purchase, Redemption and Pricing of Purchases, Redemptions and Pricing
Securities Being Offered of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters *
Item 22. Calculation of Performance Data Calculating Yield and Total Return
Item 23. Financial Statements *
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PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
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* Not applicable or negative answer.
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PROSPECTUS
January , 1998
Shares of Beneficial Interest
NATIONWIDE ASSET ALLOCATION TRUST
THE AGGRESSIVE PORTFOLIO
THE MODERATELY AGGRESSIVE PORTFOLIO
THE MODERATE PORTFOLIO
THE MODERATELY CONSERVATIVE PORTFOLIO
THE CONSERVATIVE PORTFOLIO
One Nationwide Plaza
Columbus, Ohio 43215
For Information and Assistance, Call
(614) 249-____
Nationwide Asset Allocation Trust (the "Trust") (collectively,
"Nationwide Professionally Managed Portfolios") is an open-end management
investment company organized under the laws of Ohio, by a Declaration of Trust,
dated September 9, 1997. The Trust currently offers shares in the five separate
nondiversified funds (each known as a "Nationwide Professionally Managed
Portfolio" or a "Portfolio"), each of which is a separately managed
non-diversified portfolio with its own investment objective and policies. The
shares of each Portfolio are sold only to life insurance company separate
accounts to fund the benefits of variable annuity contracts or life insurance
policies.
Each Portfolio seeks to maximize total investment return (i.e., capital
growth and income) subject to the investment restrictions and asset allocation
policies described in this Prospectus. Each Portfolio has been constructed as a
"fund of funds" which means that it pursues its investment objective primarily
by allocating its investments among other mutual funds (the "Underlying Funds").
The Underlying Funds will include portfolios advised by the Portfolios'
investment adviser, Nationwide Advisory Services, Inc. ("NAS"), (the
"Proprietary Funds"), as well as other mutual funds which are not affiliated
with the Funds or NAS (the "Unaffiliated Funds"). Each of the Nationwide
Professionally Managed Portfolios, except The Aggressive Portfolio will also
invest in a fixed interest contract issued by Nationwide Life Insurance Company
(the "Nationwide Contract").
This Prospectus provides you with the basic information you should know
before investing in the Portfolios. You should read it and keep it for future
reference. A Statement of Additional Information, dated January , 1998, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. You can obtain a copy without charge by calling (614) 249- ____, or
by writing Nationwide Life Insurance Company, One Nationwide Plaza, Columbus,
Ohio 43215.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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HIGHLIGHTS
WHAT ARE NATIONWIDE PROFESSIONALLY MANAGED PORTFOLIOS? The Portfolios
are designed to help achieve an investor's retirement savings objectives through
asset allocation and to maximize long-term total returns at an acceptable level
of risk. Investors can select one of five Portfolio options with a range of
overall investment objectives. Through exchanges among the Portfolios, investors
will be able to adjust their investment strategies as factors such as risk
tolerance or time horizon change. It is anticipated, however, that an investor
will move into progressively more conservatively managed portfolios as he or she
nears retirement. The Portfolios invest primarily in Underlying Funds
representing different combinations of stocks, bonds, and other securities and
reflecting varying degrees of potential investment risk and reward. Each of the
Portfolios, except The Aggressive Portfolio, will also invest in the Nationwide
Contract which is a fixed interest contract issued by Nationwide Life Insurance
Company; within the Portfolios, the stable nature of the Nationwide Contract
should reduce a Portfolio's volatility to achieve an investor's desired overall
objective.
WHAT ARE THE PORTFOLIOS' INVESTMENT OBJECTIVES? Investors may select a
Nationwide Professionally Managed Portfolio, based on personal objectives, time
horizons, risk tolerances, and financial circumstances.
The Aggressive Portfolio -- Seeks to provide growth of capital. It will
invest in Underlying Funds which invest
primarily in equity securities ("Equity
Funds"). It is generally appropriate for
investors seeking higher returns over an
investment time horizon of at least 15 years
and having a higher tolerance for market
fluctuations.
The Moderately
Aggressive Portfolio -- Seeks to provide growth of capital. It will
invest primarily in Equity Funds, but the
Portfolio will attempt to reduce its
volatility by also investing in the
Nationwide Contract and Proprietary Funds
which invest primarily in fixed income
securities ("Bond Funds"). It is generally
appropriate for moderate investors seeking
high returns over an investment time horizon
of at least 15 years or for more aggressive
investors with an investment time horizon of
10 to 15 years.
The Moderate Portfolio -- Seeks both growth of capital and income. It
will also invest primarily in Equity Funds,
but will invest a significant percentage of
its assets in the Nationwide Contract and
Bond Funds. It is generally appropriate for
moderate investors seeking moderate returns
over an investment time horizon of between
10 and 15 years, as well as more
conservative investors with an investment
time horizon of at least 15 years and more
aggressive investors with an investment time
horizon of 5 to 10 years.
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The Moderately
Conservative Portfolio -- Seeks income and, secondarily, long term
growth of capital. It will generally invest
half of its assets in Equity Funds with the
remainder in the Nationwide Contract and
Bond Funds. It is generally appropriate for
moderate investors seeking generally lower
fluctuations in principal combined with some
of the upside potential of equity
investments over an investment time horizon
of between 5 and 10 years, as well as more
conservative investors with an investment
time horizon of between 10 and 15 years and
more aggressive investors with an investment
time horizon of less than 5 years.
The Conservative Portfolio -- Seeks income and, secondarily, long term
growth of capital. It will invest primarily
in a combination of the Nationwide Contract
and Bond Funds, with a smaller investment in
Equity Funds. It is generally appropriate
for investors seeking low fluctuations in
principal over an investment time horizon of
less than 5 years, as well as more
conservative investors with an investment
time horizon of between 5 and 10 years.
WHAT ARE THE BENEFITS OF THE NATIONWIDE PROFESSIONALLY MANAGED PORTFOLIOS? Each
Portfolio will provide the following benefits for the investor:
- - ease of fund selection
- - asset allocation including periodic fund rebalancing reflecting each
Portfolio's overall objectives
- - diversified management resulting from the diversification in the
Underlying Funds.
RISK FACTORS AND SPECIAL CONSIDERATIONS: The assets of each Portfolio are
invested primarily in Underlying Funds, so each Portfolio's investment
performance is directly related to the investment performance of the Underlying
Funds held. The ability of each Portfolio to meet its investment objective is
directly related to the ability of the Underlying Funds to meet their
objectives, as well as to the allocation among the Underlying Funds by NAS.
There can be no assurance that the investment objective of any Portfolio or any
Underlying Fund will be achieved.
The value of the Underlying Funds' investments, and thus the net asset value of
the Portfolios will fluctuate in response to changes in market and economic
conditions, as well as the financial condition and prospects of issuers in which
the Underlying Funds invest. For a description of the risks involved in an
investment in the Portfolios, see "Investment Objectives and Policies,"
"Description of the Underlying Funds and Other Permissible Investments" and the
Appendix to this Prospectus.
WHO PROVIDES MANAGEMENT SERVICES TO THE NATIONWIDE PROFESSIONALLY
MANAGED PORTFOLIO? Nationwide Advisory Services, Inc., a subsidiary of
Nationwide Life Insurance Company ("Nationwide"), provides investment advisory,
administrative and accounting services to each Portfolio. For these services,
NAS is entitled to a fee. NAS also serves as investment adviser and provides
administrative services for the Proprietary Funds. Several of the Proprietary
Funds, however, may be subadvised by one or more subadvisers.
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HOW DO YOU PURCHASE THE NATIONWIDE PROFESSIONALLY MANAGED PORTFOLIOS? Currently,
shares of the Portfolios are sold only to life insurance company separate
accounts ("Accounts") to fund the benefits of variable life insurance policies
or annuity contracts ("Contracts") issued by Nationwide or one of its affiliated
life insurance companies. The Accounts purchase shares of each Portfolio at net
asset value in accordance with variable account allocation instructions received
from owners of the Contracts. The Portfolio then uses the proceeds to buy
securities for its portfolio. Each of the Accounts, as a shareholder, has an
ownership interest in a Portfolio's investments.
DO THE NATIONWIDE PROFESSIONALLY MANAGED PORTFOLIOS CHARGE A SALES LOAD TO
INVESTORS? The Portfolios will not charge a sales load for the purchase of its
shares or any 12b-1 fees; however, a contingent deferred sales charge may be
incurred at the time a Contract is terminated. Although the Portfolios may
invest in shares of Underlying Funds that normally charge sales loads, Portfolio
will not pay a sales load to buy these Underlying Funds; instead the Portfolio
will use quantity discounts or waivers to avoid paying a sales load. A Portfolio
may however, purchase Underlying Funds which charge 12b-1 fees, and indirectly
bear the cost of these fees.
EXPENSE SUMMARY -- Each of the Portfolios will incur a management fee of 0.50%
of average daily net assets. Under the Investment Advisory and Administration
Agreement with each Portfolio, however, NAS will bear all expenses of each
Portfolio other than the management fee and any extraordinary expenses.
Each Portfolio will indirectly bear its pro rata share of the fees and expenses
incurred by the Underlying Funds, and the investment returns of each Portfolio
will be net of the expenses of both the Underlying Funds and of the Portfolio.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES: The objective of each of the Portfolios, which is
fundamental, is to maximize total investment return (i.e., capital growth and
income) subject to the investment restrictions and asset allocation policies
described in this prospectus. The Portfolios will maximize total investment
return as more specifically described in the following objectives which are non-
fundamental and can be changed without the approval of a Portfolio's
shareholders:
- - The Aggressive and Moderately Aggressive Portfolios seek to
provide growth of capital. The Moderately Aggressive Portfolio
will attempt to reduce its volatility by also investing in
Bond Funds and the Nationwide Contract.
- - The Moderate Portfolio seeks both growth of capital and
income.
- - The Moderately Conservative and Conservative Portfolios each
seek income and secondarily, long term growth of capital. The
Moderately Conservative Portfolio will seek this objective
with a greater concentration in Equity Funds.
There is no assurance that each Portfolio will achieve its stated objectives.
The investment objective of each Portfolio is fundamental, and so cannot be
changed without the approval of a majority of each Portfolio's shareholders.
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BENEFITS OF ASSET ALLOCATION: As described above, the Portfolios are designed to
help achieve an investor's retirement savings objectives through asset
allocation and to maximize long-term total returns at an acceptable level of
risk. Investors can select one of five Portfolio options with a range of overall
investment objectives. Through exchanges among the Portfolios, investors will be
able to adjust their investment strategies as factors such as risk tolerance or
time horizon change. By investing in one of the Portfolios, an investor can
consolidate his or her investment decisions and reduce the need to monitor the
allocation of his or her assets within asset categories.
Each of the Portfolios invests in particular Underlying Funds suited to that
Portfolio's investment objective. The allocation of assets among the Underlying
Funds within each Portfolio is determined by NAS based on varying degrees of
potential investment risk and reward. Because the assets will be adjusted
periodically within predetermined ranges that will attempt to ensure broad
diversification, there generally will not be any sudden large scale changes in
the allocation of a Portfolio's investments among the investment categories. The
Portfolios are not designed as a market timing vehicle, but rather as a simple
and conservative approach to helping investors meet retirement goals.
The selection of the Underlying Funds in which the Portfolios will invest, as
well as the percentage of assets which can be invested in each type of
Underlying Fund, are not fundamental investment policies and can be changed
without the approval of a Portfolio's shareholders. A change to the percentage
ranges for the types of Underlying Funds shown below does, however, require the
approval of the Trust's Board of Trustees.
The following are the expected asset allocation for each Portfolio:
The Aggressive Portfolio
Equity Funds 100%
Aggressive Growth Funds 40% (can range from 30% to 50%)
Growth Funds 40% (can range from 30% to 50%)
Growth & Income Funds 20% (can range from 10% to 30%)
The Moderately Aggressive Portfolio
Equity Funds 80%
Aggressive Growth Funds 30% (can range from 20% to 40%)
Growth Funds 30% (can range from 20% to 40%)
Growth & Income Funds 20% (can range from 10% to 30%)
Bond Funds 10% (can range from 0% to 20%)
Nationwide Contract 10% (can range from 0% to 20%)
The Moderate Portfolio
Equity Funds 70%
Aggressive Growth Funds 20% (can range from 10% to 30%)
Growth Funds 20% (can range from 10% to 30%)
Growth & Income Funds 30% (can range from 20% to 40%)
Bond Funds 20% (can range from 10% to 30%)
Nationwide Contract 10% (can range from 0% to 20%)
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The Moderately Conservative Portfolio
Equity Funds 50%
Aggressive Growth Funds 10% (can range from 0% to 20%)
Growth Funds 10% (can range from 0% to 20%)
Growth & Income Funds 30%(can range from 20% to 40%)
Bond Funds 30% (can range from 20% to 40%)
Nationwide Contract 20% (can range from 10% to 25%)
The Conservative Portfolio
Equity Funds 30%
Growth Funds 10% (can range from 0% to 20%)
Growth & Income Funds 20% (can range from 10% to 30%)
Bond Funds 45% (can range from 35% to 55%)
Nationwide Contract 25% (can range from 15% to 25%)
WHO SHOULD INVEST IN EACH NATIONWIDE PROFESSIONALLY MANAGED PORTFOLIO? When
choosing a Portfolio, an investor has to weigh the investment risk of the
Portfolio against the possibility of reward; generally the greater the potential
long term reward of the Portfolio, the greater potential risk of account value
fluctuation. As discussed below, investors with longer investment time horizons
and a higher tolerance for market fluctuations, therefore, may be comfortable
investing in more aggressive funds which may provide a higher long-term return.
The Aggressive Portfolio It is generally appropriate for investors
seeking high returns over an investment time
horizon of at least 15 years and having a
higher tolerance for market fluctuations.
The Moderately
Aggressive Portfolio It is generally appropriate for moderate
investors seeking high returns over an
investment time horizon of at least 15 years
or for more aggressive investors with an
investment time horizon of 10 to 15 years.
The Moderate Portfolio It is generally appropriate for moderate
investors seeking moderate returns over an
investment time horizon of between 10 and 15
years, as well as more conservative
investors with an investment time horizon of
at least 15 years and more aggressive
investors with an investment time horizon of
5 to 10 years.
The Moderately
Conservative Portfolio It is generally appropriate for moderate
investors seeking lower fluctuations in
principal combined with some of the upside
potential of equity investments over an
investment time horizon of between five and
10 years, as well as more conservative
investors with an investment time horizon of
between 10 and 15 years and more aggressive
investors with an investment time horizon of
less than 5 years.
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The Conservative Portfolio It is generally appropriate for investors
seeking low fluctuations in principal over
an investment time horizon of less than 5
years, as well as more conservative
investors with an investment time horizon of
between 5 and 10 years.
DESCRIPTION OF THE UNDERLYING FUNDS AND OTHER PERMISSIBLE
INVESTMENTS
PROPRIETARY FUNDS
The Trust may invest in the securities of the Proprietary Funds listed below.
NAS is adviser for all the Proprietary Funds. NAS has employed subadvisers for
certain of the Proprietary Funds as indicated in the descriptions:
Nationwide Small Company Fund is an aggressive growth fund which seeks long-term
growth of capital. The Fund invests primarily in equity securities of small
market capitalization companies. The Fund anticipates that under normal market
conditions, it will invest at least 65% of its assets in equity securities
(common stocks, preferred stocks (both convertible and non-convertible),
warrants and rights) of domestic and foreign companies with market
capitalizations of less than $1 billion. The Fund may also invest in securities
of emerging growth companies, some of which may have market capitalizations over
$1 billion. The Fund's investment adviser has hired five subadvisers for the
Fund, each of which utilize a different investment style. In this way, the
investment adviser hopes to increase prospects for investment return and to
reduce market risk and volatility.
Nationwide Growth Fund is a growth fund which seeks to achieve long-term capital
appreciation without emphasis on current return. In order to achieve its
objectives, the Nationwide Growth Fund invests in a common stocks portfolio of
companies of all sizes.
The Nationwide Fund is a growth and income fund which seeks total return from a
flexible combination of current income and capital appreciation. In order to
achieve this objective, Nationwide Fund invests in securities which provide a
combination of current income and the possibility of capital gains and seeks to
maximize shareholder returns through a diversified portfolio where the primary
emphasis is given to common stocks.
Nationwide Separate Account Trust Total Return Fund is a growth and income fund
which seeks 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.
Nationwide Separate Account Trust Capital Appreciation Fund is a growth fund
which seeks to meet its objectives primarily through a diversified portfolio of
the common stocks of companies which the portfolio manager determines have a
better-than-average potential for sustained capital growth over the long term.
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Nationwide Income Fund is a bond fund which seeks to provide current income by
investing in fixed income securities. The Fund will invest primarily in
investment grade bonds and other fixed income securities with varying
maturities.
Nationwide Bond Fund is a bond fund which seeks to generate a high level of
income, consistent with capital preservation, through investment in high-quality
bonds and other fixed income securities. This is accomplished by investing
primarily in corporate debt instruments, although the Fund may also invest in
government obligations, mortgage-backed securities and short-term obligations.
Nationwide Balanced Fund is subadvised by Salomon Brothers Asset Management,
Inc. The Fund is a growth and income fund which primarily seeks above average
income compared to a portfolio entirely invested in equity securities. The
Fund's secondary objective is to take advantage of opportunities for growth of
capital and income. The Fund seeks its objective primarily through investments
in a broad variety of securities, including equity securities, fixed-income
securities and short-term obligations. Under normal market conditions, it is
anticipated that the Fund will invest at least 40% of the Fund's total assets in
equity securities and at least 25% in fixed-income senior securities. The Fund's
subadviser, Salomon Brothers Asset Management, Inc., will have discretion to
invest in the full range of maturities of fixed income securities. Generally,
most of the Fund's long-term debt investments will consist of "investment grade"
securities; but the Fund may invest up to 20% of its net assets in
non-convertible fixed-income securities rated below investment grade or
determined by the subadviser to be of comparable quality. These securities are
commonly known as junk bonds. In addition, the Fund may invest an unlimited
amount in convertible securities rated below investment grade.
Nationwide Equity Income Fund is subadvised by Federated Investment Counseling.
The Fund is a growth and income fund which seeks above-average income and
capital appreciation by investing at least 65% of its assets in income-producing
equity securities. Such equity securities include common stocks, preferred
stocks, and securities (including debt securities) that are convertible into
common stocks. The portion of the Fund's total assets invested in each type of
equity security will vary according to the Fund's subadviser's assessment of
market, economic conditions and outlook.
Nationwide Global Equity Fund is subadvised by J.P. Morgan Investment Management
Inc. The Fund is an aggressive growth fund which seeks to provide high total
return from a globally diversified portfolio of equity securities. Total return
will consist of income plus realized and unrealized capital gains and losses.
The Fund seeks its investment objective through country allocation, stock
selection and management of currency exposure. Under normal market conditions,
J.P. Morgan Investment Management Inc., intends to keep the Fund essentially
fully invested with at least 65% of the value of its total assets in equity
securities consisting of common stocks and other securities with equity
characteristics such as preferred stocks, warrants, rights, convertible
securities, trust certificates, limited partnership interests and equity
participations. The Fund's primary equity instruments are the common stock of
companies based in the developed countries around the world. The assets of the
Fund will ordinarily be invested in the securities of at least five different
countries.
Nationwide S&P 500 Index Fund is subadvised by The Dreyfus Corporation. The Fund
is a growth fund, and its investment objective is to provide investment results
that correspond to the price and yield performance of publicly traded common
stocks as represented by the Standard and Poor's 500 Composite Stock Price Index
("Index"). The Fund attempts to duplicate the investment results of the Index,
which is composed of 500 selected common stocks, most of which are listed on the
New York
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Stock Exchange. Under normal conditions, the Fund will be 80% invested in
stocks that comprise the Index.
Nationwide Select Advisers Mid Cap Fund is subadvised by First Pacific Advisors,
Inc., Pilgrim Baxter & Associates, Ltd., and Rice, Hall, James & Associates. The
Fund is a growth fund which seeks capital appreciation by investing primarily in
equity securities of medium-sized companies (market capitalization between $500
million and $7 billion); under normal market conditions, the Fund will invest in
equity securities consisting of common stock, preferred stock and securities
convertible into common stocks, including convertible preferred stock and
convertible bonds. NAS has chosen the Fund's subadvisers because they utilize a
number of different investment styles. In utilizing these different styles, NAS
hopes to increase prospects for investment return and to reduce market risk and
volatility.
Nationwide Small Cap Value Fund is subadvised by The Dreyfus Corporation. The
Fund is an aggressive growth fund which seeks capital appreciation through
investment in a diversified portfolio of equity securities of companies with a
median market capitalization of approximately $1 billion. Under normal market
conditions, at least 75% of the Fund's total assets will be invested in equity
securities of companies with market capitalizations at the time of purchase of
between $200 million and $2.5 billion. The Fund will invest in equity securities
of domestic and foreign issuers characterized as "value" companies according to
criteria established by Dreyfus, the Fund's subadviser.
Nationwide Strategic Growth Fund is subadvised by Strong Capital Management Inc.
The Fund is a growth fund which seeks capital growth by investing primarily in
equity securities that the Fund's subadviser believes have above-average growth
prospects. The Fund will generally invest in companies whose earnings are
believed to be in a relatively strong growth trend, and to a lesser extent, in
companies in which significant further growth is not anticipated but whose
market value is thought to be undervalued. Under normal market conditions, the
Fund will invest at least 65% of its total assets in equity securities,
including common stocks, preferred stocks, and securities convertible into
common or preferred stocks, such as warrants and convertible bonds. The Fund may
invest up to 35% of its total assets in debt obligations, including intermediate
to long-term corporate or U.S.
Government debt securities.
Nationwide Strategic Value Fund is subadvised by Strong Capital Management Inc.
who has subcontracted with Schafer Capital Management Inc. The Fund is a growth
and income fund which seeks primarily long-term capital appreciation; current
income is a secondary objective. The Fund seeks to meet its objectives by
investing in securities which are believed to offer the possibility of increase
in value, primarily common stocks of established companies having a strong
financial position and a low stock market valuation at the time of purchase in
relation to investment value. Other than considered appropriate for cash
reserves, the Fund will generally maintain a fully invested position in common
stocks of publicly-held companies, primarily in stocks of companies listed on a
national securities exchange or other equity securities (common stock or
securities convertible into common stock). Investments may also be made in debt
securities which are convertible into common stocks and in warrants or other
rights to purchase common stock, which in such case are equity securities by the
Fund.
The investment objectives and policies of the Nationwide Growth Fund, Nationwide
Bond Fund and Nationwide Fund will be revised slightly if shareholders approve a
reorganization in which a new
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shell fund will acquire all of the assets and assume all of the liabilities of
each existing fund in exchange for shares of the new shell fund. If approved, it
is anticipated that the reorganization will occur on or about March 1, 1998.
UNAFFILIATED FUNDS
The Portfolios may invest a portion of their assets in Unaffiliated Funds which
are not affiliated with the Portfolios or NAS. Investment by all of the
Portfolios together is limited to the purchase of only up to 3% of the total
outstanding securities of any one Unaffiliated Fund. In addition, the 1940 Act
provides that an Unaffiliated Fund whose shares are purchased by a Portfolio is
obliged to redeem shares held by the Portfolio only in an amount up to 1% of the
Unaffiliated Fund's outstanding securities during any period of less than 30
days. Accordingly, shares held by a Portfolio in excess of 1% of an Unaffiliated
Fund's outstanding securities will be considered illiquid, and therefore,
together with other such securities, may not exceed 15% of that Portfolio's net
assets. In light of these legal constraints on buying and selling shares of
Unaffiliated Funds, investors should realize that occasions may arise when NAS
might not take advantage of certain opportunities to invest in an Unaffiliated
Fund, and may seek suitable alternatives. The Portfolios are not limited to such
percentages when purchasing Proprietary Funds because NAS and the Trust have
obtained an exemptive order from the Securities and Exchange Commission (the
"Commission") which allows the Portfolio to invest in Proprietary Funds in
excess of such limitations.
Some Unaffiliated Funds may elect to make payment for the redemption of shares
by a distribution in kind of securities from its portfolio, instead of in cash.
If a Portfolio receives securities as part of an in kind redemption from an
Underlying Fund, the Portfolio may receive and hold such securities if NAS
believes it is in the best interest of shareholders, whether or not the purchase
of such securities would have been permitted by the investment objectives and
policies of the Portfolio.
It is anticipated that the Portfolios will invest in a number of diversified and
non-diversified Unaffiliated Funds. At this time, NAS anticipates selecting the
Unaffiliated Funds from funds managed by certain identified investment advisers
and families of funds. The Unaffiliated Funds will be primarily equity funds,
with a variety of investment styles, including equity index funds. The
investment objectives of these Unaffiliated Funds will range from aggressive
growth to growth to growth and income. Aggressive growth funds generally seek
rapid growth of capital, with no current income. Growth funds generally seek
long-term capital appreciation, and current income, if considered at all, is a
secondary objective. Growth and income funds generally seek long-term capital
appreciation in addition to current income and dividend growth. Each of these
types of funds may attempt to meet their objective by investing primarily in
small to large sized domestic and foreign companies.
The securities that these Unaffiliated Funds might hold may include, but are not
limited to, common and preferred stock, convertible securities, rights and
warrants, short term instruments and various fixed income securities. In certain
instances, some of the Unaffiliated Funds may also buy or sell interest rate
futures contracts relating to debt securities and/or write or buy put and call
options relating to interest rate futures contracts. In addition, the
Unaffiliated Funds may use a variety of investment techniques. The holdings of
these Unaffiliated Funds will vary based upon the different investment
objectives and policies of each Unaffiliated Fund. See the Appendix which
includes the Description of Permissible Underlying Fund Investments.
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NAS will select the Unaffiliated Funds based on a variety of factors including,
but not limited to, investment style and objective, total return performance,
asset size, industry rankings, operational data and various portfolio
statistics.
Characteristics of Equity Index Funds -- The Portfolios intend to invest in
underlying equity index funds, which may represent indices such as the Standard
& Poor's 500 Composite Stock Price Index (or a portion of such index, i.e.,
S&P/BARRA Value Index or S&P/BARRA Growth Index) or the Russell 2000 Small Stock
Index. Index funds are not managed according to traditional methods of active
investment management, which involve buying and selling securities based upon
economic, financial and market analyses and investment judgment. Instead, index
funds attempt to provide investment results that parallel an index through
statistical procedures. These statistical procedures are expected to enable a
fund to track the index's performance and thus are expected to provide a highly
predictable return relative to a fund's benchmark.
Index funds attempt to parallel the performance, before fund level expenses, of
a broad market index. In some situations an index fund's adviser may attempt to
duplicate the investment results by investing in all of the stocks included in
the index and in approximately the same proportions as they are represented in
the index. In other situations such as when an index contains a very large
number of securities, an index fund's adviser may use statistical sampling
techniques to choose which stocks to invest in. This type of process selects
stocks so that various industry weightings, market capitalizations and
fundamental characteristics closely approximate those of the appropriate index.
While the use of a sampling technique is not expected to track a benchmark index
as accurately as duplicating the underlying stocks exactly, it does provide an
efficient means to invest in the universe of stocks. Index funds often have the
ability also to enter into stock index futures or options in an attempt to
increase or decrease the fund's exposure to the stock market; typically a fund
will invest in stock index futures and options when the fund has cash from new
investments or holds assets in money market instruments.
NATIONWIDE CONTRACT
As discussed above, each of the Portfolios, except The Aggressive Growth
Portfolio, will invest in the Nationwide Contract, a fixed interest contract.
The Nationwide Contract is issued by Nationwide which will periodically set and
credit to a Portfolio's account a fixed rate of interest. Although this fixed
rate of interest is subject to a minimum annual investment return of 3.5%, the
Nationwide Contract may credit the Portfolios with additional investment income
as Nationwide will determine and declare. The process used by Nationwide to
calculate the additional interest income will be similar to that used for
comparable contracts. Nationwide will invest the assets received from the
Portfolios in fixed income and other permissible securities within the
investment limitations prescribed for the general accounts of life insurance
companies under state insurance law and will allocate to the Nationwide Contract
investment income from these assets. However, because of the guaranteed nature
of the Nationwide Contract, the Portfolios will not directly participate in the
actual experience of assets in Nationwide's general account. The stable nature
of the Nationwide Contract should reduce a Portfolio's volatility, especially
when the bond and stock markets decline simultaneously, which decreases the
Portfolio's overall risk.
The strength of the guaranteed interest rate is subject to the creditworthiness
of Nationwide. At this time Nationwide has a credit rating of A+ "Superior" by
the independent credit rating agency A.M.
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Best; if at some time in the future the credit rating of Nationwide should
significantly decrease, NAS will consider whether the Portfolios should continue
to invest in the Nationwide Contract.
SHORT TERM FUND INVESTMENTS
The Portfolios may invest in certain short-term fixed income securities and the
Nationwide Money Market Portfolio to invest uncommitted cash balances or to
maintain liquidity to meet shareholder redemptions. They may also invest in such
securities temporarily for defensive purposes, such as against potential stock
or bond market declines. These securities include: obligations of the U.S.
Government and its agencies and instrumentalities; commercial paper, bank
certificates of deposit, and bankers' acceptances; and repurchase agreements
collateralized by these securities.
INVESTMENT RISKS OF THE PORTFOLIOS
Like any investment program, an investment in a Portfolio entails certain risks.
These Funds, however, are designed to help spread risk and reduce swings in
performance through a comprehensive allocation program of investing in several
Underlying Funds and in the Nationwide Contract. Because the Underlying Funds
may invest in different combinations of equities, bonds and money market
instruments, the Portfolios are subject to different levels of risk, including
stock market, bond market and inflation risks.
Market Risk -- Stock market risk is the possibility that stock prices in general
will decline over short or even extended periods. The stock market tends to be
cyclical, with periods when stock market prices generally rise and periods when
stock market prices generally decline. Equity securities of companies with
smaller capitalizations generally are more volatile in price and may be more
liquid than securities of larger capitalization companies.
The bond market is typically less volatile than the stock market, but there have
been times when some bonds have been just as volatile. The risk of bonds
declining in value may be offset in whole or in part by the higher level of
income that bonds generally provide. Bond prices fluctuate largely in response
to changes in the level of interest rates. The price volatility of a bond
depends on its maturity; the longer the maturity of a bond, the greater its
sensitivity to interest rates. In general, when interest rates rise, the prices
of bonds fall; conversely, when interest rates fall, bond prices generally rise.
Although the fluctuation in the price of bonds is normally less than that of
common stocks, in the past there have been extended periods of cyclical
increases in interest rates that have caused significant declines in the price
of bonds in general and have caused the effective maturity of securities with
prepayment features to be extended, thus effectively converting short or
intermediate term securities (which tend to be less volatile in price) into
longer term securities (which tend to be more volatile in price). The value of
shares of the Underlying Funds may also be affected by the market's perception
of changes in any issuer's credit risk. As perceived credit risk increases, the
value of a specific security generally decreases, and the reverse is also true.
Inflation Risk -- Inflation represents a significant threat to even a
well-diversified Portfolio because inflation erodes the real return of an
investment in equities, bonds or money market instruments. Historically
inflation has not eroded as high a percentage of the total return of equities as
it has for bonds or money market instruments; therefore, equities are often seen
as an "inflation hedge."
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Manager Risk -- The Portfolios are subject to manager risk of the Underlying
Funds, which is the possibility that the Underlying Funds' portfolio managers
may fail to execute or meet the Underlying Funds' investment strategies
effectively. Consequently an Underlying Fund may not meet its stated objectives
which will impact a Portfolio's performance. With respect to the Unaffiliated
Funds, NAS and the Portfolios have little or no control over their investment
activities or management.
Through its investment in the Underlying Funds, a Portfolio may inadvertently
concentrate 25% or more of its assets in one industry, in addition to the mutual
fund industry. Such indirect concentration may subject a Portfolio to greater
fluctuation in value than would be the case in the absence of such
concentration.
In addition to the general risks described above, certain of the Underlying
Funds may present other risks based on their investment objectives. These risks
are described generally below. In addition, the individual portfolio securities
of the Underlying Funds may have other risks that are described in the Appendix
to this Prospectus.
Risks of Investing in Small Capitalization Companies -- Some of the Underlying
Funds may invest in small capitalization companies. Investing in securities of
small-sized and emerging growth companies may involve greater risks than
investing in larger, more established issuers since these securities may have
limited marketability and, thus, they may be more volatile than securities of
larger, more established companies or the market averages in general.
Small-sized companies may have limited product lines, markets or financial
resources and may lack management depth. In addition, smaller-sized companies
are typically subject to wider variations in earnings and business prospects
than are larger, more established companies. There is typically less publicly
available information concerning smaller-sized companies than for larger, more
established ones. Because smaller-sized companies normally have fewer shares
outstanding than larger companies, it may be more difficult for the Underlying
Fund to buy or sell significant numbers of such shares without an unfavorable
impact on prevailing prices.
Although investing in securities of emerging growth companies offers potential
for above-average returns if the companies are successful, the risk exists that
the companies will not succeed and the prices of the companies' shares could
significantly decline in value.
Risks of Investing in Index Funds -- The Portfolios may invest their assets in
underlying index funds. Because of the investment objectives of index funds,
securities may be purchased, retained and sold by such funds when such
transactions would not be consistent with traditional investment criteria.
Accordingly, a Fund will be exposed to a greater risk of loss (and a
correspondingly greater prospect of gain) from fluctuations in the value of such
securities than would be the case if an index fund were not fully invested in
such securities. A security may be eliminated or not increased in proportion to
the index, despite its continued listing on the index if (i) the stock is no
longer publicly traded; or (ii) an unexpected adverse development occurs with
respect to a company such as bankruptcy or insolvency. As a result, the share
price of an index fund is expected to be volatile, and investors may sustain
sudden fluctuations in the value of their investment.
Risks of Foreign Securities -- Some of the Underlying Funds will invest in
foreign securities. Foreign investments involve special risks, including the
possibility of expropriation, confiscatory taxation, and withholding taxes on
dividends and interest; less extensive regulation of foreign brokers,
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securities markets, and issuers; political, economic or social instability; and
less publicly available information and different accounting standards. When
investing in foreign securities, the Underlying Fund may also incur costs in
conversions between currencies, possible delays in settlement in foreign
securities markets, limitations on the use or transfer of assets (including
suspension of the ability to transfer currency from a given country), and
difficulty in enforcing obligations in other countries.
Because most foreign securities are denominated in non-U.S. currencies, the
investment performance of an Underlying Fund could be significantly affected by
changes in foreign currency exchange rates. The value of the Underlying Fund's
assets denominated in foreign currencies will increase or decrease in response
to fluctuations in the value of those foreign currencies relative to the U.S.
dollar. Currency exchange rates can be volatile at times in response to supply
and demand in the currency exchange markets, international balance of payments,
governmental intervention, speculation, and other political and economic
conditions.
The Underlying Funds may also invest a portion of their assets in securities of
issuers in developing or emerging markets and economies. Investing in securities
of issuers in developing or emerging markets involves special risks, including
less social, political, and economic stability; smaller securities markets and
lower trading volume, which may result in a lack of liquidity and greater price
volatility; certain national policies that may restrict the Underlying Fund's
investment opportunities, including restrictions on investments in issuers or
industries deemed sensitive to national interests, or expropriation or
confiscation of assets or property, which could result in an Underlying Fund's
loss of its entire investment in that market; and less developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property.
Risks of Investing in Mortgage-Related Securities -- Some of the Underlying
Funds may invest in mortgage-related securities, adjustable rate mortgage loans
("ARMs"), fixed rate mortgage loans and mortgage dollar rolls. The investment
characteristics of mortgage-related securities differ from traditional debt
securities. These differences can result in significantly greater price and
yield volatility than is the case with traditional fixed-income securities. The
major differences typically include more frequent interest and principal
payments, usually monthly, and the possibility that prepayments of principal may
be made at any time. Prepayment rates are influenced by changes in current
interest rates and a variety of economic, geographic, social and other factors.
During periods of declining interest rates, prepayment rates can be expected to
accelerate. Under certain interest rate and prepayment rate scenarios, an
Underlying Fund may fail to recoup fully its investment in mortgage-related
securities notwithstanding a direct or indirect governmental or agency
guarantee. The Underlying Funds may use hedging techniques to attempt to control
this risk. In general, changes in the rate of prepayments on a mortgage-related
security will change that security's market value and its yield to maturity.
When interest rates fall, high prepayments could force an Underlying Fund to
reinvest principal at a time when investment opportunities are not attractive.
Thus, mortgage-related securities may not be an effective means for an
Underlying Fund to lock in long-term interest rates. Conversely, during periods
when interest rates rise, slow prepayments could cause the average life of the
security to lengthen and the value to decline more than anticipated.
Risk of Investing in Lower-Rated Bonds -- The Portfolios may also invest in
Underlying Funds which invest in medium or lower grade bonds. Securities rated
in the fourth highest category by a nationally recognized statistical rating
organization (an "NRSRO"), although considered investment-grade, have
speculative characteristics and are subject to greater fluctuations in value
than higher-
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rated securities. Non-investment-grade debt obligations include 1) securities
rated as low as C by an NRSRO; 2) commercial paper rated as low as C by an
NRSRO; or 3) unrated debt securities judged to be of comparable quality by
the Underlying Fund's investment adviser.
OTHER CONSIDERATIONS
Non-Diversified Status -- Each Portfolio is classified as non-diversified under
the 1940 Act, which means that the Portfolio is not limited by the 1940 Act in
the proportion of its assets that it may invest in securities of a single
issuer. Each Portfolio's investments will be limited, however, in order to
qualify as a "regulated investment company" for purposes of the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify, a Portfolio will comply with
certain requirements, including limiting its investments so that at the close of
each quarter of its taxable year (a) not more than 25% of the market value of
its total assets will be invested in the securities of a single issuer (other
than U.S. government securities or securities of other regulated investment
companies), and (b) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in the
securities of a single issuer (other than U.S. government securities or
securities of other regulated investment companies) and the Portfolio will not
own more than 10% of the outstanding voting securities of a single issuer. Being
non-diversified means that a Portfolio may invest a greater proportion of its
assets in the obligations of a small number of issuers and, as a result, may be
subject to greater risk with respect to Portfolio securities. To the extent that
a Portfolio assumes large positions in the securities of a small number of
issuers, its return may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
Portfolio Turnover -- The portfolio turnover rate for each Portfolio is not
expected to exceed 50% annually. A portfolio turnover rate of 50% for a
Portfolio would occur is one half of a Portfolio's investments were sold within
a year. A Portfolio will generally purchase or sell securities: (i) to
accommodate purchases and sales of Portfolio shares; and (ii) to maintain or
modify the allocation of the Portfolio's assets between the Underlying Fund in
which the Portfolios invest within the percentage limits described under
"INVESTMENT OBJECTIVES AND POLICIES--BENEFITS OF ASSET ALLOCATION" above.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The Board of Trustees sets and reviews policies regarding the
operation of the Trust whereas the officers perform the daily functions of the
Trust.
The trustees and officers of the Trust may also serve in similar positions in
connection with the Proprietary Funds. Therefore, if the interests of a
Portfolio were ever to diverge from that of the Proprietary Funds, it is
possible that a conflict of interest could arise and affect how the trustees and
officers of the Trust fulfill their fiduciary duties to that Portfolio and the
Proprietary Funds. Although the Portfolios are designed to avoid these concerns,
a situation could conceivably occur where proper action for a Portfolio could be
adverse to the interest of a Proprietary Fund, or the reverse could be
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true. If such a possibility arises, the trustees and officers of the Trust, the
affected Proprietary Funds and NAS will carefully analyze the situation and take
all steps they believe reasonable to minimize and, where possible, eliminate the
potential conflict.
INVESTMENT MANAGEMENT OF THE PORTFOLIOS
Under the terms of the Investment Advisory Agreement and subject to the
supervision of the Trust's Trustees, Nationwide Advisory Services, Inc., Three
Nationwide Plaza, Columbus, Ohio 43215, oversees the investment of the assets of
each of the Nationwide Professionally Managed Portfolios. NAS and its
predecessors have provided investment advice to registered investment companies
and other institutional assets since 1960. NAS had assets of $ 7.8 billion under
management as of December 17, 1997. NAS, an Ohio corporation, is a wholly owned
subsidiary of Nationwide Life Insurance Company, which is wholly owned by
Nationwide Financial Services, Inc. ("NFS"). NFS, a holding company, has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all outstanding Class B Common Stock) to
control NFS. Nationwide Corporation is also a holding company in the Nationwide
Insurance Enterprise. All of the Common Stock of Nationwide Corporation is held
by Nationwide Mutual Insurance Company (95.3%) and Nationwide Mutual Fire
Insurance Company (4.7%), each of which is a mutual company owned by its
policyholders.
Subject to the supervision and direction of the Trust's Board of Trustees, NAS
will determine how each Portfolio's assets will be invested in the Underlying
Funds and the other permissible investments. The Trustees of the Trust will
periodically monitor the allocations made and the basis upon which such
allocations were made or maintained. NAS also provides various bookkeeping,
accounting and administrative services, office space and equipment and the
services of the officers and employees of the Portfolios. Under the Investment
Advisory Agreement, NAS has agreed to bear all expenses of the Portfolios other
than the management fee and extraordinary expenses such as but not limited to,
litigation or extraordinary audit expenses. Each Portfolio pays to NAS a fee,
calculated daily and paid monthly, at the annual rate of 0.50% of the
Portfolio's average daily net assets.
NAS also serves as investment adviser to each of the Proprietary Funds and is
responsible for the selection and management of their assets. NAS is assisted in
the investment management of the Nationwide Income Fund and the Nationwide Small
Company Fund by subadvisers. The subadvisers for the Nationwide Income Fund are
NCM Capital Management Group, Inc. and Smith Graham & Co. Asset Managers, L.P.
The subadvisers for the Nationwide Small Company Fund are The Dreyfus
Corporation, Neuberger & Berman L.P., Strong Capital Management, Inc., Warburg,
Pincus Counsellors, Inc. and Van Eck Associates Corporation and Pictet
International Management Limited.
Each Portfolio, as a shareholder in the Proprietary Funds, will indirectly bear
its proportionate share of any investment management fees and other expenses
paid by the Proprietary Funds. Likewise, each Portfolio as a shareholder in the
Unaffiliated Funds will indirectly bear its proportionate share of any
investment management fees and other expenses paid by The Unaffiliated Funds.
Wayne Frisbee, CFA is the person primarily responsible for the investment
management of the Portfolios. Mr. Frisbee joined Nationwide in 1981 and
currently co-manages both the Nationwide Separate Account Trust Government Bond
Fund, the Nationwide U.S. Government Income Fund and
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the Financial Horizons Government Bond Fund. He received a Bachelor of Science
degree from The Ohio State University and is a Chartered Financial Analyst.
Because NAS will receive investment advisory fees at both the Proprietary Fund
level and the Portfolio level, it is possible that a conflict of interest could
arise in connection with NAS's selection between Proprietary Funds and
Unaffiliated Funds. It is the intention of NAS to minimize any such possibility
by including Unaffiliated Funds in the Portfolios to complement the Proprietary
Funds and to further diversify each Portfolio.
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OTHER SERVICES
Nationwide Investors Services, Inc., ("NISI"), Three Nationwide Plaza, Columbus,
Ohio 43215, serves as transfer agent and dividend disbursing agent for the
Trust. NISI is a wholly owned subsidiary of NAS.
INVESTMENT IN FUND SHARES
Shares of the Portfolios are sold to the Accounts to fund the benefits of the
Contracts. The Accounts purchase shares of the Portfolios in accordance with
variable account allocation instructions received from owners of the Contracts.
Each Portfolio then uses the proceeds to buy securities for its portfolio.
Nationwide purchases the shares of a Portfolio at the Portfolio's net asset
value using purchase payments received for Contracts issued by the Accounts.
There is no sales charge, and all shares are sold at net asset value.
All investments in a Portfolio are credited to the shareholder's account in the
form of full and fractional shares of that Portfolio (rounded to the nearest
1/1000 of a share). The Trust does not issue share certificates. Initial and
subsequent purchase payments allocated to a Portfolio are subject to the limits
applicable to the Contracts.
SHARE REDEMPTION
An Account redeems shares to make benefit or surrender payments under the terms
of its Contracts. Redemptions are processed on any day on which the Trust is
open for business and are effected at net asset value next determined after the
redemption order, in proper form, is received by the Trust's transfer agent,
NISI.
The net asset value per share of a Portfolio is determined as of the close of
regular trading on the New York Stock Exchange (usually 4 p.m. Eastern Time),
each day that the Exchange is open and on such other days as the Board of
Trustees determines and on such other day during which there is a sufficient
degree of trading in a Portfolio's underlying securities that the net asset
value of the Portfolio is materially affected by changes in the value of the
underlying securities. The Trust will not compute net asset value on customary
national business holidays, including the following: Christmas, New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, and Thanksgiving. The net asset value per share is
calculated by adding the value of all securities and other assets of a
Portfolio, deducting its liabilities, and dividing by the number of shares
outstanding.
Shares of the Underlying Funds are valued at their respective net asset values
under the 1940 Act. The Proprietary Funds value securities in their portfolios
as follows: portfolio securities listed on national exchanges are varied at the
last sale price on the principal exchange, or if there is no sale on that day,
or if the securities are traded only in the over-the-counter market, at the
quoted bid prices, all obtained from an independent pricing organization.
Securities for which market quotations are not available, or for which an
independent pricing agent does not provide a value or provides a value that does
not represent fair value in the judgment of NAS are valued at fair value in
accordance with procedures adopted by the Board of Trustees of the Proprietary
Funds. The Unaffiliated Funds are valued similarly in accordance with their own
procedures. Money market funds with portfolio securities that mature in one year
or less may use the amortized cost or penny rounding methods to value their
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securities. Securities having 60 days or less remaining to maturity generally
are valued at their amortized cost, which approximates market value.
Other assets of the Portfolios are valued at their current market value if
market quotations are readily available and, if market quotations are not
available, they are valued at fair value pursuant to methods established in good
faith by the Board of Trustees. Securities having 60 days or less remaining to
maturity are valued at their amortized cost.
The Trust may suspend the right of redemption only under the following unusual
circumstances:
- - when the New York Stock Exchange is closed (other than weekends and
holidays) or trading is restricted;
- - when an emergency exists, making disposal of portfolio securities or
the valuation of net assets not reasonably practicable; or
- - during any period when the Securities and Exchange Commission has by
order permitted a suspension of redemption for the protection of
shareholders.
NET INCOME AND DISTRIBUTIONS
Substantially all of the net investment income, if any, of the Portfolios will
be paid as dividends in March, June, September, and December. In those years in
which sales of the Portfolio's underlying securities result in net realized
capital gains, the Portfolio will distribute such gains to its shareholders with
the December dividend.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES - The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of each
Portfolio and to divide or combine such shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. Each share of a Portfolio represents an equal proportionate interest in
that Portfolio with each other share. The Trust has created five different
Portfolios and reserves the right to create additional portfolios within the
Trust. The shares of each Portfolio participate equally in the earnings,
dividends, and assets of the particular Portfolio, and shares of all Portfolios
will vote together in the election of Trustees. Upon liquidation of a Portfolio,
its shareholders are entitled to share pro rata in the net assets of such
Portfolio available for distribution to shareholders.
VOTING RIGHTS - Shareholders are entitled to one vote for each share held and
a proportionate fractional vote for any fractional shares held. An annual or
special meeting of shareholders to conduct necessary business is not required by
the Declaration of Trust, the 1940 Act or other authority except, under certain
circumstances, to amend the Declaration of Trust, the Investment Advisory
Agreement, fundamental investment objectives, policies, and restrictions, to
elect and remove Trustees, to reorganize the Trust or any series thereof and to
act upon certain other business matters. In regard to termination, sale of
assets, the change of investment objectives, policies and restrictions or the
approval of an Investment Advisory Agreement, the right to vote is limited to
the holders of shares of the particular Portfolio affected by the proposal.
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To the extent that such a meeting is not required, the Trust does not intend to
have an annual or special meeting of shareholders. The Trust has represented to
the Commission that Trustees will call a special meeting of shareholders for
purposes of considering the removal of one or more of the Trustees upon written
request therefor from shareholders holding not less than 10% of the outstanding
votes of the Trust, and the Trust will assist in communication with other
shareholders as required by Section 16(c) of the 1940 Act. At such meeting, a
quorum of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Trust), by majority vote, has the power to remove one
or more Trustees.
SHAREHOLDER INQUIRIES - All inquiries regarding a Portfolio should be directed
to the Trust at the telephone number or address shown on the cover page of this
Prospectus.
PERFORMANCE ADVERTISING FOR THE PORTFOLIOS
The Portfolios may use historical performance in advertisements, sales
literature, and the Prospectus. Such figures will include quotations of average
annual total return for the most recent one, five, and ten year periods (or the
life of a Portfolio if less). Average annual total return represents the rate
required each year for an initial investment to equal the redeemable value at
the end of the specific period. Average annual total return reflects
reinvestment of all distributions.
TAX STATUS
Each Portfolio's policy is to qualify as a regulated investment company and to
meet the requirements of Subchapter M of the Code. Each Portfolio intends to
distribute all its taxable net investment income and capital gains to
shareholders, and therefore, will not be required to pay any federal income
taxes. Nationwide Life Insurance Company, on behalf of the Accounts, is the sole
shareholder of the Trust.
Because each Portfolio of the Trust is treated as a separate entity for
purposes of the regulated investment company provisions of the Code, the assets,
income, and distributions of a Portfolio are considered separately for purposes
of determining whether or not the Portfolio qualifies as a regulated investment
company. Each Portfolio intends to comply with the diversification requirements
currently imposed by the Internal Revenue Service on separate accounts of
insurance companies as a condition of maintaining the tax-deferred status of the
Contracts. See the Statement of Additional Information for more specific
information.
The tax treatment of payments made by a separate account to a Contract holder
is described in the separate account prospectus.
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APPENDIX
DESCRIPTION OF PERMISSIBLE UNDERLYING FUND INVESTMENTS
The following is a description of certain of the permitted investments for the
Underlying Funds. As described above, each Portfolio may also invest directly in
certain of the following instruments for temporary defensive purposes. For a
more detailed description, see the Statement of Additional Information or the
prospectuses of the Underlying Funds.
FOREIGN SECURITIES -- The Underlying Funds may invest in foreign securities,
directly or indirectly through the use of depositary receipts. Depositary
receipts, including American Depository Receipts, European Depository Receipts
and American Depository Shares, are generally issued by banks or trust companies
and evidence ownership of underlying foreign securities. The Underlying Funds
may also invest in securities of foreign investment funds or trusts (including
passive foreign investment companies). Investing in foreign securities may be
subject to additional risks as described above.
WARRANTS -- The Underlying Funds may invest in securities which are subject to
warrants. A warrant is an instrument which gives the holder the right to
subscribe to a specified amount of the issuer's securities at a set price for a
specified period of time or on a specified date. Warrants do not carry the right
to dividends or voting rights with respect to their underlying securities and do
not represent any rights in assets of the issuer. An investment in warrants may
be considered speculative. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
CONVERTIBLE SECURITIES -- Some of the Underlying Funds, particularly the Equity
Funds, may invest in convertible securities. A convertible security is a fixed
income security or preferred stock that may be converted at either a stated
price or stated rate into underlying shares of common stock. Convertible
securities have general characteristics similar to both debt obligations and
equity securities. Although to a lesser extent than with debt obligations
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying common stock, and therefore, also will react to variations in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt obligations, convertible securities are investments that provide for a
stable stream of income with generally higher yields than common stocks. Of
course, like all debt obligations, there can be no assurance of current income
because the issuers of convertible securities may default on their obligations.
Convertible securities, however, generally offer lower interest or dividend
yields than non-convertible securities of similar quality because of the
potential for capital appreciation. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the
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market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because the market value of securities will
fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically are rated below investment grade or are not rated.
SPECIAL SITUATION COMPANIES -- Certain of the Underlying Funds may invest in
securities of issuers in special situations. These securities may be more
volatile than other securities since the market value of these securities may
decline in value if the anticipated benefits do not materialize. Companies in
"special situations" include, but are not limited to, companies involved in an
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; litigation which, if
resolved favorably, would improve the value of the companies' securities; or
change in corporate control.
Although investing in securities of issuers in "special situations" offers
potential for above-average returns if the companies are successful, the risk
exists that the benefit of the "special situation" may not materialize and
therefore, the prices of those companies' shares could significantly decline in
value.
REAL ESTATE SECURITIES -- Although the Underlying Funds are not generally
permitted to invest in real estate directly, they may invest in equity
securities of real estate investment trusts ("REITs") and other real estate
industry companies or companies with substantial real estate investments and
therefore, an Underlying Fund may be subject to certain risks associated with
direct ownership of real estate and with the real estate industry in general.
These risks include, among others: possible declines in the value of real
estate; possible lack of availability of mortgage funds; extended vacancies of
properties; risks related to general and local economic conditions;
overbuilding; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
Internal Revenue Code, as amended.
DEBT OBLIGATIONS
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IN GENERAL - Debt obligations in which the Underlying Funds may invest will
typically be investment- grade debt obligations, although some Underlying Funds
may invest a portion of their assets in non- investment-grade debt obligations.
The market value of all debt obligations is affected by changes in the
prevailing interest rates. The market value of such instruments generally reacts
inversely to interest rate changes. If the prevailing interest rates decrease,
the market value of debt obligations generally increases. If the prevailing
interest rates increase, the market value of debt obligations generally
decreases. In general, the longer the maturity of a debt obligation, the greater
its sensitivity to changes in interest rates. Similarly, debt obligations issued
by less creditworthy entities tend to carry higher yields than those with higher
credit ratings. The market value of all debt obligations is also affected by
changes in the prevailing interest rates. Therefore, the market value of such
obligations generally reacts inversely to interest rate changes. If the
prevailing interest rates decrease, the market value of debt obligations
generally increases. If the prevailing interest rates increase, the market value
of debt obligations generally decreases.
Investment-grade debt obligations include 1) bonds or bank obligations rated in
one of the four highest rating categories by any nationally recognized
statistical rating organization ("NRSRO") (e.g., Moody's Investors Service, Inc.
or Standard & Poor's Ratings Group); 2) U.S. government securities (as described
below); 3) commercial paper rated in one of the three highest ratings categories
of any NRSRO; 4) short-term bank obligations that are rated in one of the three
highest categories by any NRSRO, with respect to obligations maturing in one
year or less; 5) repurchase agreements involving investment-grade debt
obligations; or 6) unrated debt obligations which are determined by a fund's
investment adviser to be of comparable quality.
Non-investment-grade debt obligations include 1) securities rated as low as C by
an NRSRO; 2) commercial paper rated as low as C by an NRSRO; or 3) unrated debt
securities judged to be of comparable quality by the fund's investment adviser.
Medium-rated securities are rated in the fourth highest rating category by an
NRSRO. Medium and lower rated securities will usually have higher yields than
higher rated securities. However, there is more risk associated with these
investments. This is because of reduced creditworthiness and increased risk of
default. Under rating agency guidelines, medium and lower rated securities and
comparable unrated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions. Medium and lower rated securities are
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default or
to be in default, to be unlikely to have the capacity to make required interest
payments and to repay principal when due in the event of adverse business,
financial or economic conditions, or to be in default or not current with
respect to the issuer's capacity to make required interest and principal
payments. The foregoing factors may, under certain circumstances, reduce the
value of securities held by the Underlying Fund and thus affect the value of the
Underlying Fund's shares.
U.S. GOVERNMENT SECURITIES - The Underlying Funds may be permitted to
purchase U.S. government securities. U.S. government securities are issued or
guaranteed by the U.S. government or its agencies or instrumentalities.
Securities issued by the government include U.S. Treasury obligations, such as
Treasury bills, notes, and bonds. Securities issued by government agencies or
instrumentalities include, but are not limited to, obligations of the following:
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- - the Federal Housing Administration, Farmers Home Administration, and
the Government National Mortgage Association ("GNMA"), including GNMA
pass-through certificates, whose securities are supported by the full
faith and credit of the United States;
- - the Federal Home Loan Banks and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury;
- - the Federal National Mortgage Association ("FNMA"), whose securities
are supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and
- - the Federal Home Loan Mortgage Corporation ("Freddie Mac"), and the
Student Loan Marketing Association, whose securities are supported only
by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
REPURCHASE AGREEMENTS - Certain of the Underlying Funds may engage in
repurchase agreement transactions as long as the underlying securities are of
the type that the Fund would be permitted to purchase directly. Under the terms
of a typical repurchase agreement, an Underlying Fund would acquire an
underlying debt obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed upon price and time, thereby determining the
yield during the Fund's holding period. Under each repurchase agreement the
selling institution will be required to maintain the value of the securities
subject to the repurchase agreement at not less than their repurchase price.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities.
INVESTMENT COMPANIES -- Each of the Underlying Funds may be permitted to invest
only up to 10% of its total assets, calculated at the time of investment, in
securities of other investment companies. No more than 5% of an Underlying
Fund's total assets may be invested in the securities of any one investment
company nor may it acquire more than 3% of the voting securities of any other
investment company. Each Underlying Fund will indirectly bear its proportionate
share of any management fees paid by an investment company in which it invests.
SHORT-TERM OBLIGATIONS -- Each of the Underlying Funds may hold short-term
obligations generally limited to "investment grade" liquid debt securities such
as commercial paper, certificates of deposit, bankers' acceptances, repurchase
agreements and United States Treasury Bills. Bankers' acceptances are
instruments of domestic banks which are drafts or bills of exchange "accepted"
by a bank or trust company as an obligation to pay on maturity. For a discussion
of repurchase agreements, see above. "Investment grade" obligations are those
rated at the time of purchase within the four highest rating categories assigned
by an NRSRO or, if unrated, obligations the Underlying Fund's investment adviser
determines to be of comparable quality. The applicable securities ratings are
described in the Appendix to the Statement of Additional Information.
MORTGAGE-AND ASSET-BACKED SECURITIES -- Certain of the Underlying Funds may
purchase mortgage- and asset-backed securities. Mortgage-backed securities
represent direct or indirect participation in, or are secured by and payable
from, mortgage loans secured by real property, and
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include single- and multi-class pass-through securities and collateralized
mortgage obligations. Such securities may be issued or guaranteed by the U.S.
Government and its agencies or instrumentalities or by private issuers,
generally originators of or investors in mortgage loans, including savings and
loan associations, mortgage bankers, commercial banks, investment banks, and
special purpose entities (collectively, "private lenders"). The underlying
mortgage assets may have fixed rates or adjustable rates of interest.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt obligations. Among the differences are that interest and
principal payments are made more frequently on mortgage- and asset-backed
securities, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result if an Underlying Fund purchases these securities at a
premium, a prepayment rate that is higher than expected will reduce yield, while
a prepayment that is lower than expected will have the opposite effect of
increasing the yield. Conversely, if an Underlying Fund purchased these
securities at a discount, a prepayment rate that is faster than expected will
increase yield, while a prepayment rate that is slower than expected will reduce
yield. Accelerated prepayments on securities purchased by the Underlying Fund at
a premium also impose a risk of loss of principal because the premium may not
have been fully amortized by the time the principal is prepaid in full.
An Underlying Fund may invest in stripped mortgage- or asset-backed securities,
which receive differing proportions of the interest and principal payments from
underlying assets. The market value of such securities is generally more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases the market
value may be extremely volatile. With respect to certain stripped securities,
such as interest-only ("IO") and principal-only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in the
Underlying Fund failing to recover all or a portion of its investment, even
though the securities are rated investment grade.
DERIVATIVE INSTRUMENTS
Derivative instruments may be used by the Underlying Funds for hedging or risk
management purposes, or for other permissible purposes. Derivative instruments
are securities or agreements whose value is based on the value of some
underlying asset, for example, securities, currencies, or reference indices.
Options, futures, and options on futures transactions are considered to be
derivatives. Derivatives generally have investment characteristics that are
based upon either forward contracts (under which one party is obligated to buy
and the other party is obligated to sell an underlying asset at a specific price
on a specified date) or option contracts (under which the holder of the option
has the right but not the obligation to buy or sell an underlying asset at a
specified price on or before a specified date). Consequently, the change in
value of a forward-based derivative
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generally is roughly proportional to the change in value of the underlying
asset. In contrast, the buyer of an option-based derivative generally will
benefit from favorable movements in the price of the underlying asset but is not
exposed to corresponding losses due to adverse movements in the value of the
underlying asset. The seller of an option-based derivative generally will
receive fees or premiums but generally is exposed to losses due to changes in
the value of the underlying asset. Derivative transactions may include elements
of leverage and, accordingly, the fluctuation of the value of the derivative
transaction in relation to the underlying asset may be magnified. In addition to
options, futures, and options on futures transactions, derivative transactions
may include short sales against the box, in which an Underlying Fund sells a
security it owns for delivery at a future date. Derivative transactions may also
include forward currency contracts and foreign currency exchange-related
securities.
Derivative transactions in which the Underlying Funds may engage include the
writing of covered put and call options and the purchase of put and call
options, the purchase of put and call options on stock indexes and
exchange-traded options on currencies and the writing of put and call options on
stock indexes. An Underlying Fund also may buy and sell financial futures
contracts which may include security and interest-rate futures, futures on
currency exchanges and stock and bond index futures contracts. The Underlying
Funds may also enter into forward currency contracts to purchase or sell foreign
currencies. An Underlying Fund may also engage in short selling against the box.
Derivative instruments may be exchange-traded or traded in OTC transactions
between private parties. OTC transactions are subject to the credit risk of the
counterparty to the instrument and are less liquid than exchange-traded
derivatives since they often can only be closed out with the other party to the
transaction. When required by guidelines of the Securities and Exchange
Commission ("SEC"), an Underlying Fund will set aside permissible liquid assets
or securities positions that substantially correlate to the market movements of
the derivatives transactions in a segregated account to secure its obligations
under derivative transactions. Segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of an Underlying Fund's assets could impede
portfolio management or the Underlying Fund's ability to meet redemption
requests or other current obligations. In order to maintain its required cover
for a derivative transaction, the Fund may need to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
derivative position.
The successful use of derivative transactions by an Underlying Fund is
dependent upon its investment adviser's ability to correctly anticipate trends
in the underlying asset. Hedging transactions are subject to risks; if the
investment adviser incorrectly anticipates trends in the underlying asset, the
Underlying Fund may be in a worse position than if no hedging had occurred. In
addition, there may be imperfect correlation between the Underlying Fund's
derivative transactions and the instruments being hedged.
ILLIQUID SECURITIES -- Some Underlying Funds may invest up to 15% of their net
assets in securities that are illiquid, in that they cannot be expected to be
sold within seven days at approximately the price at which they are valued. Due
to the absence of an active trading market, an Underlying Fund may experience
difficulty in valuing or disposing of illiquid securities.
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RESTRICTED SECURITIES, NON-PUBLICLY TRADED SECURITIES AND RULE 144A SECURITIES
- -- Underlying Funds may be permitted to invest in restricted securities and Rule
144A securities. Restricted securities cannot be sold to the public without
registration under the Securities Act of 1933 ("1933 Act"). Unless registered
for sale, these securities can be sold only in privately negotiated transactions
or pursuant to an exemption from registration. Restricted securities are
generally considered illiquid and, therefore, subject to the 15% limitation on
illiquid securities.
Non-publicly traded securities (including Rule 144A securities) may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Fund. In particular, Rule 144A
securities may be resold only to qualified institutional buyers in accordance
with Rule 144A under the 1933 Act. Unregistered securities may also be sold
abroad pursuant to Regulation S under the 1933 Act. Companies whose securities
are not publicly traded are not subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded. Acting pursuant to board-established guidelines, some
restricted securities and Rule 144A securities may be considered liquid.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS -- An Underlying Fund
may invest in securities purchased on a when-issued or delayed delivery basis.
Although the payment and interest terms of these securities are established at
the time the purchaser enters into the commitment, these securities may be
delivered and paid for at a future date. Purchasing when-issued securities
allows the Underlying Fund to lock in a fixed price or yield on a security it
intends to purchase. However, when the Underlying Fund purchases a when-issued
security, it immediately assumes the risk of ownership, including the risk of
price fluctuation until the settlement date.
The greater the Underlying Fund's outstanding commitments for these
securities, the greater the exposure to potential fluctuations in the net asset
value of that fund. Purchasing when-issued securities may involve the additional
risk that the yield available in the market when the delivery occurs may be
higher or the market price lower than that obtained at the time of commitment.
Although the Underlying Fund may be able to sell these securities prior to the
delivery date, it will purchase when- issued securities for the purpose of
actually acquiring the securities, unless after entering into the commitment a
sale appears desirable for investment reasons. When required by SEC guidelines,
the Underlying Fund will set aside permissible liquid assets in a segregated
account to secure its outstanding commitments for when-issued securities.
REVERSE REPURCHASE AGREEMENTS -- The Underlying Funds may also enter into
reverse repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Underlying Fund pursuant to its agreement to repurchase
them at a mutually agreed upon date, price and rate of interest. At the time the
Underlying Fund enters into a reverse repurchase agreement, it will establish
and maintain a segregated account with an approved custodian containing cash or
liquid high-grade debt securities having a value not less than the repurchase
price (including accrued interest). The assets contained in the segregated
account will be marked-to-market daily and additional assets will be placed in
such account on any day in which the assets fall below the repurchase price
(plus accrued interest). An Underlying Fund's liquidity and ability to manage
its assets might be affected when it sets aside cash or portfolio securities to
cover such commitments. Reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale may decline below the
price of the securities the fund has sold but is obligated to repurchase. In the
event the buyer of
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<PAGE> 31
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce the fund's obligation to repurchase the
securities, and the Underlying Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
Reverse repurchase agreements are considered to be borrowings under the 1940
Act.
SHORT SALES -- An Underlying Fund may engage in short sales of securities. In a
short sale, the Underlying Fund sells stock which it does not own, making
delivery with securities "borrowed" from a broker. The Underlying Fund is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. This price may or may not be less than the price at
which the security was sold by the Underlying Fund. Until the security is
replaced, the Underlying Fund is required to pay the lender any dividends or
interest which accrue during the period of the loan. In order to borrow the
security, the Underlying Fund may also have to pay a fee which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet margin requirements, until the
short position is closed out.
Certain Underlying Funds may sell short "against the box." A short sale is
"against the box"if at all times when the short position is open an Underlying
Fund owns an equal amount of the securities or securities convertible into, or
exchangeable without further consideration for, securities of the same issue as
the securities sold short. Such transactions serve to defer a gain or loss for
Federal income tax purposes.
LENDING PORTFOLIO SECURITIES -- From time to time, the Underlying Funds may lend
its Portfolio securities to brokers, dealers and other financial institutions
needing to borrow securities to complete certain transactions. In connection
with such loans, the Underlying Fund will receive collateral consisting of cash,
U.S. Government securities or irrevocable letters of credit. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The Underlying Fund can increase
its income through the investment of such collateral. The Underlying Fund
continues to be entitled to payments in amounts equal to the interest, dividends
or other distributions payable on the loaned security and receives interest on
the amount of the loan. Such loans will be terminable at any time upon specified
notice. The Underlying Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its agreement
with the Underlying Fund.
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CONTENTS PAGE
Highlights
Investment Objectives and Policies
Description of the Underlying Funds and Other Permissible Investments
Management of the Trust
Investment in Fund Shares
Share Redemption
Net Income and Distributions
Additional Information
Performance Advertising for the Fund
Tax Status
Appendix--Description of Permissible Underlying Fund Investments
NATIONAL DISTRIBUTOR AND INVESTMENT ADVISER
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
Box 1492
One Nationwide Plaza
Columbus, Ohio 43216
AUDITORS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Druen, Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215
29
<PAGE> 33
STATEMENT OF ADDITIONAL INFORMATION
JANUARY ___, 1998
NATIONWIDE ASSET ALLOCATION TRUST
THE AGGRESSIVE PORTFOLIO
THE MODERATELY AGGRESSIVE PORTFOLIO
THE MODERATE PORTFOLIO
THE MODERATELY CONSERVATIVE PORTFOLIO
THE CONSERVATIVE PORTFOLIO
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than that set forth in the
Prospectus for the Portfolios dated January ___, 1998 and should be read in
conjunction with that Prospectus. The Prospectus may be obtained from Nationwide
Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43215, or by
calling (614) 249-____.
Terms not defined in this Statement of Additional Information have the meanings
assigned to them in the Prospectus.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
General Information and History
Investment Objectives and Policies
Investment Restrictions
Major Shareholders
Trustees and Officers of the Trust
Calculating Yield and Total Return
Investment Advisory and Other Services
Brokerage Allocations
Purchases, Redemptions and Pricing of Shares
Additional Information
Tax Status
Financial Statements
- --------------------------------------------------------------------------------
GENERAL INFORMATION AND HISTORY
Nationwide Asset Allocation Trust is an open-end investment company organized
under the laws of Ohio, by a Declaration of Trust, dated September 9, 1997. The
Trust offers shares in five separate mutual funds, each with its own investment
objectives.
<PAGE> 34
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus discusses the investment objectives of the Portfolios and the
Proprietary Funds in which the Portfolios may invest, as well as the policies
employed to achieve those objectives. The types of Unaffiliated Funds in which
the Portfolios may invest are also generally discussed in the Prospectus. The
following supplements the information in the Prospectus concerning the types of
securities and other instruments in which the Underlying Funds may invest (and
certain short-term investments in which the Portfolios may invest directly), the
investment policies and portfolios strategies the Underlying Funds may utilize
and certain risks attendant to such investments, policies and strategies. There
can be no assurance that the respective investment objectives of the Portfolios
or the Underlying Funds will be achieved.
The Trust's Declaration of Trust permits the Board of Trustees to establish
additional Portfolios from time to time. The investment objectives, policies and
restrictions applicable to additional Portfolios would be established by the
Board of Trustees at the time such Portfolios were established and may differ
from those set forth in the Prospectus and this Statement of Additional
Information.
SPECIAL SITUATION COMPANIES. Some of the Underlying Funds may invest in the
securities of "special situation companies," which include those involved in an
actual or prospective acquisition or consolidation; reorganization;
recapitalization; merger, liquidation or distribution of cash, securities or
other assets; a tender or exchange offer; a breakup or workout of a holding
company; or litigation which, if resolved favorably, would improve the value of
the company's stock. If the actual or prospective situation does not materialize
as anticipated, the market price of the securities of a "special situation
company" may decline significantly. If the investment adviser of an Underlying
Fund analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, the Underlying Fund may
achieve capital growth. There can be no assurance however, that a special
situation that exists at the time the Underlying Fund makes its investment will
be consummated under the terms and within the time period contemplated.
FOREIGN SECURITIES. Investors in the Portfolios should recognize that investment
by the Underlying Funds in foreign securities involve certain special
considerations which are not typically associated with investing in United
States securities. Since investments in foreign companies will frequently
involve currencies of foreign countries, and since the Underlying Funds may hold
securities and funds in foreign currencies, the Portfolios may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, if any, and may incur costs in connection with conversions between
various currencies. Most foreign stock markets, while growing in volume of
trading activity, have less volume than the New York Stock Exchange, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. Similarly, volume and liquidity in
most foreign bond markets are less than in the United States and at times,
volatility of price can be greater than in the United States. Fixed commissions
on foreign securities exchanges are generally higher than negotiated commissions
on United States exchanges, although the Underlying Funds endeavor to achieve
the most favorable net results on their portfolio transactions. There is
generally less government supervision and regulation of
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<PAGE> 35
securities exchanges, brokers and listed companies in foreign countries than in
the United States. In addition, with respect to certain foreign countries, there
is the possibility of exchange control restrictions, expropriation or
confiscatory taxation, and political, economic or social instability, which
could affect investments in those countries. Foreign securities such as those
purchased by the Underlying Funds may be subject to foreign government taxes,
higher custodian fees and dividend collection fees which could reduce the yield
on such securities.
Investments may be made from time to time by the Underlying Funds in companies
in developing countries as well as in developed countries. Although there is no
universally accepted definition, a developing country is generally considered to
be a country which is in the initial stages of industrialization. Shareholders
should be aware that investing in the equity and fixed income markets of
developing countries involves exposure to unstable governments, economies based
on only a few industries, and securities markets which trade a small number of
securities. Securities markets of developing countries tend to be more volatile
than the markets of developed countries; however, such markets have in the past
provided the opportunity for higher rates of return to investors.
The value and liquidity of investments in developing countries may be affected
favorably or unfavorably by political, economic, fiscal, regulatory or other
developments in the particular countries or neighboring regions. The extent of
economic development, political stability and market depth of different
countries varies widely. Certain countries in the Asia region, including
Cambodia, China, Laos, Indonesia, Malaysia, the Philippines, Thailand, and
Vietnam are either comparatively underdeveloped or are in the process of
becoming developed. Such investments typically involve greater potential for
gain or loss than investments in securities of issuers in developed countries.
The securities markets in developing countries are substantially smaller, less
liquid and more volatile than the major securities markets in the United States.
A high proportion of the shares of many issuers may be held by a limited number
of persons and financial institutions, which may limit the number of shares
available for investment by the Underlying Funds. Similarly, volume and
liquidity in the bond markets in developing countries are less than in the
United States and, at times, price volatility can be greater than in the United
States. A limited number of issuers in developing countries' securities markets
may represent a disproportionately large percentage of market capitalization and
trading volume. The limited liquidity of securities markets in developing
countries may also affect an Underlying Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so. Accordingly, during periods
of rising securities prices in the more illiquid securities markets, an
Underlying Fund's ability to participate fully in such price increases may be
limited by its investment policy of investing not more than 15% of its total net
assets in illiquid securities. Conversely, an Underlying Fund's inability to
dispose fully and promptly of positions in declining markets will cause an
Underlying Fund's net asset value to decline as the value of the unsold
positions is marked to lower prices. In addition, securities markets in
developing countries are susceptible to being influenced by large investors
trading significant blocks of securities.
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Political and economic structures in many of such countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of the United States.
Certain of such countries have in the past failed to recognize private property
rights and have at times nationalized or expropriated the assets of private
companies. As a result, the risks described above, including the risks of
nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the value of an
Underlying Fund's investments in those countries and the availability to the
Underlying Fund of additional investments in those countries.
Economies of developing countries may differ favorably or unfavorably from the
United States economy in such respects as rate of growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. As export-driven economies, the economies of
countries in the Asia Region are affected by developments in the economies of
their principal trading partners. Hong Kong, Japan and Taiwan have limited
natural resources, resulting in dependence on foreign sources for certain raw
materials and economic vulnerability to global fluctuations of price and supply.
Certain developing countries do not have comprehensive systems of laws,
although substantial changes have occurred in many such countries in this regard
in recent years. Laws regarding fiduciary duties of officers and directors and
the protection of shareholders may not be well developed. Even where adequate
law exists in such developing countries, it may be impossible to obtain swift
and equitable enforcement of such law, or to obtain enforcement of the judgment
by a court of another jurisdiction.
Trading in futures contracts traded on foreign commodity exchanges may be
subject to the same or similar risks as trading in foreign securities.
DEPOSITARY RECEIPTS. Certain of the Underlying Funds may invest in foreign
securities by purchasing depositary receipts, including American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs (also referred to as Continental Depositary
Receipts ("CDRs"), in bearer form, may be denominated in other currencies and
are designed for use in European securities markets. ADRs are receipts typically
issued by a U.S. Bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
An Underlying Fund may invest in depositary receipts through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
deposited security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation
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to distribute shareholder communications received from the issuer of the
deposited security or to pass through voting rights to the holders of such
receipts in respect of the deposited securities.
PREFERRED STOCK. A number of the Underlying Funds may invest in preferred
stocks. Preferred stocks, like debt obligations, are generally fixed-income
securities. Shareholders of preferred stocks normally have the right to
receive dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution
by the issuing corporation. Dividends on the preferred stock may be cumulative,
and all cumulative dividends usually must be paid prior to common shareholders
receiving any dividends. Because preferred stock dividends must be paid before
common stock dividends, preferred stocks generally entail less risk than common
stocks. Upon liquidation, preferred stocks are entitled to a specified
liquidation preference, which is generally the same as the par or stated value,
and are senior in right of payment to common stock. Preferred stocks are,
however, equity securities in the sense that they do not represent a liability
of the issuer and, therefore, do not offer as great a degree or protection of
capital or assurance of continued income as investments in corporate debt
securities. In addition, preferred stocks are subordinated in right of payment
to all debt obligations and creditors of the issuer, and convertible preferred
stocks may be subordinated to other preferred stock of the same issuer.
CONVERTIBLE SECURITIES. Convertible securities in which some of the Underlying
Funds may invest, including both convertible debt and convertible preferred
stock, may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities enable
an investor to benefit from increases in the market price of the underlying
common stock. Convertible securities provide higher yields than the underlying
equity securities, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates and, in addition, also
fluctuates in relation to the underlying common stock.
EURODOLLAR AND YANKEE OBLIGATIONS. Eurodollar bank obligations are
dollar-denominated certificates of deposit and time deposits issued outside the
U.S. capital markets by foreign branches of U.S. banks and by foreign banks.
Yankee bank obligations are dollar-denominated obligations issued in the U.S.
capital markets by foreign banks.
Eurodollar and Yankee bank obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) bank obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across their borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
DEBT OBLIGATIONS. In addition to equity securities, the Underlying Funds may be
permitted to invest in debt obligations. These include money market instruments,
U.S. Government or Agency securities, and corporate bonds and debentures which
generally have received one of the four highest ratings from a nationally
recognized statistical rating organization ("NRSRO"), or if not rated by any
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NRSRO, are deemed comparable by a fund's investment adviser to such rated
securities ("Comparable Unrated Securities"). The ratings of an NRSRO represent
its opinion as to the quality of securities it undertakes to rate. Ratings are
not absolute standards of quality; consequently, securities with the same
maturity, coupon, and rating may have different yields. The ratings assigned by
the NRSROs are described in Appendix A to this Statement of Additional
Information.
Fixed income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on its obligations ("credit risk") and are
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer, and general market
liquidity ("market risk"). Lower-rated securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. Subsequent to its purchase by an Underlying Fund, an issue of securities
may cease to be rated or its rating may be reduced, so that the securities may
no longer be eligible for purchase by the Underlying Fund. In such a case, the
Underlying Fund's investment adviser will evaluate whether the downgraded
security should be disposed of.
RATINGS AS INVESTMENT CRITERIA. High-quality and investment grade debt
obligations are characterized as such based on their ratings by nationally
recognized statistical rating organizations ("NRSROs"). In general, the ratings
of NRSROs represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market value
risk of the securities. These ratings are used by Underlying Funds as initial
criteria for the selection of portfolio securities, but the Underlying Funds
will also rely upon the independent advice of their respective advisers to
evaluate potential investments. Among the factors that will be considered are
the long-term ability of the issuer to pay principal and interest and general
economic trends. The Appendix to this Statement of Additional Information
contains further information about the rating categories of NRSROs and their
significance.
Subsequent to its purchase by a Fund or Underlying Fund, an issue of securities
may cease to be rated or its rating may be reduced below the minimum required
for purchase by an Underlying Fund. In addition, it is possible that an NRSRO
might not change its rating of a particular issue to reflect subsequent events.
None of these events generally will require sale of such securities, but the
Underlying Fund's investment adviser will consider such events in its
determination of whether the Underlying Fund should continue to hold the
securities. In addition, to the extent that the ratings change as a result of
changes in such organizations or their rating systems, or due to a corporate
reorganization, an Underlying Fund will attempt to use comparable rations as
standards for its investments in accordance with its investment objective and
policies.
U.S. GOVERNMENT SECURITIES. Some of the Underlying Funds may invest in U.S.
government securities. These securities are of varying types which include but
are not limited to:
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- - TREASURY NOTES AND BONDS - These are direct obligations of the U.S.
Government. New issues of notes mature in one to ten years while bonds
generally have a maturity of ten years or more.
- - TREASURY BILLS - These are direct obligations of the U.S. Government backed
by the full faith and credit of the United States and mature in one year or
less.
- - SECURITIES ISSUED BY INSTRUMENTALITIES OF THE U.S. GOVERNMENT - These
securities are issued by federally-chartered instrumentalities. Some of
these securities are guaranteed by the United States Treasury or are
supported by the issuer's right to borrow from the Treasury and are backed
by the credit of the Federal instrumentality itself. Some of these
instrumentalities (listed for example purposes only) are:
- Bank for Cooperatives (COOP)
- Federal Home Loan Banks (FHLB)
- Federal National Mortgage Association (FNMA)
- Government National Mortgage Association (GNMA)
- Tennessee Valley Authority (TVA)
- Farmers Home Administration (FHA)
The value of the government securities owned an Underlying Fund will vary
inversely with changes in interest rates. As with any fixed income investment,
interest rate risk does exist; i.e., when interest rates decline, the market
value of a portfolio can be expected to rise; conversely, when interest rates
rise, the market value of the portfolio can be expected to fall. While the
Underlying Fund may engage in portfolio trading to manage this risk (i.e.,
shortening the average maturity of the portfolio in anticipation of a rise in
interest rates so as to minimize depreciation of principal, or lengthening the
portfolio in anticipation of a decline in interest rates so as to maximize
appreciation of capital), there is no assurance that capital will be preserved.
MONEY MARKET INSTRUMENTS. Both the Funds and the Underlying Funds may invest in
certain types of money market instruments which may include the following types
of instruments:
- - obligations issued or guaranteed as to interest and principal by the U.S.
government, its agencies, or instrumentalities, or any federally chartered
corporation;
- - repurchase agreements;
- - certificates of deposit, time deposits and bankers' acceptances issued by
domestic banks (including their branches located outside the United States
and subsidiaries located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions
- - commercial paper, which are short-term unsecured promissory notes issued by
corporations in order to finance their current operations. Generally the
commercial paper will be rated
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within the top two rating categories by an NRSRO, or if not rated, is
issued and guaranteed as to payment of principal and interest by
companies which at the date of investment have a high quality
outstanding debt issue;
- - high quality short-term (maturity in 397 days or less) corporate
obligations;
- - bank loan participation agreements representing corporations and banks
having a high quality short-term rating, at the date of investment, and
under which the Fund or Underlying Fund will look to the
creditworthiness of the lender bank, which is obligated to make
payments of principal and interest on the loan, as well as to
creditworthiness of the borrower.
Some of the Underlying Funds may invest in the securities of foreign corporate
issuers and in the securities of foreign branches of U.S. banks, such as
negotiable certificates of deposit (Eurodollars) in U.S. dollar denominations.
Because of this, investment in such a Fund or Underlying Fund involves risks
that are different in some respects from an investment in a fund which invests
only in debt obligations of U.S. domestic issuers. Such risks may include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities held in the
portfolio, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on securities in the portfolio.
REPURCHASE AGREEMENTS. In connection with the purchase of a repurchase agreement
by a Portfolio or by an Underlying Fund, the fund's custodian will have custody
of, and will hold in a segregated account, securities acquired by the Portfolio
or Underlying Fund under a repurchase agreement. Repurchase agreements are
contracts under which the buyer of a security simultaneously commits to resell
the security to the seller at an agreed-upon price and date. Repurchase
agreements are considered by the staff of the Securities and Exchange Commission
(the "SEC") to be loans by the fund. Repurchase agreements may be entered into
with respect to securities of the type in which it may invest or government
securities regardless of their remaining maturities. A Portfolio will require
that additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. Repurchase agreements involve
certain risks in the event of default or insolvency by the other party,
including possible delays or restrictions upon the Portfolio or Underlying
Fund's ability to dispose of the underlying securities, the risk of a possible
decline in the value of the underlying securities during the period in which the
Portfolio or Underlying Fund seeks to assert its rights to them, the risk of
incurring expenses associated with asserting those right and the risk of losing
all or part of the income from the repurchase agreement.
MORTGAGE AND ASSET-BACKED SECURITIES. Some of the Underlying Funds may purchase
mortgage-backed securities and asset-backed securities. Mortgage-backed
securities represent direct or indirect participation in, or are secured by and
payable from, mortgage loans secured by real property, and include single-and
multi-class pass-through securities and collateralized mortgage obligations.
Such securities may be issued or guaranteed by U.S. Government agencies or
instrumentalities or by
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private issuers, generally originators in mortgage loans, including savings and
loan associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities (collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. Government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement. These credit
enhancements may include letters of credit, reserve funds,
overcollateralization, or guarantees by third parties.
Private lenders or government-related entities may also create mortgage loan
pools offering mortgage-backed securities where the mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may be shorter than was previously customary. As new types of
mortgage-backed securities are developed and offered to investors, an Underlying
Fund, consistent with its investment objective and policies, may consider making
investments in such new types of securities. The market for privately issued
mortgage and asset-backed securities is smaller and less liquid than the market
for government sponsored mortgaged-backed securities.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interest therein, rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
The yield characteristics of mortgage and asset-backed securities differ from
those of traditional debt obligations. Among the principal differences are that
interest and principal payments are made more frequently on mortgage and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if an Underlying Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is lower than expected
will have the opposite effect of increasing the yield to maturity. Conversely,
if a Fund purchases these securities at a discount, a prepayment rate that is
faster than expected will increase yield to maturity, while a prepayment rate
that is slower than expected will reduce yield to maturity. Accelerated
prepayments on securities purchased by the Underlying Fund at a premium also
pose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is prepaid in full.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and
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interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA certificates also are supported by the authority of GNMA
to borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States. Fannie Maes are guaranteed as to timely payment of
the principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCS"). The FHLMC is
a corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
STRIPPED MORTGAGE-BACKED SECURITIES. Each of the Bond Funds (other than the
Tax-Free Income Fund) may invest in stripped mortgage-backed securities.
Stripped mortgage-backed securities ("SMBS") are derivative multiclass mortgage
securities. SMBS may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions on an underlying pool of mortgage assets. A common
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the interest-only or "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, an
Underlying Fund may fail to fully recoup its initial investment in these
securities even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed "illiquid"
and subject to an Underlying Fund's limitations on investment in illiquid
securities.
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The market value of such securities generally is more sensitive to changes in
prepayment and interest rates than is the case with traditional mortgage- and
asset-backed securities, and in some cases the market value may be extremely
volatile.
HIGH-YIELD (HIGH-RISK) SECURITIES. Some of the Underlying Funds have the
authority to invest a limited portion of their assets in non-investment grade
debt securities. Non-investment grade debt securities (hereinafter referred to
as "lower-quality securities") include (i) bonds rated as low as C by Moody's,
Standard & Poor's, or Fitch, or CCC by D&P; (ii) commercial paper rated as low
as C by Standard & Poor's, Not Prime by Moody's or Fitch 4 by Fitch; and (iii)
unrated debt securities of comparable quality. Lower-quality securities, while
generally offering higher yields than investment grade securities with similar
maturities, involve greater risks, including the possibility of default or
bankruptcy. They are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in these securities are discussed
below.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. All interest-bearing
securities typically experience appreciation when interest rates decline and
depreciation when interest rates rise. The market values of lower-quality and
comparable unrated securities tend to reflect individual corporate developments
to a greater extent than do higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Lower-quality and
comparable unrated securities also tend to be more sensitive to economic
conditions than are higher-rated securities. As a result, they generally involve
more credit risks than securities in the higher-rated categories. During an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower-quality and comparable unrated securities may
experience financial stress and may not have sufficient revenues to meet their
payment obligations. The issuer's ability to service its debt obligations may
also be adversely affected by specific corporate developments, the issuer's
inability to meet specific projected business forecasts or the unavailability of
additional financing. The risk of loss due to default by an issuer of these
securities is significantly greater than issuers of higher-rated securities
because such securities are generally unsecured and are often subordinated to
other creditors. Further, if the issuer of a lower-quality or comparable unrated
security defaulted, an Underlying Fund might incur additional expenses to seek
recovery. Periods of economic uncertainty and changes would also generally
result in increased volatility in the market prices of these securities and thus
in the Underlying Fund's net asset value.
As previously stated, the value of a lower-quality or comparable unrated
security will decrease in a rising interest rate market, and accordingly so will
the Underlying Fund's net asst value. If the Underlying Fund experiences
unexpected net redemptions in such a market, it may be forced to liquidate a
portion of its portfolio securities without regard to their investment merits.
Due to the limited liquidity of lower-quality and comparable unrated securities
(discussed below), the Underlying Fund may be forced to liquidate these
securities at a substantial discount. Any such liquidation would reduce the
Underlying Fund's asset base over which expenses could be allocated and could
result in a reduced rate of return for the Underlying Fund.
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PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities at a lower interest rate. To the extent an issuer is
able to refinance the securities, or otherwise redeem them, the Underlying Fund
may have to replace the securities with a lower yielding security, which would
result in a lower return for the Underlying Fund.
CREDIT RATINGS. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality. Investments in lower-quality and
comparable unrated securities will be more dependent on an investment adviser's
credit analysis than would be the case with investments in investment-grade debt
securities. An Underlying Fund's investment adviser will employ its own credit
research and analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. When investing in lower-quality securities, an investment adviser
will continually monitor the investments in an Underlying Fund's portfolio and
carefully evaluate whether to dispose of or to retain lower-quality and
comparable unrated securities whose credit ratings or credit quality may have
changed.
LIQUIDITY AND VALUATION. An Underlying Fund may have difficulty
disposing of certain lower-quality and comparable unrated securities because
there may be a thin trading market for such securities. Because not all dealers
maintain markets in all lower-quality and comparable unrated securities, there
is no established retail secondary market for many of these securities and
therefore such securities may be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market does exist, it
is generally not as liquid as the secondary market for higher-rated securities.
The lack of a liquid secondary market may have an adverse impact on the market
price of the security. As a result, an Underlying Fund's asset value and ability
to dispose of particular securities, when necessary to meet an Underlying Fund's
liquidity needs or in response to a specific economic event, may be impacted.
The lack of a liquid secondary market for certain securities may also make it
more difficult for the Underlying Fund to obtain accurate market quotations for
purposes of valuing the Underlying Fund's portfolio. Market quotations are
generally available on many lower-quality and comparable unrated issues only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales. During periods of thin trading, the
spread between bid and asked prices is likely to increase significantly. In
addition, adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of lower-quality and
comparable unrated securities, especially in a thinly traded market.
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WARRANTS. Some of the Underlying Funds may acquire warrants. Warrants are
securities giving the holder the right, but not the obligation, to buy the stock
of an issuer at a given price (generally higher than the value of the stock at
the time of issuance), on a specified date, during a specified period, or
perpetually. Warrants may be acquired separately or in connection with the
acquisition of securities.
Warrants do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle their holder to purchase, and they
do not represent any rights in the assets of the issuer. As a result, warrants
may be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
SHORT SALES. Certain of the Underlying Funds may from time to time sell
securities short. A short sale is a transaction in which the Underlying Fund
sells securities that it does not own (but has borrowed) in anticipation of a
decline in the market price of the securities.
When an Underlying Fund makes a short sale, the proceeds it receives from the
sale are retained by a broker under the Underlying Fund replaces the borrowed
securities. to deliver the securities to the buyer, the Underlying Fund must
arrange through a broker to borrow the securities and, in so doing, the
Underlying Fund becomes obligated to replace the securities borrowed at their
market price at the time of replacement, whatever the price may be. The
Underlying Fund may have to pay a premium to borrow the securities and must pay
any dividends or interest payable on the securities until they are replaced.
An Underlying Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash or U.S. government securities. In addition, the Underlying Fund
will place in a segregated account with its custodian an amount of cash or U.S.
government securities equal to the difference, if any, between (a) the market
value of the securities sold at the time they were sold short and (b) any cash
or U.S. government securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Underlying Fund will maintain the
segregated account daily at a level so that the amount deposited in the account
plus the amount deposited with the broker (not including the proceeds from the
short sale) (a) will equal the current market value of the securities sold short
and (b) will not be less than the market value of the securities at the time
they were sold short.
Some of the Underlying Funds may engage in short sales only if at the time of
the short sale the fund owns or has the right to obtain without additional cost
an equal amount of the security being sold short. This investment technique is
known as a short sale "against the box."
RESTRICTED, NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Each Portfolio or
Underlying Fund may not invest more than 15% of its net assets, in the
aggregate, in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits maturing in
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more than seven days and securities that are illiquid because of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities, and an
investment company might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. An investment company might
also have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
The SEC has adopted Rule 144A which allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. It is anticipated that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this regulation and use of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
The Underlying Funds may also sell over-the-counter ("OTC") options and, in
connection therewith, segregate assets or cover its obligations with respect to
OTC options written by the fund. The assets used as cover for OTC options
written by an Underlying Fund will be considered illiquid unless the OTC options
are sold to qualified dealers who agree that the fund may repurchase any OTC
option it writes at a maximum price to be calculated by a formula set forth in
the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
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WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Some of the
Underlying Funds may invest without limitation in securities purchased on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occurs beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 45 days. The payment
obligation and the interest rate that will be received on when-issued securities
are fixed at the time the buyer enters into the commitment. Due to fluctuations
in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the investments
are actually delivered to the buyers.
When an Underlying Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations equal to the amount of the commitment
in a segregated account. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case the Underlying
Fund may be required subsequently to place additional assets in the segregated
account in order to ensure that the value of the account remains equal to the
amount of such fund's commitment. It may be expected that the Underlying Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Underlying Fund engages in when-issued or delayed-delivery transactions, it
relies on the other party to consummate the trade. Failure of the seller to do
so may result in a fund incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
LENDING PORTFOLIO SECURITIES. Some of the Underlying Funds may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided it receives cash collateral which at all times is maintained in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, an Underlying Fund can increase its
income through the investment of the cash collateral. For the purposes of this
policy, the Underlying Fund considers collateral consisting of cash, U.S.
Government securities or letters of credit issued by banks whose securities meet
the standards for investment by the Fund to be the equivalent of cash. From time
to time, the Underlying Fund may return to the borrower or a third party which
is unaffiliated with it, and which is acting as a "placing broker," a part of
the interest earned from the investment of collateral received for securities
loaned.
The SEC currently requires that the following conditions must be met whenever
portfolio securities are loaned: (1) the fund must receive at least 100% cash
collateral of the type discussed in the preceding paragraph from the borrower;
(2) the borrower must increase such collateral whenever the market value of the
securities loaned rises above the level of such collateral; (3) the fund must be
able to terminate the loan at any time; (4) the fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
payable on the loaned securities, and any increase in market value; (5) the fund
may pay only reasonable custodian fees in connection with the loan; and (6)
while any voting rights on the loaned securities may pass to the borrower, the
fund's board of directors or trustees must be able to terminate the loan and
regain the right to vote the securities if a material event adversely affecting
the investment occurs. These conditions may
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<PAGE> 48
be subject to future modification. Loan agreements involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Underlying Fund's ability to recover the loaned securities
or dispose of the collateral for the loan.
BORROWING. Some of the Underlying Funds may borrow money from banks, limited by
any investment restrictions of such fund, and may engage in reverse repurchase
agreements which may be considered a form of borrowing. Some of the borrowings
by an Underlying Fund may be on a secured basis. In such situations, either the
custodian will segregate the pledged assets for the benefit of the lender or
arrangements will be made with a suitable subcustodian, which may include the
lender.
DERIVATIVE INSTRUMENTS. As discussed in its Prospectus, a number of the
Underlying Funds may use a variety of derivative instruments, including options,
futures contracts (sometimes referred to as "futures"), options on futures
contracts, stock index options, forward currency contracts and swap agreements
to hedge the Underlying Fund's portfolio or for risk management.
The use of these instruments is subject to applicable regulations of the SEC,
the several options and futures exchanges upon which they may be traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, an Underlying Fund's ability to use these instruments
will be limited by tax considerations.
SPECIAL RISKS OF DERIVATIVE INSTRUMENTS. The use of derivative instruments
involves special considerations and risks as described below. Risks pertaining
to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon an investment
adviser's ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the prices
of individual securities. While an investment adviser is experienced in the use
of these instruments, there can be no assurance that any particular strategy
adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of an instrument and price movements of investments being
hedged. For example, if the value of an instrument used in a short hedge (such
as writing a call option, buying a put option, or selling a futures contract)
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which these instruments are
traded. The effectiveness of hedges using instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce the risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However,
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hedging strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable price movements in the hedged investments. For
example, if an Underlying Fund entered into a short hedge because its investment
adviser projected a decline in the price of a security in the Underlying Fund's
portfolio, and the price of that security increased instead, the gain from that
increase might be wholly or partially offset by a decline in the price of the
instrument. Moreover, if the price of the instrument declined by more than the
increase in the price of the security, the Underlying Fund could suffer a loss.
(4) As described below, an Underlying Fund might be required to maintain
assets as "cover," maintain segregated accounts, or make margin payments when it
takes positions in these instruments involving obligations to third parties
(i.e., instruments other than purchased options). If an Underlying Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair an Underlying Fund's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that the Underlying Fund sell
a portfolio security at a disadvantageous time. An Underlying Fund's ability to
close out a position in an instrument prior to expiration or maturity depends on
the existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the other party to the transaction ("counter
party") to enter into a transaction closing out the position. Therefore, there
is no assurance that any hedging position can be closed out at a time and price
that is favorable to the Underlying Fund.
OPTIONS. An Underlying Fund may purchase or write put and call options on
securities, indices, and foreign currency, and enter into closing transactions
with respect to such options to terminate an existing position. A call option
gives the purchaser the right to buy, and the writer the obligation to sell, the
underlying security at the agreed upon exercise (or "strike") price during the
option period. A put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying security at the strike price during
the option period. Purchasers of options pay an amount, known as a premium, to
the option writer in exchange for the right under the option contract. Option
contracts may be written with terms which would permit the holder of the option
to purchase or sell the underlying security only upon the expiration date of the
option. The initial purchase or sale of an option contract is an "opening
transaction." In order to close out an option position, a Fund may enter into a
"closing transaction," the sale or purchase, as the case may be, of an option
contract on the same security with the same exercise price and expiration date
as the option contract originally opened. The purchase of call options serves as
a long hedge, and the purchase of put options serves as a short hedge. Writing
put or call options can enable an Underlying Fund to enhance income by reason of
the premiums paid by the purchaser of such options. Writing call options serves
as a limited short hedge because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised, and
the Underlying Fund will be obligated to sell the security at less than its
market value or will be obligated to purchase the security at a price greater
than that at which the security must be sold under the option. All or a portion
of any assets used as cover for OTC options
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written by a Fund would be considered illiquid to the extent described under
"Restricted and Illiquid Securities" above. Writing put options serves as a
limited long hedge because increases in the value of the hedged investment would
be offset to the extent of the premium received for writing the option. However,
if the security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised, and the
Underlying Fund will be obligated to purchase the security at more than its
market value.
The value of an option position will reflect, among other things, the historical
price volatility of the underlying investment, the current market value of the
underlying investment, the time remaining until expiration, the relationship of
the exercise price to the market price of the underlying investment, and general
market conditions. Options that expire unexercised have no value. Options used
by an Underlying Fund may include European-style options, which are only
exercisable at expiration. This is in contrast to American-style options which
are exercisable at any time prior to the expiration date of the option.
An Underlying Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, an Underlying Fund
may terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, an Underlying Fund may terminate a position in a put or
call option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Underlying
Fund to realize the profit or limit the loss on an option position prior to its
exercise or expiration.
An Underlying Fund may purchase or write both OTC options and options traded on
foreign and U.S. exchanges. Exchange-traded options are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. OTC
options are contracts between the Underlying Fund and the counter party (usually
a securities dealer or a bank) with no clearing organization guarantee. Thus,
when an Underlying Fund purchases or writes an OTC option, it relies on the
counter party to make or take delivery of the underlying investment upon
exercise of the option. Failure by the counter party to do so would result in
the loss of any premium paid by the Underlying Fund as well as the loss of any
expected benefit of the transaction.
An Underlying Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Closing
transactions can be made for OTC options only by negotiating directly with the
counter party, or by a transaction in the secondary market if any such market
exists. Although an Underlying Fund will generally enter into OTC options only
with counter parties that are expected to be capable of entering into closing
transactions with the Underlying Fund, there is no assurance that the Underlying
Fund will in fact be able to close out an OTC option at a favorable price prior
to expiration. In the event of insolvency of the counter party, an Underlying
Fund might be unable to close out an OTC option position at any time prior to
its expiration.
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If an Underlying Fund were unable to effect a closing transaction for an option
it had purchased, it would have to exercise the option to realize any profit.
The inability to enter into a closing purchase transaction for a covered call
option written by the Underlying Fund could cause material losses because the
Underlying Fund would be unable to sell the investment used as a cover for the
written option until the option expires or is exercised.
An Underlying Fund may engage in options transactions on indices in much the
same manner as the options on securities discussed above, except that index
options may serve as a hedge against overall fluctuations in the securities
markets in general. Index options (or options on securities indices) are similar
in many respects to options on securities except that an index option gives the
holder the right to receive, upon exercise, cash instead of securities, if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. Price movements in securities in which a Fund owns or
intends to purchase probably will not correlate perfectly with movements in the
level of an index and, therefore, a Fund bears the risk of a loss on an index
option that is not completely offset by movements in the price of such
securities. Because index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific securities, cannot provide in advance for, or cover, its
potential settlement obligations acquiring and holding the underlying
securities. A Fund will be required to segregate assets and/or provide an
initial margin to cover index options that would require it to pay cash upon
exercise.
The writing and purchasing of options is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of attempted
hedging.
Transactions using options (other than purchased options) expose an Underlying
Fund to counter party risk. To the extent required by SEC guidelines, an
Underlying Fund will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities, other options, or futures
or (2) cash and liquid obligations with a value sufficient at all times to cover
its potential obligations to the extent not covered as provided in (1) above.
Such Underlying Fund will set aside cash and/or appropriate liquid assets in a
segregated custodial account if required to do so by the SEC and CFTC
regulations. Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding option or futures contract is open,
unless they are replaced with similar assets. As a result, the commitment of a
large portion of an Underlying Fund's assets to segregated accounts as a cover
could impede portfolio management or the Underlying Fund's ability to meet
redemption requests or other current obligations.
FUTURES CONTRACTS. Some of the Underlying Funds may enter into futures
contracts, including interest rate, index, and currency futures and purchase and
write (sell) related options. The purchase of futures or call options thereon
can serve as a long hedge, and the sale of futures or the purchase of put
options thereon can serve as a short hedge. Writing covered call options on
futures contracts can serve as a limited short hedge, and writing covered put
options on futures contracts can serve
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as a limited long hedge, using a strategy similar to that used for writing
covered options in securities. An Underlying Fund's hedging may include
purchases of futures as an offset against the effect of expected increases in
securities prices or currency exchange rates and sales of futures as an offset
against the effect of expected declines in securities prices or currency
exchange rates. An Underlying Fund may write put options on futures contracts
while at the same time purchasing call options on the same futures contracts in
order to create synthetically a long futures contract position. Such options
would have the same strike prices and expiration dates. An Underlying Fund will
engage in this strategy only when its investment adviser believes it is more
advantageous to the Underlying Fund than is purchasing the futures contract.
To the extent required by regulatory authorities, an Underlying Fund will
generally only enter into futures contracts that are traded on U.S. or foreign
exchanges or boards of trade approved by the CFTC and are standardized as to
maturity date and underlying financial instrument. These transactions may be
entered into for "bona fide hedging" purposes as defined in CFTC regulations and
other permissible purposes including increasing return and hedging against
changes in the value of portfolio securities due to anticipated changes in
interest rates, currency values and/or market conditions. The ability of an
Underlying Fund to trade in futures contracts may be limited by the requirements
of the Code applicable to a regulated investment company.
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (e.g.,
debt security) or currency for a specified price at a designated date, time, and
place. An index futures contract is an agreement pursuant to which the parties
agree to take or make delivery of an amount of cash equal to a specified
multiplier times the difference between the value of the index at the close of
the last trading day of the contract and the price at which the index futures
contract was originally written. Transactions costs are incurred when a futures
contract is bought or sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as the case may be, of the
instrument, the currency, or by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out prior to delivery by
entering into an offsetting transaction in a matching futures contract. Although
the value of an index might be a function of the value of certain specified
securities, no physical delivery of those securities is made. If the offsetting
purchase price is less than the original sale price, an Underlying Fund realizes
a gain; if it is more, the Underlying Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Underlying
Fund realizes a gain; if it is less, the Underlying Fund realizes a loss. The
transaction costs must also be included in these calculations. There can be no
assurance, however, that the Underlying Fund will be able to enter into an
offsetting transaction with respect to a particular futures contract at a
particular time. If an Underlying Fund is not able to enter into an offsetting
transaction, the fund will continue to be required to maintain the margin
deposits on the futures contract.
No price is paid by an Underlying Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, the Underlying Fund is required
to deposit in a segregated account with its custodian, in the name of the
futures broker through whom the transaction was effected,
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"initial margin" consisting of cash, U.S. government securities or other liquid
obligations, in an amount generally equal to 10% or less of the contract value.
Margin must also be deposited when writing a call or put option on a futures
contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Underlying Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Underlying Fund may be
required by an exchange to increase the level of its initial margin payment, and
initial margin requirements might be increased generally in the future by
regulatory action.
Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents a
daily settlement of an Underlying Fund's obligations to or from a futures
broker. When an Underlying Fund purchases an option on a future, the premium
paid plus transaction costs is all that is at risk. In contrast, when an
Underlying Fund purchases or sells a futures contract or writes a call or put
option thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Underlying Fund has
insufficient cash to meet daily variation margin requirements, it might need to
sell securities at a time when such sales are disadvantageous. Purchasers and
sellers of futures positions and options on futures can enter into offsetting
closing transactions by selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions in futures and options on
futures may be closed only on an exchange or board of trade on which they were
entered into (or through a linked exchange). Although an Underlying Fund will
only enter into futures transactions only on exchanges or boards of trade where
there appears to be an active market, there can be no assurance that such a
market will exist for a particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or option on a futures contract can vary
from the previous day's settlement price; once that limit is reached, no trades
may be made that day at a price beyond the limit. Daily price limits do not
limit potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Underlying Fund were unable to liquidate a futures or option on a
futures contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. An Underlying
Fund will continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Underlying Fund would
continue to be required to make daily variation margin payments and might be
required to maintain the position being hedged by the future or option or to
maintain cash or securities in a segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options
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on futures contracts markets are subject to daily variation margin calls and
might be compelled to liquidate futures or options on futures contracts
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
FOREIGN CURRENCY-RELATED DERIVATIVE STRATEGIES - SPECIAL CONSIDERATIONS. An
Underlying Fund may use options and futures on foreign currencies and forward
currency contracts to hedge against movements in the values of the foreign
currencies in which the Underlying Fund's securities are denominated. The
Underlying Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future exchange rates and may also engage in
currency transactions to increase income and total return. Such currency hedges
can protect against price movements in a security the Underlying Fund owns or
intends to acquire that are attributable to changes in the value of the currency
in which it is denominated. Such hedges do not, however, protect against price
movements in the securities that are attributable to other causes.
An Underlying Fund might seek to hedge against changes in the value of a
particular currency when no hedging instruments on that currency are available
or such hedging instruments are more expensive than certain other hedging
instruments. In such cases, the Underlying Fund may hedge against price
movements in that currency by entering into transactions using hedging
instruments on another foreign currency or a basket of currencies, the values of
which the fund's investment adviser believes will have a high degree of positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the hedging instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of derivative instruments on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such hedging instruments, an
Underlying Fund could be disadvantaged by having to deal in the odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain
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open, significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the derivative instruments
until they reopen.
Settlement of derivative transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
an Underlying Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
Permissible foreign currency options will include options traded primarily in
the OTC market. Although options on foreign currencies are traded primarily in
the OTC market, the Underlying Fund will normally purchase OTC options on
foreign currency only when its investment adviser believes a liquid secondary
market will exist for a particular option at any specific time.
FORWARD CURRENCY CONTRACTS. A forward currency contract involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are entered into in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers.
At or before the maturity of a forward contract, an Underlying Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and fully or partially offset its contractual obligation to deliver the
currency by purchasing a second contract. If an Underlying Fund retains the
portfolio security and engages in an offsetting transaction, such fund, at the
time of execution of the offsetting transaction, will incur a gain or a loss to
the extent that movement has occurred in forward contract prices.
The precise matching of forward currency contract amounts and the value of the
securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, an Underlying Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
CURRENCY HEDGING. While the values of forward currency contracts, currency
options, currency futures and options on futures may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of an Underlying Fund's investments. A currency hedge, for example, should
protect a Yen-denominated bond against a decline in the Yen, but will not
protect the fund against price decline if the issuer's creditworthiness
deteriorates. Because the value of the Underlying Fund's investments denominated
in foreign currency will change in response to many
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factors other than exchange rates, a currency hedge may not be entirely
successful in mitigating changes in the value of such fund's investments
denominated in that currency over time.
A decline in the dollar value of a foreign currency in which an Underlying
Fund's securities are denominated will reduce the dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. In order to protect against such diminutions in the value of
securities it holds, an Underlying Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Underlying Fund will
have the right to sell the currency for a fixed amount in dollars and will
thereby offset, in whole or in part, the adverse effect on its securities that
otherwise would have resulted. Conversely, if a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, an Underlying Fund
may purchase call options on the particular currency. The purchase of these
options could offset, at least partially, the effects of the adverse movements
in exchange rates. Although currency hedges limit the risk of loss due to a
decline in the value of a hedged currency, at the same time, they also limit any
potential gain that might result should the value of the currency increase.
An Underlying Fund's currency hedging will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or
payables of the Underlying Fund generally accruing in connection with the
purchase or sale of its portfolio securities. Position hedging is the sale of
forward currency with respect to portfolio security positions. Underlying Funds
may not generally position hedge to an extent greater than the aggregate market
value (at the time of making such sale) of the hedged securities.
COMMERCIAL PAPER. Some of the Underlying Funds may invest in commercial paper
which is indexed to certain specific foreign currency exchange rates. The terms
of such commercial paper provide that its principal amount is adjusted upwards
or downwards (but not below zero) at maturity to reflect changes in the exchange
rate between two currencies while the obligation is outstanding. An Underlying
Fund will purchase such commercial paper with the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency, but the amount or principal payable by the issuer at
maturity will change in proportion to the change (if any) in the exchange rate
between two specified currencies between the date the instrument is issued and
the date the instrument matures. While such commercial paper entails the risk of
loss of principal, the potential for realizing gains as a result of changes in
foreign currency exchange rate enables the Underlying Fund to hedge or
cross-hedge against a decline in the U.S. Dollar value of investments
denominated in foreign currencies while providing an attractive money market
rate of return. Generally an Underlying Fund will purchase such commercial paper
for hedging purposes only, not for speculation. The staff of the SEC is
currently considering whether the purchase of this type of commercial paper
would result in the issuance of a "senior security" within the meaning of the
1940 Act. The Underlying Fund believes that such investments do not involve the
creation of such a senior security, but nevertheless will establish a segregated
account with respect to its
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investments in this type of commercial paper and to maintain in such account
cash not available for investment or U.S. Government securities or other liquid
high quality debt securities having a value equal to the aggregate principal
amount of outstanding commercial paper of this type.
ZERO COUPON SECURITIES. Certain underlying Funds may invest in zero coupon
securities in accordance with investment policies described in the Prospectus.
Zero coupon securities are debt securities that pay no cash income but are sold
at substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be.
Zero coupon securities may have conversion features.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.
Current federal income tax law requires the holder of a zero coupon security
acquired at a discount to accrue income with respect to these securities prior
to the receipt of cash payments. Accordingly, to avoid liability for federal
income and excise taxes, the Fund may be required to distribute income accrued
with respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
INVESTMENT RESTRICTIONS
The following are the fundamental investment limitations for each of the Funds.
These fundamental investment limitations cannot be changed without shareholder
approval:
Each Fund:
1. May not borrow money or issue Senior Securities except that each Fund
may enter into reverse repurchase agreements and may otherwise borrow
money and issue Senior Securities as and to the extent permitted by the
Investment Company Act of 1940 (the "1940 Act") or any rule, order of
interpretation thereunder.
2. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed an underwriter within the
meaning of the Securities Act in connection with the purchase and sale
of portfolio securities.
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<PAGE> 58
3. May not purchase or sell commodities or commodities contracts, except
to the extent unless acquired as a result of ownership of securities or
other instruments, but this shall not prevent the Fund from purchasing
or selling options, futures contracts, or other derivative instruments,
or from investing in securities or other instruments backed by physical
commodities.
4. May not lend any security or make any other loan except that each Fund
may purchase or hold debt securities and lend portfolio securities in
accordance with its investment objective and policies make time
deposits with financial institutions and enter into repurchase
agreements.
5. May not purchase or sell real estate except that each Fund may acquire
real estate through ownership of securities or instruments, and may
purchase or sell securities issued by entities or investment vehicles
that own or deal in real estate (including interests therein) or
instruments secured by real estate (including interests therein).
6. Each Fund may not purchase securities of one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if at the end of each fiscal quarter, (a) more
than 5% of the Fund's total assets (taken at current value) would be
invested in such issuer (except that up to 50% of the Fund's total
assets may be invested without regard to such 5% limitation), and (b)
more than 25% of its total assets (taken at current value) would be
invested in securities of a single issuer. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
The following are non-fundamental operating policies for the Funds which may
be changed by the Board of Trustees of the Trust without shareholder approval:
Each Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
or unless it covers such short sales as required by the current roles
and positions of the SEC or its staff, and provided that short
positions in forward currency contracts, options, futures contracts,
options on futures contracts, or other derivative instruments are not
deemed to constitute selling security short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities.
Illiquid securities include securities that cannot be sold within seven
days in the ordinary course of business for approximately the amount at
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<PAGE> 59
which the Fund has valued the securities, such as repurchase agreements
maturing in more than seven days.
4. Purchase securities of other investment companies except (a) in
connection with a merger, consolidation, acquisition, reorganization or
offer of exchange, or (b) to the extent permitted by the 1940 Act or
any rules or regulations thereunder or pursuant to any exemptions
therefrom.
5. Pledge, mortgage or hypothecate any assets owned by the Fund in excess
of 33 1/3% of the Fund's total assets at the time of such pledging,
mortgaging or hypothecating.
Notwithstanding the foregoing investment restrictions, the Underlying Funds in
which the Funds invest have adopted investment restrictions which may be more or
less restrictive than those listed above, thereby permitting a Fund to engage in
investment strategies indirectly that it would be prohibited to engage in
directly. The investment restrictions of an Underlying Fund are located in its
Statement of Additional Information.
Pursuant to an exemptive order issued by the SEC (Investment Company Act Release
No. 22981) (Dec. 30, 1997) each Portfolio may (i) purchase more than 3% of the
outstanding voting securities of a Proprietary Fund, (ii) invest more than 5% of
its asset in any one Proprietary Fund and (iii) invest substantially all of its
assets in the Proprietary Funds.
Because of their investment objectives and policies, the Portfolios will each
concentrate more than 25% of its assets in the mutual fund industry. In
accordance with the Portfolios' investment policies as set forth in the
Prospectus, each of the Portfolios may invest more than 25% of its assets in
certain Proprietary Funds. However, each of the Proprietary Funds in which a
Portfolio may invest will not concentrate more than 25% of its total assets in
any one industry.
INSURANCE LAW RESTRICTIONS - In connection with the Trust's agreement to sell
shares to the Accounts, the Adviser and the insurance companies may enter into
agreements, required by certain state insurance departments, under which the
Adviser may agree to use its best efforts to assure and to permit insurance
companies to monitor that each Portfolio of the Trust complies with the
investment restrictions and limitations prescribed by state insurance laws and
regulations applicable to the investment of separate account assets in shares of
mutual funds. If a Fund failed to comply with such restrictions or limitations,
the Accounts would take appropriate action which might include ceasing to make
investments in the Portfolio or withdrawing from the state imposing the
limitation. Such restrictions and limitations are not expected to have a
significant impact on the Trust's operations.
MAJOR SHAREHOLDERS
As of January ____, 1998, prior to the public offering of shares of the Funds,
Nationwide Advisory Services, Inc. owned all of the issued and outstanding
shares of each Fund. It is anticipated that upon
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<PAGE> 60
the public offering of shares of the Funds, its holdings will be reduced below
5% of the outstanding shares of each Fund.
TRUSTEES AND OFFICERS
OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupation of the Trustees and Officers during the last five
years, their ages and their affiliations are:
JOHN C. BRYANT, Trustee*, Age 61
411 Oak St., Suite 306, Cincinnati, Ohio 45219
Dr. Bryant is Executive Director, Cincinnati Youth Collaborative, a partnership
of business, government, schools and social service agencies to address the
educational needs of students. He was formerly Professor of Education,
Wilmington College.
SUE A. DOODY, Trustee, Age 63
169 East Beck Street, Columbus, Ohio
Ms. Doody is President of Lindey's Restaurant, Columbus, Ohio. She is an active
member of the Greater Columbus Area Chamber of Commerce Board of Trustees.
ROBERT M. DUNCAN, Trustee*, Age 70
1397 Haddon Road, Columbus, Ohio
Mr. Duncan is a member of the Ohio Elections Commission. He was formerly
Secretary to the Board of Trustees of The Ohio State University. Prior to that,
he was Vice President and General Counsel of The Ohio State University.
JOSEPH J. GASPER, Trustee*, Age 54
One Nationwide Plaza, Columbus, Ohio
Mr. Gasper is President and Chief Operating Officer of Nationwide Life Insurance
Company and Nationwide Life and Annuity Insurance Company. Prior to that he was
Executive Vice President and Senior Vice President for Nationwide Insurance
Enterprise.
THOMAS J. KERR, IV, Trustee*, Age 64
4890 Smoketalk Lane, Westerville, Ohio
Dr. Kerr is President Emeritus of Kendall College. He was formerly President of
Grant Hospital Development Foundation.
DOUGLAS F. KRIDLER, Trustee, Age 42
55 E. State Street, Columbus, Ohio
Mr. Kridler is President of the Columbus Association of Performing Arts.
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<PAGE> 61
ROBERT J. WOODWARD, JR., Trustee*, Age 56
One Nationwide Plaza, Columbus, Ohio
Mr. Woodward is Executive Vice President-Chief Investment Officer of the
Nationwide Insurance Enterprise.
JAMES F. LAIRD, JR., Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Laird is Vice President and General Manager of Nationwide Advisory Services,
Inc., the Distributor and Investment Manager.
CHRISTOPHER A. CRAY, Assistant Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Cray is Treasurer of Nationwide Advisory Services, Inc., the Distributor and
Investment Manager. Prior to that he was Director - Corporate Accounting of
Nationwide Insurance Enterprise.
RAE M. POLLINA, Secretary
Three Nationwide Plaza, Columbus, Ohio
Ms. Pollina is Secretary of Nationwide Advisory Services, Inc.
* A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act.
All Trustees and Officers of the Trust own less than 1% of its outstanding
shares.
The Trustees receive fees and reimbursement for expenses of attending board
meetings from the Trust. NAS reimburses the Trust for fees and expenses paid to
Trustees who are interested persons of the Trust. The Compensation Table below
sets forth the estimated total compensation to be paid to the Trustees of the
Trust, before reimbursement, for the fiscal period ending December 31, 1998. In
addition, the table sets forth the total compensation to be paid to the Trustees
from all funds in the Nationwide Fund Complex, including the predecessor
investment companies to the Trust, for the fiscal year ended December 31, 1998.
Trust officers receive no compensation from the Trust in their capacity as
officers.
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<PAGE> 62
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Pension
- -------------------------------------------------------------------------------------------------
Estimated Retirement Estimated Estimated
- -------------------------------------------------------------------------------------------------
Aggregate Benefits Annual Total
- -------------------------------------------------------------------------------------------------
Compensation Accrued as Benefits Compensation
- -------------------------------------------------------------------------------------------------
Name of Person, from Part of Fund Upon From the Fund
- -------------------------------------------------------------------------------------------------
Position the Trust Expenses Retirement Complex**
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Bryant,
Trustee $ 3,000 --0-- --0-- $ 22,000
- -------------------------------------------------------------------------------------------------
Sue A. Doody,
Trustee 3,000 --0-- --0-- 22,000
- -------------------------------------------------------------------------------------------------
Robert M. Duncan,
Trustee 3,000 --0-- --0-- 22,000
- -------------------------------------------------------------------------------------------------
Joseph J. Gasper,
Trustee --0-- --0-- --0-- --0--
- -------------------------------------------------------------------------------------------------
Thomas J. Kerr, IV,
Trustee 3,000 --0-- --0-- 22,000
- -------------------------------------------------------------------------------------------------
Douglas F. Kridler,
Trustee 3,000 --0-- --0-- 22,000
- -------------------------------------------------------------------------------------------------
Robert J. Woodward, Jr.,
Trustee --0-- --0-- --0-- --0--
- -------------------------------------------------------------------------------------------------
</TABLE>
**The Fund Complex includes Trusts comprised of twenty nine investment company
portfolios.
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<PAGE> 63
CALCULATING YIELD AND TOTAL RETURN
The Funds may from time to time advertise historical performance, subject to
Rule 482 under the Securities Act of 1933. An investor should keep in mind that
any return or yield quoted represents past performance and is not a guarantee of
future results. The investment return and principal value of investments will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
All performance advertisements shall include average annual total return
quotations for the most recent one, five, and ten year periods (or life, if a
fund has been in operation less than one of the prescribed periods). Average
annual total return represents the rate required each year for an initial
investment to equal the redeemable value at the end of the quoted period. It is
calculated in a uniform manner by dividing the ending redeemable value of a
hypothetical initial payment of $1,000 for a specified period of time, by the
amount of the initial payment, assuming reinvestment of all dividends and
distributions. The one, five, and ten year periods are calculated based on
periods that end on the last day of the calendar quarter preceding the date on
which an advertisement is submitted for publication.
The Funds may also from time to time advertise a uniformly calculated yield
quotation. This yield is calculated by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per share
on the last day of the period, assuming reinvestment of all dividends and
distributions. This yield formula uses the average number of shares entitled to
receive dividends, provides for semi-annual compounding of interest, and
includes a modified market value method for determining amortization. The yield
will fluctuate, and there is no assurance that the yield quoted on any given
occasion will remain in effect for any period of time.
INVESTMENT ADVISORY AND OTHER SERVICES
Under the terms of the Investment Advisory Agreement dated _________, 1998, and
subject to the supervision of the Trustees, Nationwide Advisory Services,
Inc.("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, oversees the
investment of the assets of each of the Nationwide Professionally Managed
Portfolios. NAS, an Ohio corporation, is a wholly owned subsidiary of Nationwide
Life Insurance Company, which is wholly owned by Nationwide Financial Services,
Inc. ("NFS"). NFS, a holding company, has two classes of common stock
outstanding with different voting rights enabling Nationwide Corporation (the
holder of all the outstanding Class B common stock) to control NFS. Nationwide
Corporation is also a holding company in the Nationwide Insurance Enterprise.
Subject to the supervision and direction of the Trust's Board of Trustees, NAS
will determine how each Fund's assets will be invested in the Underlying Funds
and the other permissible investments. The trustees of the Trust will
periodically monitor the allocations made and the basis upon which such
allocations were made or maintained. NAS also provides various bookkeeping,
accounting and administrative services, office space and equipment and the
services of the officers and employees
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<PAGE> 64
of the Funds. Under the Investment Advisory Agreement, NAS has agreed to bear
all expenses of the Asset Allocation Funds other than the management fee and
extraordinary expenses. Each Fund pays to NAS a monthly fee at the annual rate
of 0.50% of the Fund's average daily net assets.
The Investment Advisory Agreement also specifically provides that NAS, including
its directors, officers, and employees, shall not be liable for any error of
judgment, or mistake of law, or for any loss arising out of any investment, or
for any act or omission in the execution and management of the Trust, except for
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties under
the Agreement. The Investment Advisory Agreement will continue in effect only if
its continuance is specifically approved at least annually by the Trustees, or
by vote of a majority of the outstanding voting securities of the Trust, and in
either case, by a majority of the Trustees who are not parties to the Investment
Advisory Agreement or interested persons of any such party. The Investment
Advisory Agreement terminates automatically if it is assigned. It may be
terminated without penalty by vote of a majority of the out standing voting
securities, or by either party, on not more than 60 days nor less than 30 days
written notice. The Investment Advisory Agreement further provides that NAS may
render services to others.
NAS also serves as investment adviser to each of the Proprietary Funds and is
responsible for the selection and management of each of the Proprietary Fund's
assets (NAS is assisted in this task by subadvisers for the Nationwide Small
Company Fund and the Nationwide Income Fund). Each Asset Allocation Fund, as a
shareholder in the Proprietary Funds, will indirectly bear its proportionate
share of any investment management fees and other expenses paid by the
Proprietary Funds.
BROKERAGE ALLOCATIONS
NAS is responsible for decisions to buy and sell securities and other
investments for the Funds and no Fund will pay a sales load to buy the
Underlying Funds; instead the Fund will use quantity discounts or waivers to
avoid paying a sales load. Because the Funds may purchase short-term obligations
as well as Underlying Funds and the Nationwide Contract, it will normally
purchase these short term obligations on a "principal" rather than agency basis.
This may be done through a dealer (e.g. securities firm or bank) who buys or
sells for its own account rather than as an agent for another client, or
directly with the issuer. A dealer's profit, if any, is the difference, or
spread, between the dealer's purchase and sale price for the obligation.
The primary consideration in portfolio security transactions is "best
execution," i.e., execution at the most favorable prices and in the most
effective manner possible. NAS always attempts to achieve best execution, and it
has complete freedom as to the markets in and the broker-dealers through which
it seeks this result. Subject to the requirement of seeking best execution,
securities may be bought from or sold to broker-dealers who have furnished
statistical, research, and other information or services to NAS. In placing
orders with such broker-dealers, NAS will, where possible, take into account the
comparative usefulness of such information. Such information is
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<PAGE> 65
useful to NAS even though its dollar value may be indeterminable, and its
receipt or availability generally does not reduce NAS's normal research
activities or expenses.
There may be occasions when portfolio transactions for the Trust are executed
as part of concurrent authorizations to purchase or sell the same security for
trusts or other accounts served by affiliated companies of NAS. Although such
concurrent authorizations potentially could be either advantageous or
disadvantageous to the Trust, they are effected only when NFS believes that to
do so is in the interest of the Trust. When such concurrent authorizations
occur, the executions will be allocated in an equitable manner.
PURCHASES, REDEMPTIONS AND PRICING OF SHARES
An insurance company purchases shares of the Funds at their net asset value
using purchase payments received on Contracts issued by the Accounts. These
Accounts are funded by shares of the Trust.
All investments in the Trust are credited to the shareholder's account in the
form of full and fractional shares of the designated Fund (rounded to the
nearest 1/1000 of a share). The Trust does not issue share certificates.
The net asset value per share of the Funds is determined once daily, as of the
close of the New York Stock Exchange (currently 4 P.M. eastern time) on each
business day the New York Stock Exchange is open and on such days as the Board
determines and on any other day during which there is a sufficient degree of
trading in each Fund's portfolio securities that the net asset value of the Fund
is materially affected by changes in the value of portfolio securities. The Fund
will not compute net asset value on customary national business holidays,
including the following: Christmas, New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day and
Thanksgiving.
The offering price for orders placed before the close of the New York Stock
Exchange, on each business day the Exchange is open for trading, will be based
upon calculation of the net asset value at the close of the Exchange. For orders
placed after the close of the Exchange, or on a day on which the Exchange is not
open for trading, the offering price is based upon net asset value at the close
of the Exchange on the next day thereafter on which the Exchange is open for
trading. The net asset value per share is calculated by adding the value of all
securities and other assets of a Fund, deducting its liabilities, and dividing
by the number of shares outstanding. Shares of the Underlying Funds are valued
as of the last net asset value for such Underlying Funds. Securities of the Fund
listed on national exchanges are valued at the last sales price on the principal
exchange, or if there is no sale on that day, or if the securities are traded
only in the over-the-counter market, at the quoted bid prices. Securities and
other assets, for which such market prices are unavailable, are valued at fair
value as determined by the Trustees. Short-term notes and bank certificates of
deposit are valued at amortized cost, which approximates market.
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<PAGE> 66
An Account redeems shares to make benefit or surrender payments under the terms
of its Contracts. Redemptions are processed on any day on which the Trust is
open for business and are effected at net asset value next determined after the
redemption order, in proper form, is received by the Trust's transfer agent,
NIS.
The Trust may suspend the right of redemption for such periods as are
permitted under the 1940 Act and under the following unusual circumstances: (a)
when the New York Stock Exchange is closed (other than weekends and holidays) or
trading is restricted; (b) when an emergency exists, making disposal of
portfolio securities or the valuation of net assets not reasonably practicable;
or (c) during any period when the Securities and Exchange Commission has by
order permitted a suspension of redemption for the protection of shareholders.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES - The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of each
Fund and to divide or combine such shares into a greater or lesser number of
shares without thereby exchanging the proportionate beneficial interests in the
Trust. Each share of a Fund represents an equal proportionate interest in that
Fund with each other share. The Trust reserves the right to create and issue a
number of series or classes of shares. In that case, the shares of each series
or class would participate equally in the earnings, dividends, and assets of the
particular series or class, but shares of all series would vote together in the
election of Trustees. Upon liquidation of a Fund, shareholders are entitled to
share pro rata in the net assets of such Fund available for distribution to
shareholders.
VOTING RIGHTS- Shareholders of each class of shares have one vote for each
share held and a proportionate fractional vote for any fractional share held. An
annual or special meeting of shareholders to conduct necessary business is not
required by the Declaration of Trust, the 1940 Act or other authority except,
under certain circumstances, to amend the Declaration of Trust, the Investment
Advisory Agreement, fundamental investment objectives, investment policies,
investment restrictions, to elect and remove Trustees, to reorganize the Trust
or any series or class thereof and to act upon certain other business matters.
In regard to termination, sale of assets, the change of investment objectives,
policies and restrictions or the approval of an Investment Advisory Agreement,
the right to vote is limited to the holders of shares of the particular class
fund affected by the proposal. In addition, holders of Class A shares or Class B
shares will vote as a class and not with holders of any other class with respect
to the approval of the Distribution Plan.
To the extent that such a meeting is not required, the Trust does not intend to
have an annual or special meeting of shareholders. The Trust has represented to
the Commission that the Trustees will call a special meeting of shareholders for
purposes of considering the removal of one or more Trustees upon written request
therefor from shareholders holding not less than 10% of the outstanding votes of
the Trust and the Trust will assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act. At such meeting, a quorum of
shareholders
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<PAGE> 67
(constituting a majority of votes attributable to all outstanding shares of the
Trust), by majority vote, has the power to remove one or more Trustees.
TAX STATUS
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
are the sole shareholders of record of the Trust. Each Fund of the Trust is
treated as a separate entity for purpose of the regulated investment company
provisions of the Internal Revenue Code, and, therefore, the assets, income, and
distributions of each Fund are considered separately for purposes of determining
whether or not the Fund qualifies as a regulated investment company.
Each Fund of the Trust intends to qualify as a "regulated investment company"
under Subchapter M of the Code. If it qualifies as a regulated investment
company, a Fund will pay no federal income taxes on its taxable net investment
income (that is, taxable income other than net realized capital gains) and its
net realized capital gains that are distributed to shareholders. To qualify
under Subchapter M, a Fund must, among other things: (i) diversify its
investments within certain prescribed limits; (ii) distribute to its
shareholders at least 90% of its taxable net investment income (for this purpose
consisting of taxable net investment income and net realized short-term capital
gains); and (iii) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of securities, gains from the sale or
other disposition of securities, or other income (including, but not limited to,
gains from options, futures, and forward contracts) derived with respect to its
business of investing in securities. As a regulated investment company, a Fund
will be subject to a 4% non-deductible excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gain required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's taxable ordinary income for the calendar year and at least 98% of
the excess of its capital gains over capital losses realized during the one-year
period ending October 31 during such year, together with any undistributed,
untaxed amounts of ordinary income and capital gains from the previous calendar
year. The Funds expect to pay the dividends and make the distributions necessary
to avoid the application of this excise tax.
Distributions of an Underlying Fund's investment company taxable income are
taxable as ordinary income to a Fund which invests in the Fund. Distributions of
the excess of an Underlying Fund's net long-term capital gain over its net
short-term capital loss, which are properly designated as "capital gain
dividends," are taxable as long-term capital gain to a Fund which invests in the
Underlying Fund, regardless of how long the Fund held the Underlying Fund's
shares, and are not eligible for the corporate dividends-received deduction.
Upon the sale or other disposition by a Fund of shares of any Underlying Fund,
the Fund generally will realize a capital gain or loss which will be long-term
or short-term, generally depending upon the Fund's holding period for the
shares.
In addition, each Fund intends to comply with the diversification requirements
of Section 817(h) of the Code related to the tax-deferred status of insurance
company separate accounts. To comply with regulations under Section 817(h) of
the Code, each Fund will be required to diversify its
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investments so that on the last day of each calendar quarter no more than 55% of
the value of its assets is represented by any one investment, no more than 70%
is represented by any two investments, no more than 80% is represented by any
three investments and no more than 90% is represented by any four investments.
Generally, all securities of the same issuer are treated as a single investment.
For the purposes of Section 817(h), obligations of the United States Treasury
and each U.S. government instrumentality are treated as securities of separate
issuers. The Treasury Department has indicated that it may issue future
pronouncements addressing the circumstances in which a Contract owner's control
of the investments of a separate account may cause the Contract owner, rather
than the participating insurance company, to be treated as the owner of the
assets held by the separate account. If the Contract owner is considered the
owner of the securities underlying the separate account, income and gains
produced by those securities would be included currently in the Contract owner's
gross income. It is not known what standards will be set forth in such
pronouncements or when, if at all, these pronouncements may be issued. In the
event that rules or regulations are adopted, there can be no assurance that the
Funds will be able to operate as currently described, or that the Trust will not
have to change the investment goal or investment policies of a Fund. The Board
reserves the right to modify the investment policies of a Fund as necessary to
prevent any such prospective rules and regulations from causing a Contract owner
to be considered the owner of the shares of the Fund underlying the separate
account.
TAX CONSEQUENCES TO SHAREHOLDERS. Since shareholders of the Funds will be the
Accounts, no discussion is included herein as to the Federal income tax
consequences at the level of the holders of the Policies. For information
concerning the Federal income tax consequences to such holders, see the
Prospectuses for such Policies.
FINANCIAL STATEMENTS
36
<PAGE> 69
[PRICE WATERHOUSE LETTERHEAD] [LOGO - PW]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Nationwide Asset Allocation Trust
In our opinion, the accompanying statements of assets and liabilities presents
fairly, in all material respects, the financial position of Aggressive
Portfolio, Moderately Aggressive Portfolio, Moderate Portfolio, Moderately
Conservative Portfolio and Conservative Portfolio (separate portfolios
constituting Nationwide Asset Allocation Trust; hereafter referred to as the
"Trust") at January 6, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
January 7, 1998
<PAGE> 70
NATIONWIDE ASSET ALLOCATION TRUST
STATEMENTS OF ASSETS AND LIABILITIES
JANUARY 6, 1998
<TABLE>
<CAPTION>
Moderately Moderately
Aggressive Aggressive Moderate Conservative Conservative
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000
--------------------------------------------------------------------------
TOTAL ASSETS 20,000 20,000 20,000
20,000 20,000
LIABILITIES - - - - -
--------------------------------------------------------------------------
NET ASSETS $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000
==========================================================================
REPRESENTED BY:
Capital paid in $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000
--------------------------------------------------------------------------
Shares outstanding
(unlimited number of
shares authorized) 2,000 2,000 2,000 2,000 2,000
==========================================================================
Net asset value and
offering price per share $ 10.00 $ 10.00 $ 10.00 $ 10.00 $10.00
==========================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 71
NATIONWIDE ASSET ALLOCATION TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 6, 1998
1. ORGANIZATION
Nationwide Asset Allocation Trust (the "Trust") is an open-end management
investment company organized under the laws of the State of Ohio, by a
Declaration of Trust, dated September 9, 1997. The Trust currently offers shares
in five separate mutual funds (each a "Nationwide Professionally Managed
Portfolio" or a "Portfolio"), each of which is a separately managed
non-diversified portfolio with its own investment objectives and policies. The
shares of each Portfolio are sold only to life insurance company separate
accounts to fund the benefits of group variable annuity contracts.
Each Portfolio is constructed as a "fund of funds" which means that it pursues
its investment objective primarily by allocating its investments among other
mutual funds (the "Underlying Funds") offered by Nationwide Advisory Services,
Inc. ("NAS") and other leading fund houses.
The accompanying financial statements relate only to the Trust. The Portfolios
had no operations other than those actions relating to organizational matters
and the initial issuance of 2,000 units of beneficial interest in each of the
Portfolios. As of January 6, 1998, all outstanding shares of the Portfolios are
owned by Nationwide Life Insurance Company.
2. RELATED PARTY TRANSACTIONS
NAS an affiliated company, serves as the Portfolios' investment adviser. Under
the terms of the Investment Advisory Agreement, NAS oversees the investment of
the assets for the Portfolios and supervises its daily business affairs.
Nationwide Investors Services, Inc. (NISI) acts as transfer and dividend
disbursing agent for the Portfolios. NISI is a wholly owned subsidiary of NAS.
Each of the Portfolios will incur a management fee of 0.50% of average daily net
assets. Under the Investment Advisory Agreement with each Portfolio, NAS will
bear all expenses of each Portfolio other than the management fee and any
extraordinary expenses.
<PAGE> 72
APPENDIX A
BOND RATINGS
STANDARD & POOR'S DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
INVESTMENT GRADE
AAA - Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
<PAGE> 73
SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. 'BB' indicates the least degree of speculation and 'C' the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB - Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B - Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'BB' or 'BB-' rating.
CCC - Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
CC - Debt rated 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
C - Debt rated 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI - The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D - Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grade period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are
<PAGE> 74
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such Bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
<PAGE> 75
FITCH'S BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated 'AAA'.
Because bonds rated in the 'AAA' and 'AA' categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of the issuers is generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely
to have adverse impact on these bonds, and therefore, impair
timely payment. The likelihood that the
<PAGE> 76
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories cannot fully reflect the differences
in the degrees of credit risk. Moreover, the character of the risk factor varies
from industry to industry and between corporate, health care and municipal
obligations.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its
debt service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability
of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD Bonds are in default on interest and/or principal
and D payments. Such bonds are extremely speculative and should
be valued on the basis of their ultimate recovery value
in liquidation or reorganization of the obligor. 'DDD'
represents the highest potential for recovery of
these bonds, and 'D' represents the lowest potential for
recovery.
<PAGE> 77
DUFF & PHELPS' LONG-TERM DEBT RATINGS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of 'BBB-' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.
RATING
SCALE DEFINITION
- -----------------------------------------------------------------
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than
for risk-free U.S. Treasury debt.
- -----------------------------------------------------------------
AA+ High credit quality. Protection factors are
AA strong. Risk is modest, but may vary slightly
AA- from time to time because of economic conditions.
- -----------------------------------------------------------------
A+ Protection factors are average but adequate.
A However, risk factors are more variable and
A- greater in periods of economic stress.
- -----------------------------------------------------------------
<PAGE> 78
BBB+ Below average protection factors but still
BBB considered sufficient for prudent investment.
BBB- Considerable variability in risk during economic
cycles.
- -----------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according
to industry conditions or company fortunes. Overall
quality may move up or down frequently within this
category.
- -----------------------------------------------------------------
B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower
rating grade.
- -----------------------------------------------------------------
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are
narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable
company developments.
- -----------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
- -----------------------------------------------------------------
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Factors such as liquidity of the issuer, long-term debt ratings,
reliability and quality of management, and earning and cost flows are considered
by Standard & Poor's when assigning these ratings.
<PAGE> 79
Ratings are graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grade period.
MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representation as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the 1933 Act.
Moody's commercial paper ratings are opinions on the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's does not represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (i)
leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (iv) broad margins in
earnings coverage of fixed financial charges and high internal cash generation,
and (v) well established access to a range of financial markets and assured
sources of alternative liquidity.
<PAGE> 80
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or relates supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 (Very Strong Credit Quality) Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated 'F-1+'.
F-2 (Good Credit Quality) Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the margin
of safety is not as great as for issues assigned 'F-1+' and 'F-1'
ratings.
F-3 (Fair Credit Quality) Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could
cause these securities to be rated below investment grade.
F-S (Weak Credit Quality) Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D (Default) Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
<PAGE> 81
DUFF & PHELPS SHORT-TERM DEBT RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations with
maturities under one year, including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which as defined is not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale Definition
------------ ----------
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating
factors and/or access to alternative sources
of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term
obligations.
Duff 1 Very high certainty of timely payment.
Liquidity factors are excellent and
supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity
factors are strong and supported by good
fundamental protection factors. Risk factors are
very small.
Good Grade
-----------
Duff 2 Good certainty of timely payment. Liquidity
factors and company fundamentals are sound.
Although ongoing funding needs may enlarge
total financing requirements, access to
capital markets is good. Risk factors are
small.
Satisfactory Grade
------------------
Duff 3 Satisfactory liquidity and other protection
factors qualify issue as to investment grade.
Risk factors are larger and subject to more
variation. Nevertheless, timely payment is
expected.
Non-investment Grade
--------------------
<PAGE> 82
Duff 4 Speculative investment characteristics.
Liquidity is not sufficient to insure against
disruption in debt service. Operating factors
and market access may be subject to a high
degree of variation.
Default
--------
Duff 5 Issuer failed to meet scheduled principal and/or
interest payments.
THOMSON'S SHORT-TERM RATINGS
The Thomson Short-Term Ratings apply, unless otherwise noted, to
unsubordinated instruments of the rated entities with a maturity of one year or
less, including deposits, bank notes, bankers' acceptances, federal funds,
letters of credit, commercial paper and other obligations comparable in priority
and security to those specifically listed herein. These ratings do not consider
any collateral or security as the basis for the rating, although some of the
securities may in fact have collateral. Further, these ratings do not
incorporate consideration of the possible sovereign risk associated with a
foreign deposit (defined as a deposit taken in a branch outside the country in
which the rated entity is headquartered) of the rated entity. Thomson Short-Term
Ratings are intended to assess the likelihood of an untimely or incomplete
payments of principal or interest.
TBW-1 The highest category, indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2 The second highest category, while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW- 1".
TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
IBCA SHORT-TERM RATINGS
IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt which has a maturity of less than one year.
IBCA issues ratings and reports on the largest U.S. and international bank
holding companies, as well as major investment banks. IBCA's short-term rating
system utilizes a dual system--Individual Ratings and Legal Ratings. The
Individual Rating addresses 1) the current strength of consolidated banking
companies and their principal bank subsidiaries. A consolidated bank holding
company/bank with an "A" rating has a strong balance sheet, and a favorable
credit profile without
<PAGE> 83
significant problems. A "B" rating indicates sound credit profile without
significant problems. Performance is generally in line with or better than that
of its peers. The Legal Rating addresses the question of whether an institution
would receive support if it ran into difficulties. Issues rated "A-1" are
obligations supported by a very strong capacity for timely repayment. Issues
rated "A-2" have a very strong capacity for timely repayment although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
A1+ Obligations supported by the highest capacity for timely repayment
and possess a particularly strong credit feature.
A1 Obligations supported by the highest capacity for timely repayment.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
C Obligations for which there is a high risk of default or which are
currently in default.
D Obligations which are currently in default.
<PAGE> 84
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
(a) Financial Statements found in Part B: Nationwide Asset Allocation Trust
(1) Statement of Assets & Liabilities as of January 6, 1998.
(2) Notes to Financial Statements.
(3) Independent Auditors Report.
(b) Exhibits
(1) Declaration of Trust.
(2) Bylaws.
(3) Not applicable.
(4) Not applicable.
(5) Proposed Investment Advisory Agreement previously filed in the
Trust's original Registration Statement and is hereby incorporated
by reference.
(6) Not applicable.
(7) Not applicable.
(8) Proposed Custody Agreement previously filed in the Trust's
original Registration Statement and is hereby incorporated
by reference.
(9) Not applicable
(10) Opinion of counsel previously filed in the Trust's
original Registration Statement and is hereby incorporated
by reference.
(11) Consent of Price Waterhouse LLP.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedules.
(17.1) Aggressive Portfolio
(17.2) Moderately Aggressive Portfolio
(17.3) Moderate Portfolio
(17.4) Moderately Conservative Portfolio
(17.5) Conservative Portfolio
(18) Not applicable.
(19) Power of Attorney dated January 8, 1998.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH REGISTRANT
No person is presently controlled by or under common control with
Registrant.
ITEM 26. Number of Record Holders
Title of Class as of January 14, 1998
--------------------------------------------------------------------
The Aggressive Portfolio 1
The Moderately Aggressive Portfolio 1
The Moderate Portfolio 1
The Moderately Conservative Portfolio 1
The Conservative Portfolio 1
C-1
<PAGE> 85
ITEM 27. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of
Registrant are set forth in Article V, Section 5.2 of the Declaration
of Trust. In addition, Section 1743.13 of the Ohio Revised Code
provides that no liability to third persons for any act, omission or
obligation shall attach to the trustees, officers, employees or
agents of a business trust organized under Ohio statutes. The
trustees are also covered by an errors and omissions policy provided
by the Trust for undertaken by the trustees in their capacity as
trustee. See Item 24(b)1 above.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Nationwide Advisory Services, Inc. (NAS), the investment
adviser of the Trust, also serves as investment adviser to the
Nationwide Investing Foundation, Nationwide Investing
Foundation II, Nationwide Separate Account Trust, Financial
Horizons Investment Trust, and Nationwide Asset Allocation
Trust and serves as general distributor to the Nationwide
Multi-Flex Variable Account, Nationwide Variable Account-II,
Nationwide Variable Account-5, Nationwide Variable Account-8,
Nationwide Variable Account-9, Nationwide DC Variable Account,
Nationwide DCVA II, Nationwide VA Separate Account-A,
Nationwide VA Separate Account-C, NACo Variable Account,
Nationwide VLI Separate Account-2, Nationwide VLI Separate
Account-3, Nationwide VLI Separate Account-4, Nationwide VL
Separate Account-A, Nationwide VL Separate Account-B,
Nationwide VL Separate Account-C, Nationwide VA Separate
Account-B and Nationwide Variable Account, separate accounts
of Nationwide Life Insurance Company, or its subsidiary
Nationwide Life and Annuity Insurance Company, registered as
unit investment trusts under the Investment Company Act of
1940.
<TABLE>
<S> <C>
Joseph J. Gasper Director and President and Chief Operating Officer
---------------------------------------------------
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Financial Services, Inc.
Director and Chairman of the Board
----------------------------------
Nationwide Investment Services Corporation
Director and Vice Chairman
--------------------------
Nationwide Financial Institution Distributors Agency, Inc.
Nationwide Global Holdings, Inc.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
Public Employees Benefit Services Corporation
Director and President
----------------------
Nationwide Advisory Services, Inc.
Nationwide Investor Services, Inc.
Director
--------
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Alabama, Inc.
Financial Horizons Distributors Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma, Inc.
Financial Horizons Securities Corporation
Landmark Financial Services of New York, Inc.
Nationwide Indemnity Company
Trustee and Chairman
--------------------
</TABLE>
C-2
<PAGE> 86
<TABLE>
<S> <C>
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
Trustee and President
---------------------
Nationwide Insurance Golf Charities, Inc.
Gordon E. McCutchan Executive Vice President-Law and Corporate Services
---------------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Life Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Financial Services, Inc.
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Colonial County Mutual Insurance Company
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York, Inc.
Farmland Mutual Insurance Company
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Communications Inc.
Employers Insurance of Wausau A Mutual Company
National Premium and Benefit Administration Company
Nationwide Corporation
Nationwide Insurance Enterprise Foundation
Nationwide Investment Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Underwriters Insurance Company
Wausau Service Corporation
Wausau Business Insurance Company
Wausau General Insurance Company
Executive Vice President-Law and Corporate Services
---------------------------------------------------
American Marine Underwriters, Inc.
Employers Life Insurance Company of Wausau
Pension Associations of Wausau, Inc.
Public Employees Benefit Services Corporation
Wausau Preferred Health Insurance Company
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency Insurance Services of California
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
</TABLE>
C-3
<PAGE> 87
<TABLE>
<S> <C>
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Wausau International Underwriters
Executive Vice President-Law and Corporate Services
---------------------------------------------------
and Director
------------
Nationwide Advisory Services, Inc.
Nationwide Investor Services, Inc.
Executive Vice President-Law and Corporate Services,
----------------------------------------------------
and Director
------------
California Cash Management Company
Colonial Insurance Company of Wisconsin
Gates, McDonald & Company
GatesMcDonald Health Plus Inc.
Nationwide Global Holdings, Inc.
National Casualty Company
Nationwide Cash Management Company
Nationwide Indemnity Company
Nationwide Community Urban Redevelopment Corporation
Vice Chairman and Director
--------------------------
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
Director
--------
Nationwide Agency, Inc.
Nationwide HMO, Inc.
Nationwide Management Systems, Inc.
MRM Investments, Inc.
NWE, Inc.
Clerk
-----
NEA Valuebuilder Services Insurance Agency, Inc.
Dimon R. McFerson Chairman and Chief Executive Officer-Nationwide Insurance
----------------------------------------------------------
Enterprise and Director
-----------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Colonial Insurance Company of Wisconsin
Nationwide Communications Inc.
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
National Casualty Company
Nationwide Financial Services, Inc.
Nationwide Global Holdings, Inc.
Nationwide Indemnity Company
</TABLE>
C-4
<PAGE> 88
<TABLE>
<S> <C>
Nationwide Investment Services Corporation
California Cash Management Company
Nationwide Cash Management Company
Employers Insurance of Wausau A Mutual Company
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Service Corporation
Wausau General Insurance Company
Wausau Business Insurance Company
Wausau Underwriters Insurance Company
Chairman and Chief Executive Officer - Nationwide
-------------------------------------------------
Insurance Enterprise, President and Director
--------------------------------------------
Nationwide Corporation
Chairman of the Board, Chairman and Chief Executive
---------------------------------------------------
Officer-Nationwide Insurance Enterprise and Director
----------------------------------------------------
American Marine Underwriters, Inc.
Gates, McDonald and Company
GatesMcDonald Health Plus, Inc.
Nationwide Investor Services, Inc.
Public Employees Benefit Services Corporation
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency Insurance Services of California
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Employers Life Insurance Company of Wausau
Nationwide Advisory Services, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Wausau International Underwriters
Wausau Preferred Health Insurance Company
Chairman and Director
---------------------
NEA Valuebuilder Investor Services of Arizona, Inc.
Trustee and Chairman
--------------------
Financial Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Chairman of the Board
---------------------
Nationwide Insurance Golf Charities, Inc.
Chairman of the Board and Director
----------------------------------
Lone Star General Agency, Inc.
Nationwide Community Urban Redevelopment Corporation
</TABLE>
C-5
<PAGE> 89
<TABLE>
<S> <C>
NEA Valuebuilder Investor Services, Inc.
Colonial County Mutual Insurance Company
Director
---------
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York
Chairman of the Board, Chairman and Chief
-----------------------------------------
Executive Officer-Nationwide Insurance
--------------------------------------
Enterprise and Trustee
----------------------
Nationwide Insurance Enterprise Foundation
Member-Board of Managers, Chairman of the Board,
------------------------------------------------
Chairman and Chief Executive Officer-Nationwide Insurance
---------------------------------------------------------
Enterprise
----------
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Robert A. Oakley Executive Vice President-Chief Financial Officer
------------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
American Marine Underwriters, Inc.
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Employers Life Insurance Company of Wausau
National Casualty Company
National Premium and Benefit Administration Company
The Beak and Wire Corporation
Employers Insurance of Wausau A Mutual Company
Farmland Mutual Insurance Company
Nationwide Financial Institution Distributors Agency, Inc.
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Financial Services, Inc.
Nationwide Investment Services Corporation
Nationwide Investor Services, Inc.
Nationwide Insurance Enterprise Foundation
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
</TABLE>
C-6
<PAGE> 90
<TABLE>
<S> <C>
NEA Valuebuilder Investor Services of Arizona, Inc.
Colonial County Mutual Insurance Company
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
Director, Chairman of the Board
-------------------------------
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
Executive Vice President-Chief Financial Officer and
----------------------------------------------------
Director
--------
California Cash Management Company
Colonial Insurance Company of Wisconsin
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment Corporation
Nationwide Global Holdings, Inc.
MRM Investments, Inc.
Nationwide Advisory Services, Inc.
Nationwide Indemnity Company
Executive Vice President
------------------------
Companies Agency Insurance Services of California
Wausau International Underwriters
Director and Vice Chairman
--------------------------
Leben Direkt Insurance Company
Neckura General Insurance Company
Auto Direkt Insurance Company
Director
---------
NWE, Inc..
Gates, McDonald & Company
GatesMcDonald Health Plus Inc.
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
-------------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance
Company Nationwide Life and
Annuity Insurance Company
Colonial County Mutual Insurance Company
Colonial Insurance Company of Wisconsin
</TABLE>
C-7
<PAGE> 91
<TABLE>
<S> <C>
Employers Insurance of Wausau A Mutual Company
Employers Life Insurance Company of Wausau
Farmland Mutual Insurance Company
Gates, McDonald & Company
GatesMcDonald Health Plus, Inc.
Lone Star General Agency, Inc.
National Casualty Company
Nationwide Financial Services, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Corporation
Nationwide Insurance Enterprise Foundation
Nationwide Investment Services Corporation
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
Vice Chairman and Director
---------------------------
Nationwide Communications Inc.
Director
--------
Nationwide Global Holdings, Inc.
Member-Board of Managers and Vice Chairman
-------------------------------------------
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Director and President
----------------------
California Cash Management Company
MRM Investments, Inc.
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment Corporation
NWE, Inc.
Director, Executive Vice President-Chief Investment Officer
-----------------------------------------------------------
Nationwide Indemnity Company
Nationwide Advisory Services, Inc.
Vice Chairman and Director
--------------------------
Nationwide Communications Inc.
Director
--------
Nationwide Global Holdings, Inc.
Trustee and Vice Chairman
-------------------------
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
</TABLE>
C-8
<PAGE> 92
<TABLE>
<S> <C>
James F. Laird, Jr. Vice President and General Manager and Acting Treasurer
-------------------------------------------------------
Nationwide Advisory Services, Inc.
Vice President and General Manager and Acting Treasurer
-------------------------------------------------------
and Director
------------
Nationwide Investors Services, Inc.
Treasurer
---------
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
Christopher A. Cray Treasurer
--------
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Assistant Treasurer
-------------------
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
W. Sidney Druen Senior Vice President and General Counsel
-----------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Employers Insurance of Wausau A Mutual Company
Employers Life Insurance Company of Wausau
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Underwriters Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Senior Vice President and General Counsel
-----------------------------------------
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
American Marine Underwriters, Inc.
The Beak and Wire Corporation
California Cash Management Company
Colonial County Mutual Insurance Company
Colonial Insurance Company of California
Farmland Mutual Insurance Company
</TABLE>
C-9
<PAGE> 93
<TABLE>
<S> <C>
Nationwide Agribusiness Insurance Company
Nationwide Financial Services, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Financial Horizons Distributors Agency of Alabama, Inc.
Financial Horizons Distributors Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma, Inc.
Financial Horizons Securities Corporation
Gates, McDonald & Company
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York, Inc.
GatesMcDonald Health Plus, Inc.
Landmark Financial Services of New York, Inc.
National Casualty Company
Nationwide Cash Management Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Global Holdings, Inc.
Nationwide Investment Services Corporation
Companies Agency, Inc.
Companies Agency Insurance Services of California
Companies Agency of Alabama, Inc.
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Lone Star General Agency Inc.
Nationwide Insurance Enterprise Foundation
Nationwide Indemnity Company
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
NEA Valuebuilder Investor Services of Montana, Inc.
NEA Valuebuilder Investor Services of Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma, Inc.
NEA Valuebuilder Investor Services of Wyoming, Inc.
NEA Valuebuilder Services Insurance Agency, Inc.
MRM Investments, Inc.
NWE, Inc.
PEBSCO of Massachusetts Insurance Agency, Inc.
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Public Employees Benefit Services Corporation of Alabama
Public Employees Benefit Services Corporation of Arkansas
Public Employees Benefit Services Corporation of Montana
Public Employees Benefit Services Corporation of New Mexico
Scottsdale Indemnity Company
Scottsdale Insurance Company
</TABLE>
C-10
<PAGE> 94
<TABLE>
<S> <C>
Scottsdale Surplus Lines Insurance Company
Wausau International Underwriters
Senior Vice President and General Counsel and Director
------------------------------------------------------
Nationwide Community Urban Redevelopment Corporation
General Counsel
---------------
Nationwide Insurance Golf Charities, Inc.
Rae Mercer Pollina Secretary
---------
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
Peter J. Neckermann Vice President - Economic and Investment Services
-------------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Indemnity Company
Vice President
--------------
Nationwide Advisory Services, Inc.
Director
--------
Leben Direkt Insurance Company
Nationwide Investors Services, Inc.
Neckura Holding Company
Assistant Treasurer
-------------------
Financial Horizons Investment Trust
National Casualty Company
National Premium and Benefit Administration Company
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Separate Account Trust
Nationwide Asset Allocation Trust
Edwin P. McCausland, Jr. Vice President-Fixed Income Securities
---------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
California Cash Management Company
</TABLE>
C-11
<PAGE> 95
<TABLE>
<S> <C>
Colonial Insurance Company of Wisconsin
Employers Insurance of Wausau A Mutual Company
Employers Life Insurance Company of Wausau
Farmland Mutual Insurance Company
Financial Horizons Investment Trust
Gates, McDonald & Company
GatesMcDonald Health Plus, Inc.
National Casualty Company
Nationwide Agribusiness Insurance Company
Nationwide Cash Management Company
Nationwide Indemnity Company
Nationwide Insurance Enterprise Foundation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
Vice President-Fixed Income
---------------------------
Nationwide Advisory Services, Inc.
Assistant Treasurer
------------------
Nationwide Asset Allocation Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Separate Account Trust
Joseph P. Rath Vice President-Product and Market Compliance
--------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Vice President-Compliance
-------------------------
Nationwide Advisory Services, Inc.
Nationwide Investment Services Corporation
Vice President-Chief Compliance Officer
---------------------------------------
Nationwide Financial Services, Inc.
William G. Goslee Vice President
---------------
Nationwide Advisory Services, Inc.
Assistant Treasurer
-------------------
Nationwide Asset Allocation Trust
</TABLE>
C-12
<PAGE> 96
Except as otherwise noted, the principal business address of any company with
which any person specified above is connected in the capacity of director,
officer, employee, partner or trustee is One Nationwide Plaza, Columbus, Ohio
43215, except for the following companies:
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
1963 Bell Avenue
Des Moines, Iowa 50315-1000
Colonial Insurance Company of Wisconsin
3455 Mill Run Drive, 5th Floor
Hilliard, Ohio 43026
Employers Insurance of Wausau A Mutual Company
2000 Westwood Drive
Wausau, Wisconsin 54401-7881
Scottsdale Insurance Company
8877 North Gainey Center Drive
P.O. Box 4110
Scottsdale, Arizona 85261-4110
National Casualty Company
8877 North Gainey Center Drive
P.O. Box 4110
Scottsdale, Arizona 85261-4110
Lone Star General Agency, Inc.
P.O. Box 14700
Austin, Texas 78761
Auto Direkt Insurance Company
Columbus Insurance Brokerage and Service, GMBH
Leben Direkt Insurance Company
Neckura General Insurance Company
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
John E. Fisher Str. 1
61440 Oberursel/Ts.
Germany
Public Employees Benefit Services Corporation
Two Nationwide Plaza
Columbus, Ohio 43215
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Three Nationwide Plaza, Columbus, Ohio 43215
ITEM 29. PRINCIPAL UNDERWRITERS
(a) See Item 28 above.
(b) Nationwide Advisory Services, Inc.
C-13
<PAGE> 97
<TABLE>
<CAPTION>
Position with Position
Name Business Address Underwriter with Registrant
---- ---------------- ----------- ---------------
<S> <C> <C> <C>
Dimon R. McFerson One Nationwide Plaza Chairman and CEO Chairman of Board of
Columbus OH 43215 Trustees
Joseph J. Gasper One Nationwide Plaza President and Director Vice Chairman of
Columbus OH 43215 Board of Trustees
Gordon E. McCuthan One Nationwide Plaza Exec. VP - Law and N/A
Columbus OH 43215 Corporate Services and
Director
Robert A. Oakley One Nationwide Plaza Exec. VP - Chief Financial N/A
Columbus OH 43215 Officer and Director
Robert J. Woodward, Jr. One Nationwide Plaza Exec. VP - Chief Investment Trustee
Columbus OH 43215 Officer and Director
William S. Druen One Nationwide Plaza Sr. VP and General Counsel N/A
Columbus OH 43215 and Assistant Secretary
James F. Laird, Jr. Three Nationwide Plaza VP - General Manager Treasurer
Columbus OH 43215
Edwin P. McCausland One Nationwide Plaza VP - Fixed Income Assistant Treasurer
Columbus OH 43215
Joseph P. Rath One Nationwide Plaza VP - Compliance N/A
Columbus OH 43215
Peter J. Neckermann One Nationwide Plaza Vice President Assistant Treasurer
Columbus OH 43215
William G. Goslee One Nationwide Plaza Vice President N/A
Columbus OH 43215
Christopher A. Cray Three Nationwide Plaza Treasurer Assistant Treasurer
Columbus OH 43215
Rae M. Pollina Three Nationwide Plaza Secretary N/A
Columbus OH 43215
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Christopher A. Cray
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, OH 43215
ITEM 31. MANAGEMENT SERVICES
Not applicable.
Item 32. UNDERTAKINGS
C-14
<PAGE> 98
(1) The Trust undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four
to six months of the effective date of the Registrant's
Registration Statement.
(2) The Trust undertakes to hold a shareholder meeting, if
requested to do so by the shareholders of at least 10% of the
Trust's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon removal of a trustee or
trustees and to assist shareholders in communications with
other shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
C-15
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Pre-Effective Amendment
No. 3 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbus, and State of
Ohio, on this 15th day of January, 1998
NATIONWIDE ASSET ALLOCATION TRUST
By: /s/ James F. Laird, Jr.
--------------------------------
James F. Laird, Jr., Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-EFFECTIVE
AMENDMENT NO. 3 THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 15TH DAY OF JANUARY, 1998.
Signature & Title
- -----------------
Principal Executive Officer
/s/ Joseph J. Gasper*
- -------------------------------------------
Joseph J. Gasper, Trustee & Chairman
Principal Accounting and Financial Officer
/s/ James F. Laird, Jr.
- -------------------------------------------
James F. Laird, Jr., Treasurer
/s/ John C. Bryant*
- -------------------------------------------
John C. Bryant, Trustee
/s/ Sue A. Doody *
- -------------------------------------------
Sue A. Doody, Trustee
/s/ Robert M. Duncan*
- -------------------------------------------
Robert M. Duncan, Trustee
/s/ Thomas J. Kerr, IV*
- -------------------------------------------
Thomas J. Kerr, IV, Trustee
/s/ Douglas F. Kridler*
- -------------------------------------------
Douglas F. Kridler, Trustee
/s/ Robert J. Woodward, Jr.*
- -------------------------------------------
Robert J. Woodward, Jr., Trustee
* By: /s/ James F. Laird
-------------------------------------------
James F. Laird, Jr., Attorney-In-Fact
<PAGE> 1
Exhibit 1
NATIONWIDE ASSET ALLOCATION TRUST
-----------------------------------------
DECLARATION OF TRUST
FOR AN OHIO BUSINESS TRUST
(AMENDED AS OF JANUARY 9, 1998)
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
PAGE
ARTICLE I - NAME, PRINCIPAL OFFICE, DEFINITIONS AND PURPOSES OF TRUST 1
<S> <C>
Section 1.1. Name and Principal Office
Section 1.2. Definitions
Section 1.3. Purposes of Trust
ARTICLE II - TRUSTEES 3
Section 2.1. Initial Trustees
Section 2.2 Number of Trustees
Section 2.3. Election and Term
Section 2.4. Resignation and Removal
Section 2.5. Vacancies
Section 2.6. Delegation of Power to Other Trustees
ARTICLE III - POWERS OF TRUSTEES 5
Section 3.1. General
Section 3.2. Investments
Section 3.3 Legal Title
Section 3.4. Issuance and Repurchase of Securities
Section 3.5. Borrowing Money; Lending Trust Assets
Section 3.6. Delegation; Committees
Section 3.7. Collection and Payment
Section 3.8. Expenses
Section 3.9. Manner of Acting; Bylaws
Section 3.10. Miscellaneous Powers
Section 3.11. Litigation
ARTICLE IV - INVESTMENT ADVISOR, DISTRIBUTOR,
ADMINISTRATOR AND TRANSFER AGENT 10
Section 4.1. Investment Advisor
Section 4.2. Distributor
Section 4.3 Administrator
Section 4.4. Transfer Agent
Section 4.5. Parties to Contract
Section 4.6. Compliance with 1940 Act
ARTICLE V - LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS 13
Section 5.1. No Personal Liability of Shareholders, Trustees, etc.
Section 5.2 Mandatory Indemnification
Section 5.3 No Bond Required of Trustees
Section 5.4 No Duty of Investigation; Notice in Trust Instruments, etc.
Section 5.5 Reliance on Experts, etc.
Section 5.6 Indemnification not Exclusive, etc.
Section 5.7 Liability of Series
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI - SHARES OF BENEFICIAL INTEREST 17
Section 6.1. Beneficial Interest
Section 6.2. Establishment and Designation of Series
Section 6.3 Rights of Shareholders
Section 6.4. Trust Only
Section 6.5 Issuance of Shares
Section 6.6. Register of Shares; Share Certificates
Section 6.7. Transfer of Shares
Section 6.8. Notices
Section 6.9. Treasury Shares
Section 6.10. Voting Powers
Section 6.11 Investments in Trust
Section 6.12. Series or Class Designation
Section 6.13. Meetings of Shareholders
Section 6.14. Inspection of Records
Section 6.15. Additional Provisions
ARTICLE VII - REDEMPTIONS 24
Section 7.1. Redemption of Shares
Section 7.2. Price
Section 7.3. Payment
Section 7.4. Effect of Suspension of Determination of Net Asset Value
Section 7.5. Repurchase by Agreement
Section 7.6. Redemption of Shareholder's Interest
Section 7.7. Reductions in Number of Outstanding Shares Pursuant to Net Asset
Value Formula
Section 7.8. Suspension of Right of Redemption
Section 7.9. Redemption of Shares; Disclosure of Holding
ARTICLE VIII - DETERMINATION OF NET ASSET VALUE, NET 27
INCOME AND DISTRIBUTIONS
Section 8.1. Net Asset Value
Section 8.2. Distribution to Shareholders
Section 8.3. Determination of Net Income
Section 8.4. Power to Modify Foregoing Procedures
ARTICLE IX - DURATION; TERMINATION AND TRUST; AMENDMENT; 29
MERGERS, ETC.
Section 9.1. Duration
Section 9.2. Termination of Trust
Section 9.3. Amendment Procedure
Section 9.4. Merger, Consolidation and Sale or Disposition of Assets
Section 9.5. Incorporation
Section 9.6. Absence of Dissenters' Rights
ARTICLE X - MISCELLANEOUS 32
Section 10.1. Filing
Section 10.2 Governing Law
Section 10.3. Counterparts
Section 10.4. Reliance by Third Parties
Section 10.5. Provisions in Conflict with Law or Regulations
Section 10.6. Index and Heading for Reference Only
</TABLE>
ii
<PAGE> 4
DECLARATION OF TRUST
NATIONWIDE ASSET ALLOCATION TRUST
DECLARATION OF TRUST made at Columbus, Ohio as of the 9th day of
September, 1997 and amended as of January 9, 1998, by the Trustees hereunder,
and by the holders of Shares of beneficial interest to be issued hereunder as
hereinafter provided.
WHEREAS, the Trustees desire to establish a trust for the investment
and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest; and:
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of an Ohio business trust in accordance with the
provisions of Chapter 1746, Ohio Revised Code, and as hereinafter set forth.
NOW THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of beneficial
interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME, PRINCIPAL OFFICE, DEFINITIONS AND PURPOSES OF TRUST
---------------------------------------------------------
SECTION 1.1. NAME AND PRINCIPAL OFFICE. The name of the trust created
hereby is "Nationwide Asset Allocation Trust" and the Trustees shall conduct the
business of the Trust under that name or any other name as the Trustees may from
time to time determine. The principal office of the Trust is located in
Columbus, Ohio.
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "ADMINISTRATOR" means the party other than the Trust, to the
contract described in Section 4.3 hereof.
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(b) "BYLAWS" means the Bylaws referred to in Section 3.9 hereof, as
from time to time amended.
(c) "CLASS" refers to one or more classes or sub-series of Shares
established and designated under or in accordance with the provisions
of Article VI.
(d) The terms "COMMISSION" and "INTERESTED PERSON" shall have the
meanings given them in the 1940 Act. The term "MAJORITY SHAREHOLDER
VOTE" shall refer to the 67% or 50% requirement in Section 2(a)(42) of
the 1940 Act, whichever may be applicable and as may be amended, except
to the extent that the Trustees have otherwise defined "Majority
Shareholder Vote" in conjunction with the establishment of any Series
of Shares.
(e) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION",
"HEREOF", "HEREIN" and "HEREUNDER" shall be deemed to refer to this
Declaration rather than the article or section in which such words
appear.
(f) "DISTRIBUTOR" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(g) "INVESTMENT ADVISER" means the party, other than the Trust, to the
contract described in Section 4.1 hereof.
(h) The "1940 ACT" means the Investment Company Act of 1940 and the
rules and regulations thereunder, as amended from time to time.
(i) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
(j) "SERIES" refers to a series of Shares established and designated
under or in accordance with the provisions of Article VI.
(k) "SHARES" or "SHARES" means the units of interest into which the
beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all Series or Class which may be
established by the Trustees, and includes fractions of Shares as well
as whole Shares.
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(l) "SHAREHOLDER" means a record owner of outstanding Shares.
(m) "TRANSFER AGENT" means the party, other than the Trust, to the
contract described in Section 4.4 hereof.
(n) The "TRUST" means Nationwide Asset Allocation Trust and refers to
the Ohio business trust established by this Declaration of Trust, as
amended from time to time.
(o) The "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of
the Trust or the Trustees.
(p) The "TRUSTEES" means the persons who have signed this Declaration,
so long as they shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be duly
elected, qualified and serving as Trustees in accordance with the
provisions hereof, and reference herein to a Trustee or the Trustees
shall refer to such person or persons in their capacity as trustees
hereunder.
SECTION 1.3 PURPOSES OF TRUST. The purposes of the Trust are to operate
as an investment company as defined in the 1940 Act and to engage in any lawful
activity for which business trusts may be formed under Chapter 1746, Ohio
Revised Code.
ARTICLE II
TRUSTEES
---------
SECTION 2.1. INITIAL TRUSTEES. Upon the execution of this Declaration
of Trust or a counterpart hereof or some other writing in which each of the
Trustees accepts such trusteeship and agrees to the provisions hereof, each of
the Trustees listed at the end of this Declaration of Trust shall become the
initial Trustees of the Trust.
SECTION 2.2. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees. The Trustees serving as such, whether described in
Section 2.1 above or hereafter becoming a Trustee, may increase or decrease the
number of Trustees to a number other than the number theretofore determined. A
Trustee shall qualify by accepting in writing his election or appointment and
agreeing to be bound by the Declaration of Trust. No decrease in the number of
Trustees shall have the effect of removing any Trustee from office prior to the
expiration of his or her term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to Section 2.4.
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SECTION 2.3. ELECTION AND TERM. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.5 hereof, the Trustees shall
be elected by the Shareholders, who shall vote as a single class and not by
Series and shall vote at such times as the Trustees shall determine that such
election is required by the 1940 Act or is otherwise advisable. There is no
requirement that the Trustees have an annual meeting of the Shareholders. In the
event the Trustees determine to have an annual or special meeting of the
Shareholders at which Trustees will be elected, it shall be held at such time
and place and in such manner as the Bylaws shall provide notwithstanding
anything in this section to the contrary. Except in the event of deaths,
resignations or removals, each Trustee shall hold office until the next meeting
of Shareholders called for the purpose of electing Trustees and until his
successor is elected and qualified to serve as Trustee.
SECTION 2.4. RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting except to the extent required
by the 1940 Act or under circumstances that would justify the Trustee's removal
for cause) by an instrument in writing signed by him and delivered to the other
Trustees or to any officer of the Trust or at a meeting of the Trustees, and
such resignation shall be effective upon such delivery, or at a later date
according to the terms of the instrument. Any of the Trustees may be removed
with or without cause, by the written action of two-thirds of the number of
Trustees prior to such removal or by Shareholders at any meeting called for that
purpose. No Trustee shall be entitled to any damages on account of such removal.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
SECTION 2.5. VACANCIES. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency or contract created or entered into
pursuant to the terms of the Declaration. In the case of an existing vacancy,
including a vacancy existing by reason of an increase in the number of Trustees,
subject to the provisions of Section 16(a) of the 1940 Act, the remaining
Trustees may fill such vacancy by the appointment of such other person as they
in their discretion shall see fit, made by a written instrument signed by a
majority of the remaining Trustees. Any such appointment shall not become
effective, however, until the person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. An appointment of a Trustee
may be made in anticipation of a vacancy to occur at a later date by reason of
retirement, resignation or increase in the number
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<PAGE> 8
of Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.5., the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Notwithstanding the foregoing, to the extent the Trust adopts and
implements a written plan pursuant to Rule 12b-1 under the 1940 Act, and so long
as required by the 1940 Act, the selection and nomination of Trustees who are
"interested persons" of the Trust as defined in the 1940 Act, shall be committed
to the discretion of the Trustees who are not "interested persons," as so
defined.
SECTION 2.6. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under the Declaration except as herein otherwise expressly provided and
except to the extent that the exercise of such power would be prohibited by the
1940 Act.
ARTICLE III
POWERS OF TRUSTEES
------------------
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations and maintain offices both
within and without the of Ohio, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interest of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of the Declaration, the presumption shall be in favor
of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
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<PAGE> 9
SECTION 3.2. INVESTMENTS. The Trustees shall have the power to:
(a) Conduct, operate and carry on the business of an investment company
and exercise all the powers necessary and appropriate for the conduct
of such operations;
(b) Invest in, hold for investment, or reinvest in, securities,
including common and preferred stocks; shares of other investment
companies; fixed interest investment contracts; warrants; bonds;
debentures; bills; time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments; government securities,
including securities of any state, municipality or other political
subdivision, or any governmental or quasi-governmental agency or
instrumentality; and money market instruments including bank
certificates of deposit, finance paper, commercial paper, bankers'
acceptances and all kinds of repurchase agreements, of any corporation,
company, trust, association, firm or other business organization
however established, and of any country, state, municipality or other
political subdivisions, or any governmental or quasi-governmental
agency or instrumentality.
(c) Acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire or write any rights or options to purchase
or sell, to sell or otherwise dispose of, to lend, and to pledge any
such securities and repurchase agreements and forward foreign currency
exchange contracts, to purchase and sell futures contracts on
securities, securities indices and foreign currencies, to purchase or
sell options on such contracts, foreign currency contracts and foreign
currencies and to engage in all types of hedging and risk management
transactions.
(d) Exercise all rights, powers and privileges of ownership or interest
in all securities included in the Trust Property, including the right
to vote thereon and otherwise act with respect thereto, to exercise the
powers and rights of subscription, and to do all acts for the
preservation, protection, improvements and enhancement in value of all
such securities.
(e) Join with other holders of any securities or debt instruments in
acting through a committee, depository, voting trustee or otherwise,
and in that connection to deposit any security or debt instrument with,
or transfer any security or debt instrument to, any such committee,
depository or trustee, and to delegate to them such power and authority
with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such committee, depository or trustee as the
Trustees shall deem proper.
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(f) Acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property,
real or personal, including cash, and any interest therein.
(g) Act as a distributor of shares and as underwriter of, or broker or
dealer in, securities or other property.
(h) Allocate assets, liabilities and expenses of the Trust to a
particular Series or Class of Shares or to apportion the same among two
or more Series or Classes, provided that any liabilities or expenses
incurred by a particular Series or Class of Shares shall be payable
solely out of the assets of that Series.
(i) Consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer the security or
debt instrument of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale or property by such
corporation or issuer, and to pay calls or subscriptions with respect
to any security or debt instrument held in the Trust.
(j) Aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included
in the Trust Property or in the affairs of which the Trustees have any
direct or indirect interest; to do all acts and things designed to
protect, preserve, improve or enhance the value of such obligation or
interest; to guarantee or become surety on any or all of the contracts,
stocks, bonds, notes, debentures and other obligations of any such
corporation, company, trust, association or firm.
(k) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power hereinbefore
set forth, either alone or in association with others, to do every
other act or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or powers,
and to engage in any other lawful act or activity in which corporations
organized under Chapter 1701, Ohio Revised Code, may engage.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
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<PAGE> 11
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3. LEGAL TITLE. Legal title to all the Trust Property shall
be vested in the Trustees except that the Trustees shall have power to cause
legal title to any Trust Property to be held by or in the name of one or more of
the Trustees, or in the name of the Trust, or in the name of any other Person as
nominee, on such terms as the Trustees may determine, provided that the interest
of the Trust therein is appropriately protected. The right, title and interest
of the Trustees in the Trust Property shall vest automatically in each Person
who may hereafter become a Trustee. Upon the resignation, removal or death of a
Trustee, he shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee in
the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VI, VII, VIII, and IX hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the of Ohio governing business corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST ASSETS. The Trustees shall
have power to borrow money or otherwise obtain credit to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust assets.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the extent such delegation is
permitted by the 1940 Act, including without implied limitation the power and
authority to act in the name of the Trust and of the Trustees, to sign documents
and to act as attorney-in-fact for the Trustees.
SECTION 3.7. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
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<PAGE> 12
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
SECTION 3.8. EXPENSES. The Trustees are authorized to pay or cause to
be paid out of the principal or income of the Trust, or partly out of principal
and partly out of income, and to charge or allocate the same to, between or
among such one or more of the Series or Classes that may be established pursuant
to Article VI, as the Trustees deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, Investment Adviser, Distributor, Administrator, Transfer
Agent, auditor, counsel and such other agents, consultants and independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur. Without limiting the generality of any other
provision hereof, the Trustees shall be entitled to reasonable compensation from
the Trust for their services as Trustees and may fix the amount of such
compensation.
SECTION 3.9. MANNER OF ACTION; BYLAWS. Except as otherwise provided
herein or in the Bylaws or in the 1940 Act, any action to be taken by the
Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), including any meeting held by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, or by written consents
of a majority of the Trustees (unless a higher proportion is required by the
1940 Act or other applicable law). The Trustees may adopt Bylaws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such Bylaws to the extent such power is not
reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 3.9 and in
addition to such provisions or any other provision of this Declaration or of the
Bylaws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
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appoint and terminate such agents or employees as they consider appropriate, any
one or more of the foregoing of whom may be a Trustee, and appoint from their
own number, and terminate, any one or more committee which may exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
(d) purchase, and pay for out of Trust Property, insurance policies insuring the
assets of the Trust and the payment of distributions and principal on its
portfolio investments and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding or having held any such position or by reason of
any action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability; (e) establish pension,
profit-sharing, Share purchase, and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (f) to the
extent permitted by law, indemnify any person with whom the Trust has dealings,
including the Investment Adviser, Distributor, Administrator, Transfer Agent and
selected dealers, to such extent the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust and the method by which its accounts shall be kept; and
(i) adopt a seal for the Trust, but the absence of such seal shall not impair
the validity of any instrument executed on behalf of the Trust.
SECTION 3.11. LITIGATION. The Trustees shall have the power to engage
in and to prosecute, defend, compromise, abandon, or adjust, by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust to pay or to satisfy
any debts, claims or expenses incurred in connection therewith, including those
of litigation, and such power shall include without limitation the power of the
Trustees or any appropriate committee thereof, in the exercise of their or its
good faith business judgment, to dismiss any action, suit, proceeding, dispute,
claim, or demand, derivative or otherwise, brought by any person, including a
Shareholder in its own name or the name of the Trust, whether or not the Trust
or any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR
----------------------------------------------
AND TRANSFER AGENT
------------------
SECTION 4.1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote
unless such vote is not required pursuant to Commission rule or exemption, the
Trustees may, in their discretion, from time to time enter into one or more
investment advisory or management contracts whereby the other
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<PAGE> 14
party to such contract shall undertake to furnish the Trust such management,
investment advisory, statistical and research facilities and services,
promotional activities, and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may, in their discretion, determine. Notwithstanding
any provisions of the Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Investment Adviser (and all without further
action by the Trustees). Any such purchases, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees.
SECTION 4.2. DISTRIBUTOR. The Trustees may, in their discretion, from
time to time enter into a contract, providing for the sale of Shares to the
Trust at not less than the net asset value per Share (as described in Article
VIII hereof), whereby the Trust may either agree to sell the Shares to the other
party to the contract or appoint such other party its sales agent for such
Shares. In either case, the contract shall be on such terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Article IV or the Bylaws; and such contract may also provide
for the repurchase or sale of Shares of the Trust by such other party as
principal or as agent of the Trust and may provide that such other party may
enter into selected dealer agreements with registered securities dealers to
further the purpose of the distribution or repurchase of the Shares.
SECTION 4.3. ADMINISTRATOR. The Trustees may, in their discretion, from
time to time enter into an administrative services agreement whereby the other
party to such contract shall provide facilities, equipment, and personnel to
carry out certain administrative services for the operation of the business and
affairs of the Trust and each of its separate Series, including the fund
accounting responsibilities with respect to the Trust, the Series and any
Classes. The contract shall have such terms and conditions as the Trustees may,
in their discretion, determine not inconsistent with the Declaration or the
Bylaws. Such services may be provided by one or more Persons.
SECTION 4.4. TRANSFER AGENT. The Trustees may, in their discretion,
from time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may, in their discretion, determine not
inconsistent with the Declaration or the Bylaws. Such services may be provided
by one or more Persons.
SECTION 4.5. PARTIES TO CONTRACT. Subject to compliance with the
provisions of the 1940 Act, but not withstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and without limiting the generality of
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their powers and authority otherwise set forth herein, enter into one or more
exclusive or non-exclusive contracts with any one or more corporations, trusts,
associations, partnerships, limited partnerships, other types of organizations
or individuals ("Contracting Party") to provide for the performance and
assumption of the services, duties and responsibilities to, for or of the Trust
and/or the Trustees as described in Sections 4.1, 4.2, 4.3, and 4.4 above and
to provide for the performance and assumption of such other services, duties and
responsibilities in addition to those set forth above as the Trustees may
determine appropriate (collectively, such services, duties and responsibilities
are referred to as "Services").
The same person may be the Contracting Party for some or all of the
Services and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the Services for, including
provisions (to the extent consistent with the 1940 Act) relating to the standard
of duty of and the rights to indemnification of the Contacting Party and others,
as the Trustees may determine. Nothing herein shall preclude, prevent or limit
the Trust or a Contracting Party from entering into sub-contractual arrangements
for any of the Services.
Subject to the provisions of the 1940 Act, the fact that:
(a) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
investment adviser, distributor or agent of or for any Contracting
Party, or of or for any parent or affiliate of any Contracting Party or
that the Contracting Party or any parent or affiliate thereof is a
Shareholder or has an interest in the Trust; or
(b) any Contracting Party may have a contract providing for the
rendering of any similar Services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or has other business or interests
shall not affect the validity of any contract for the performance and assumption
of Services or disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or accountability to
the Trust or its Shareholders, provided in the case of any relationship or
interest referred to in the preceding clause (a) on the part of on the part of
any Trustee or officer of the Trust either (i) the material facts as to such
relationship of interest have been disclosed to or are known by the Trustees not
having any such relationship or interest and the contract involved is approved
in good faith by a majority of such Trustees not having any such relationship or
interest (even though such unrelated or disinterested Trustees are less than a
quorum of all of the Trustees); or (ii) the material facts as to such
relationship or interest and as to the contract have been disclosed to or are
known by the Shareholders entitled to vote thereon and the
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contract involved is specifically approved in good faith by vote of the
Shareholders; or (iii) the specific contract involved is fair to the Trust as of
the time it is authorized, approved or ratified by the Trustees or by the
Shareholders.
SECTION 4.6. COMPLIANCE WITH 1940 ACT. Any contract entered into
pursuant to Sections 4.1 or 4.2 shall be consistent with and subject to the
requirements of Section 15 of the 1940 Act (including any amendment thereof or
other applicable Act of Congress hereafter enacted) with respect to its
continuance in effect, its termination and the method of authorization and
approval of such contract or renewal thereof.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS
----------------------------------------
TRUSTEES AND OTHERS
-------------------
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
except that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust.
No Shareholder as such shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust. If any Shareholder or former Shareholder
shall be charged or held personally liable for any obligation or liability of
the Trust solely by reason of being or having been a Shareholder and not because
of such Shareholder's acts or omissions or for some other reason, the Trust
(upon proper and timely request by the Shareholder) shall assume the defense
against such charge and satisfy any judgment or settlement thereon, and the
Shareholder or former Shareholder (or his heirs, executors, administrators or
other legal representatives or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the assets of the
Trust Property to be held harmless from and indemnified against all loss and
expense arising from such liability.
The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any neglect or
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wrongdoing of any officer, agent, employee, consultant, Investment Adviser,
Distributor, Administrator, or Transfer Agent of the Trust, nor shall any
Trustee be responsible for the act or omission of any other Trustee; and (b) the
Trustees may rely on the advice of counsel or experts as described in Section
5.6 below.
SECTION 5.2. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) Every person who is, or has been a Trustee or officer of
the Trust shall be indemnified by the Trust against all
liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by him in the
settlement thereof.
(ii) The words "claim", "action", "suit" or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or other body
before which the proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith or in the
reasonable belief that his action was in the best interest of
the Trust; or
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraphs
(b)(i) or (b)(ii) resulting in a payment by a Trustee or
officer, unless there has been either a determination that
such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office by the court or
other body
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approving the settlement or other disposition or by a
reasonable determination, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that
he did not engage in such conduct:
(A) by vote of a majority of the Disinterested
Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office
act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to
be such Trustee or officer and shall inure to the benefit of the heirs,
executors and administrators of such Person. Nothing contained herein
shall affect any rights to indemnification to which personnel other
than Trustees and officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a)
of this Section 5.2 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 5.2, provided
that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or an independent legal
counsel in a written opinion, shall determine, based upon a
review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to
indemnification.
As used in this Section 5.2, a "Disinterested Trustee" is one (i) who
is not an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order of
the Commission), and (ii) against whom none of such actions, suits
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or other proceedings or another action, suit or other proceeding on the same
similar grounds is then or had been pending.
Agents and employees of the Trust who are not Trustees or officers of
the Trust may be indemnified under the same standards and procedures set forth
in this Section 5.2., in the discretion of the Board.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. All Persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Trust for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under the Declaration or in their capacity as
officers, employees or agents of the Trust and not personally. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees or by any officer, employee
or agent may give notice that this Declaration of Trust is on file with the
Secretary of State of Ohio and recite that the same is executed or made by them
not individually, but as Trustee, officer, employee or agent, and that the
obligations of any such instrument are not binding upon any of the them or
Shareholders, individually, but bind only the estate of the applicable Trust,
Series or Class, as set forth in Section 1746.13(A), Ohio Revised Code, and may
contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to bind the Trustees individually.
The Trustees shall at all times maintain insurance for the protection of the
Trust Property, its Shareholders, Trustees, officers, employees and agents in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
the Administrator, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with
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reasonable care by the Trustees, officers or employees of the Trust, regardless
of whether such counsel or expert may also be a Trustee.
SECTION 5.7. INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article V shall not be exclusive of or affect
any other rights to which any Trustee or officer may be entitled. As used in
this Article V, Trustee or officer shall include such person's heirs, executors
and administrators. Nothing contained in this Article V shall affect any rights
to indemnification to which personnel of the Trust, other than any Trustee or
officer, may be entitled, by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on behalf of any such
person.
SECTION 5.8. LIABILITY OF SERIES. Liabilities belonging to any Series
or Class of the Trust, including, without limitation, expenses, fees, charges,
taxes, and liabilities incurred or arising in connection with the management
thereof, shall be paid only from the assets belonging to that Series or Class.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
-----------------------------
SECTION 6.1. BENEFICIAL INTEREST. The interest of the Shareholders
hereunder shall be divided into transferable shares of beneficial interest,
without par value. The number of shares of beneficial interest authorized
hereunder, and the number of Shares of each Series or Class thereof that may be
issued hereunder is unlimited. The Trustees shall have the exclusive authority
without the requirement of Shareholder authorization or approval to establish
and designate one or more Series of Shares and one or more Classes thereof as
the Trustees deem necessary, appropriate or desirable. Each Share of any Series
shall represent a beneficial interest only in the assets of that Series. Subject
to the provisions of Section 6.12 hereof, the Trustees may also authorize the
creation of additional Series of Shares (the proceeds of which may be invested
in separate and independent investment portfolios) and additional Classes of
Shares within any Series. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and non-assessable.
SECTION 6.2. ESTABLISHMENT AND DESIGNATION OF SERIES. Without limiting
the authority of the Trustees set forth above to establish and designate any
further Series or Class or to classify all or any part of the issued Shares of
any Series to make them part of an existing or newly created Class or to amend
rights and preferences of new or existing Series or Class, including the
following Series,
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all without Shareholder approval, there are hereby established and designated:
The Aggressive Portfolio, The Moderately Aggressive Portfolio, The Moderate
Portfolio, The Moderately Conservative Portfolio, and The Conservative
Portfolio.
SECTION 6.3. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property and the property of each Series of the Trust of every description and
the right to conduct any business hereinbefore described are vested exclusively
in the Trustees, and the Shareholders shall have no interest therein other than
the beneficial interest conferred by their Shares, and they shall have no right
to call for any partition or division of any property, profits, rights or
interests of the Trust nor can they be called upon to assume any losses of the
Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. Every Shareholder by virtue of having become a Shareholder shall be held
to have expressly assented and agreed to the terms hereof and to have become a
party hereto. The Shares shall be personal property giving only the rights in
the Declaration specifically set forth. The Shares shall not entitle the holder
to preference, preemptive, appraisal, conversion or exchange rights, except as
the Trustees may determine with respect to any Series or Class of Shares. The
death of a Shareholder during the continuance of the Trust shall not operate to
terminate the Trust nor entitle the representative of any deceased Shareholder
to an accounting or to take any action in court or elsewhere against the Trust
or the Trustees, but only to the rights of said decedent under this Declaration
of Trust.
SECTION 6.4. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than an Ohio
business trust. Nothing in the Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
SECTION 6.5. ISSUANCE OF SHARES . The Trustees, in their discretion,
may, from time to time without vote of the Shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day in accordance with the determination of
net asset value per Share as set forth in Section 8.1 hereof), and on such terms
as the Trustees may deem best, except that only Shares previously contracted to
be sold may be issued during any period when the right of redemption is
suspended, and may in such manner acquire other assets (including the
acquisition of assets subject to, and in connection with the assumption of
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares and reissue and resell full and fractional
Shares held in the treasury. Any outstanding fractional Share of any Series
shall carry proportionately all the rights
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and obligations of a whole Share of that Series, including with respect to
voting, receipt of dividends and distributions, redemption of Shares, and
liquidation of the Trust. Shares may also be issued in separate Series or
Classes as provided in Section 6.12 hereof. The Trustees may from time to time
divide or combine the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interests in the Trust. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/1,000ths of a Share or integral multiples thereof.
SECTION 6.6. REGISTER OF SHARES; SHARE CERTIFICATES. A register will be
kept at the principal office of the Trust or at an office of the Transfer Agent
which shall contain the names and addresses of the Shareholders and the number
of Shares held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to who are the holders of the Shares and who
shall be entitled to receive dividends or distributions or otherwise to exercise
or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive
payment of any dividend or distribution, nor to have notice given to him as
herein or in the Bylaws provided, until he has given his address to the Transfer
Agent or such other officer or agent of the Trustees as shall keep the said
register for entry thereon. It is not contemplated that certificates will be
issued for the Shares; however, the Trustees, in their discretion, may authorize
the issuance of Share certificates and promulgate appropriate rules and
regulations as to their use.
SECTION 6.7. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery, the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
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SECTION 6.8. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.9. TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 6.5, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
SECTION 6.10. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.3 hereof or as
required by Section 16 (a) of the 1940 Act; (ii) with respect to any investment
advisory or management contract as provided in Section 4.1; (iii) with respect
to termination or reorganization of the Trust as provided in Section 9.2.; (iv)
with respect to any amendment of the Declaration to the extent and as provided
in Section 9.3; (v) with respect to any merger, consolidation or sale or
disposition of assets as provided in Section 9.4; (vi) with respect to
incorporation of the Trust to the extent and as provided in Section 9.5; (vii)
to the same extent as the stockholders of an Ohio business corporation as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders; and (viii) with respect to such additional matters relating
to the Trust as may be required by the Declaration, the Bylaws, the 1940 Act or
any registration of the Trust with the Commission (or any successor agency) or
any state, or as the Trustees may consider necessary or desirable.
Except as otherwise provided in the Declaration or as required by the
1940 Act or other applicable law, matters voted on by Shareholders must be
approved by the affirmative vote of the holders of a majority of the Shares
voting at any meeting of Shareholders and Trustees must be elected by a
plurality of the Shares voting, or by an instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by the holders of
a majority of Shares outstanding and entitled to vote, or by such other vote as
may be established by the Trustees with respect to any Series or Class of
Shares, provided that the election of Trustees (after the election by the
initial sole Shareholder) must be approved by the Shareholders at a meeting of
Shareholders.
Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to
proportionate fractional vote, except that Shares held in the treasury of the
Trust shall not be voted, that on matter relating to the Trust and governed by
the 1940 Act shall be voted in accordance with the 1940 Act and that the
Trustees may, in conjunction with the establishment of any Series of Shares,
establish conditions under which the several Series shall have separate voting
rights or no voting rights. There shall be no cumulative voting in the election
of Trustees. Until Shares are issued, the Trustees may exercise all rights of
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Shareholders and may take any action required by law, the Declaration or the
Bylaws to be taken by Shareholders. The Bylaws may include further provisions
for Shareholders' votes and meetings and related matters.
SECTION 6.11. INVESTMENTS IN TRUST. The Trustees may accept investments
in the Trust from such persons and on such terms and for such consideration, not
inconsistent with the provisions of the 1940 Act, as they from time to time
authorize. The Trustees may authorize any Distributor, Custodian, Transfer Agent
or other Person to accept orders for the purchase of Shares that conform to such
authorized terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
SECTION 6.12. SERIES OR CLASS DESIGNATION. The Trustees, in their
discretion, may authorize the division of Shares into additional Series or
Classes, and the different Series or Classes shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series or Classes shall be fixed and determined by the Trustees,
provided, that all Shares shall be identical except that there may be variations
so fixed and determined between different Series as to investment objective,
purchase price, right of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, conditions under which the several Series shall have separate
voting rights or no voting rights, and such other matters, as the Trustees deem
appropriate. All references to Shares in the Declaration shall be deemed to be
shares of any or all Series as the context may require.
If the Trustees shall divide the shares of the Trust into Series or
Classes, the following provisions shall be applicable:
(a) The number of authorized shares and the number of shares of each
Series or Class that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously
issued and reacquired of any Series or Class into one or more other
Series, or one or more other Classes that may be established and
designated from time to time. The Trustees may hold as treasury shares
(of the same or some other Series or Class), reissue for such
consideration and on such terms as they may determine, or cancel any
Shares of any Series or Class reacquired by the Trust at their
discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to
the existing Series or Classes which represents the interests in the
assets of the Trust immediately prior to the establishment of any
additional Series or Classes and the power of the Trustees to invest
and reinvest assets
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applicable to any such additional Series or Classes shall be as set
forth in the instrument of the Trustees establishing such Series or
Classes which is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits
and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors of such Series, and shall be so
recorded upon the books of account of the Trust. In the event that
there are any assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as belonging to
any particular Series, the Trustees or their delegate shall allocate
them among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees, in
their sole discretion, deem fair and equitable. Each such allocation by
the Trustees shall be conclusive and binding upon the shareholders of
all Series for all purposes. No holder of Shares of any Series shall
have any claim on or right to any assets allocated or belonging to any
other Series.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust allocated to that Series and all
expenses, costs, charges and reserves attributable to that Series which
are not readily identifiable as belonging to any particular Class, and
any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees or their delegate
to and among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees, in
their sole discretion, deem fair and equitable and no Series shall be
liable to any person except for its allocated share. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees or
their delegate shall be conclusive and binding upon the Shareholders of
all Series and Classes for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders. The assets of a particular Series of
the Trust shall, under no circumstances, be charged with liabilities,
expenses, costs, charges and reserves attributable to any other Series
or Class thereof of the Trust. All Persons extending credit to, or
contracting with or having any claim against a particular Series of the
Trust shall look only to the assets of that particular Series for
payment of such credit, contract or claim.
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(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Trust with respect to the five
initial Series which represents the interests in the assets of the
Trust immediately prior to the establishment of any additional Series.
With respect to any other Series, dividends and distributions on Shares
of a particular Series or Class may be paid or credited in such manner
and with such frequency as the Trustees may determine, which may be
daily or otherwise, pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine,
to the holders of Shares of that Series or Class, from such of the
income and capital gains, accrued or realized, from the assets
belonging to that Series, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Series
or Class. All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rate to the holders of that
Series or Class in proportion to the number of Shares of that Series or
Class held by such holders at the date and time of record established
for the payment of such dividends or distributions.
(f) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a
Series or Class thereof shall be entitled to receive his pro rata Share
of distributions of income and capital gains made with respect to such
Series or Class net of liabilities, expenses, costs, charges and
reserves belonging and allocated to such Series or Class. Upon
redemption of his Shares or indemnification for liabilities incurred by
reason of his being or having been a Shareholder of a Series, such
Shareholder shall be paid solely out of the funds and property of such
Series or Class of the Trust. Upon liquidation or termination of a
Series or Class thereof of the Trust, a Shareholder of such Series or
Class thereof shall be entitled to receive a pro rata Share of the net
assets of such Series based on the net asset value of his Shares. A
Shareholder of a particular Series of the Trust shall not be entitled
to commence or participate in a derivative or class action on behalf of
any other Series or the Shareholders of any other Series of the Trust.
(g) All Shares of all Series shall have "equal voting rights" as
provided in Section 18(i) of the 1940 Act, except as otherwise
permitted by the 1940 Act. The holder of each of the Shares shall be
entitled to one vote for each Share held. The Trustees shall have full
power and authority to call meetings of the Shareholders of a
particular Class or Classes of Shares or of one or more particular
Series of Shares, or otherwise call for the action of such Shareholders
on any particular matter.
(h) Except as otherwise provided in this Article VI, the Trustees shall
have full power and authority to determine the designations,
preferences, privileges, sales charges, purchase prices, assets,
liabilities, expenses, costs, charges and reserves belonging or
allocated thereto,
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limitations and rights, including without limitation voting, dividend,
distribution and liquidation rights, of each Class and Series of
Shares. Subject to any applicable requirements of the 1940 Act, the
Trustees shall have the authority to provide that the Shares of one
Class shall be automatically converted into Shares of another Class of
the same Series or that the holders of Shares of any Series or Class
shall have the right to convert or exchange such Shares into Shares of
one or more other Series or Classes of Shares, all in accordance with
such requirements, conditions and procedures as may be established by
the Trustees.
(i) The establishment and designation of any Series or Class of shares
shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such Series, or
as otherwise provided in such instrument. At any time that there are no
shares outstanding of any particular Series or Class previously
established and designated, the Trustees may, by an instrument executed
by a majority of their number, abolish that Series or Class and the
establishment and designation thereof.
SECTION 6.13. MEETINGS OF SHAREHOLDERS. A meeting of the Shareholders
shall be held at such times, on such day and at such hour as the Trustees may
from time to time determine, or at the written request of the holder or holders
of ten percent (10%) or more of the total number of Shares then issued and
outstanding of the Trust entitled to vote as such meeting or as required by law.
Any such request shall state the purpose of the proposed meeting. The meeting
shall be held either at the principal office of the Trust, or at such other
place as may be designated by the Trustees, for such purposes as may be
specified by the Trustees.
SECTION 6.14. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of an Ohio corporation organized under Chapter 1701, Ohio Revised
Code.
SECTION 6.15. ADDITIONAL PROVISIONS. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE VII
REDEMPTIONS
-----------
SECTION 7.1. REDEMPTION OF SHARES. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. The Trustees shall have full power and authority to vary and change
the right of redemption applicable to the various Series and Classes of Shares.
Redeemed or repurchased Shares may be resold by the Trust.
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The Trust shall redeem the Shares at the price determined as
hereinafter set forth, upon the appropriately verified written application of
the record holder thereof (or upon such other form of request as the Trustees
may determine) at such office or agency as may be designated from time to time
for that purpose by the Trustees. The Trustees may from time to time specify
additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement or
prospectus under the Securities Act of 1933.
SECTION 7.2. PRICE. Shares will be redeemed at their net asset value
determined as set forth in Section 8.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 8.1 hereof after
receipt of such application.
SECTION 7.3. PAYMENT. Payment for such Shares shall be made in cash or
in property out of the assets of the relevant Series or Class of the Trust to
the Shareholder of record at such time and in the manner, not inconsistent with
the 1940 Act or other applicable laws, as may be specified from time to time in
the Trust's then effective registration statement or prospectus under the
Securities Act of 1933, subject to the provisions of Section 7.3 hereof.
Notwithstanding the foregoing, the Trust or its delegate may withhold from such
redemption proceeds any amount arising (i) from a liability of the redeeming
Shareholder to the Trust, or (ii) in connection with any federal or state tax
withholding requirements.
SECTION 7.4. EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET VALUE.
If, pursuant to Section 7.8 hereof, the Trustees shall declare a suspension of
the determination of net asset value with respect to Shares of the Trust or of
any Series or Class thereof, the rights of Shareholders (including those who
shall have applied for redemption pursuant to Section 7.1 hereof but who shall
not yet have received payment) to have Shares redeemed and paid for by the Trust
shall be suspended until the termination of such suspension is declared. Any
record holder who shall have his redemption right so suspended may, during the
period of such suspension, by appropriate written notice of revocation at the
office or agency where application was made, revoke any application for
redemption not honored and withdraw any certificates on deposit. The redemption
price of Shares for which redemption applications have not been revoked shall be
the net asset value of such Shares next determined as set forth in Section 8.1
after the termination of such suspension, and payment shall be made within seven
(7) days after the date upon which the application was made plus the period
after such application during which the determination of net asset value was
suspended.
SECTION 7.5. REPURCHASE BY AGREEMENT. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner
25
<PAGE> 29
thereof at a price not exceeding the net asset value per Share determined as of
the time when the purchase or contract of purchase is made or the net asset
value as of any time which may be later determined pursuant to Section 8.1
hereof, provided payment is not made for the Shares prior to the time as of
which such net asset value is determined.
SECTION 7.6. REDEMPTION OF SHAREHOLDER'S INTEREST. The Trust shall have
the right at any time without prior notice to the Shareholder to redeem Shares
of any Shareholder for their then current net asset value per Share if the
aggregate net asset value of such Shares is less than the minimum amount
established by the Trustees from time to time, subject to such terms and
conditions as the Trustees may approve, and subject to the Trust's giving
general notice to all Shareholders of its intention to avail itself of such
right, either by publication in the Trust's prospectus, if any, or by such other
means as the Trustees may determine.
SECTION 7.7. REDUCTIONS IN NUMBER OF OUTSTANDING SHARES PURSUANT TO NET
ASSET VALUE FORMULA. The Trust may also reduce the number of outstanding Shares
pursuant to the provisions of Section 8.2.
SECTION 7.8. SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings; (ii)
during which trading on the New York Stock Exchange is restricted; (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets; or
(iv) during any other period when the Commission may for the protection of
security holders of the Trust by order permit suspension of the right of
redemption or postponement of the date of payment or redemption; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify, but not later than the
close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption or payment on
redemption until the Trust shall declare the suspension at an end, except that
the suspension shall terminate in any event on the first day on which said stock
exchange shall have reopened or the period specified in (ii) or (iii) shall have
expired (as to which, in the absence of an official ruling by the Commission,
the determination of the Trust shall be conclusive). In the case of a suspension
of the right of redemption, a Shareholder may either withdraw his request for
redemption or receive payment based on the net asset value existing after the
termination of the suspension.
SECTION 7.9. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities
26
<PAGE> 30
of the Trust has or may become concentrated in any Person to an extent which
would disqualify the Trust as a regulated investment company under the Internal
Revenue Code, then the Trustees shall have the power by lot or other means
deemed equitable by them (i) to call for redemption by any such Person of a
number, or principal amount, of Shares or other securities of the Trust
sufficient to maintain or bring the direct or indirect ownership of Shares or
other securities of the Trust into conformity with the requirements for such
qualification; and (ii) to refuse to transfer or issue Shares or other
securities of the Trust to any Person whose acquisition of the Shares or other
securities of the Trust in question would result in such disqualification. The
redemption shall be effected at the redemption price and in the manner provided
in Section 7.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE
--------------------------------
NET INCOME AND DISTRIBUTIONS
----------------------------
SECTION 8.1. NET ASSET VALUE. For all purposes under this Declaration
of Trust, the net asset value of any Series or Class shall be determined by at
least once on each business day, as of the close of the New York Stock Exchange
or as of such other time or times as the Trustees shall determine.
The value of the assets of any Series of the Trust shall include the
appraisal of the securities allocated to such Series, such appraisal to be on
the basis of the amortized cost of money market securities or market value in
the case of other securities, or, consistent with the rules and regulations of
the Commission, by such other method as shall be deemed to reflect the fair
value thereof, determined in good faith by or under the direction of the
Trustees, together with all the other assets belonging to such Series. From the
total value of said assets, there shall be deducted all indebtedness, interest,
taxes, payable or accrued, including estimated taxes on unrealized book profits,
expenses and management charges accrued to the appraisal date, net income
determined and declared as a distribution and all other items in the nature of
liabilities attributable to such Series which shall be deemed appropriate. The
net asset value per Share of the Shares of any Series shall be the quotient
obtained by dividing the resulting amount by the total number of Shares of that
Series outstanding. The power and duty to make the daily calculations may be
delegated by the Trustees to the Investment Adviser, the Custodian, the Transfer
Agent or such other Person as the Trustees by
27
<PAGE> 31
resolution may determine. The Trustees may suspend the daily determination of
net asset value to the extent permitted by the 1940 Act.
SECTION 8.2. DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall from
time to time distribute ratably among the Shareholders of the Trust or of a
Series or a Class thereof such proportion of the net profits, surplus (including
paid-in surplus), capital, or assets held by the Trustees as they may deem
proper. Such distribution may be made in cash or property (including without
limitation any type of obligations of the Trust or any assets thereof), and the
Trustees may distribute ratably among the Shareholders, or such Series or Class,
additional Shares issuable hereunder in such manner, at such times, and on such
terms as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may in their discretion determine that, solely for the purposes of such
distributions, outstanding Shares shall exclude Shares for which orders have
been placed subsequent to a specified time. The Trustees may always retain from
the net profits such amount as they may deem necessary to pay the debts or
expenses of the Series or Class or to meet obligations of the Series or Class,
or as they may deem desirable to use in the conduct of its affairs or to retain
for future requirements or extensions of the business. The Trustees may adopt
and offer to Shareholders such dividend reinvestment plans, cash dividend payout
plans or related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
SECTION 8.3. DETERMINATION OF NET INCOME. The term "net income" with
respect to a Series or Class of shares is hereby defined as the gross earnings
of the Series or Class, excluding gains on sales of securities and stock
dividends received, less the expenses of the Trust allocated to the Series or
Class by the Trustees in such manner as they determine to be fair and equitable
or otherwise chargeable to the Series or Class. The expenses shall include (1)
taxes attributable to the income of the Trust exclusive of gains on sales, and
(2) other charges properly deductible for the maintenance and administration of
the Trust; but there shall not be deducted from gross or net income any losses
on securities, realized or unrealized. The Trustees shall otherwise have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
28
<PAGE> 32
SECTION 8.4. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable.
Without limiting the generality of the foregoing, the Trustees may establish
additional Series or Classes of Shares in accordance with Section 6.12, and
declare dividends thereon in such manner as they shall determine.
ARTICLE IX
DURATION; TERMINATION OF TRUST
------------------------------
AMENDMENT; MERGERS; ETC.
------------------------
SECTION 9.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST.
(a) The Trust or any Series or Class of the Trust may be terminated:
(i) by the affirmative vote of the holders of a majority of
the Shares voting at any meeting of Shareholders, or (ii) by
an instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of a
majority of Shares outstanding and entitled to vote, or by
such other vote as may be established by the Trustees with
respect to any Series or Class of Shares.
Upon the termination of the Trust or any one or more Series or Class:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs or the affairs of such
Series or Class.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or
any Series or Class shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust or
the Series of the Trust, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any
part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in
whole or in part of cash, securities or other
29
<PAGE> 33
property of any kind, discharge or pay its liabilities, and to
do all other acts appropriate to liquidate its business;
provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the
Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary
for their protection, the Trustees may distribute the
remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust or any Series or Class of the Trust
and distribution to the Shareholders as herein provided, a majority of
the Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination, and
the Trustees shall thereupon be discharged from all further liabilities
and duties hereunder, and the rights and interests of all Shareholders
shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE.
(a) This Declaration may be amended by a vote of the Shareholders
holding a majority of the Shares voting, or by any instrument in
writing, without a meeting, signed by a majority of the Trustees and
consented to by the holders of not less than a majority of the Shares
outstanding and entitled to vote. Amendments shall be effective upon
the taking of action as provided in this section or at such later time
as shall be specified in the applicable vote or instrument. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders to designate Series or Classes in accordance with Section
6.12 hereof, to change the name of the Trust or any Series or Class
thereof, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or if they deem
it necessary to conform this Declaration to the requirements of
applicable federal laws or regulations or the requirements of the
regulated investment company provisions of the Internal Revenue Code,
or to make any other changes in the Declaration which do not materially
adversely affect the rights of Shareholders hereunder, but the Trustees
shall not be liable for failing to do so. In addition amendment of this
Declaration of Trust as it may affect any one or more Series may be
effected by vote of the Trustees at any time when the Trust has no
outstanding Shares or Shareholders of such Series.
(b) No amendment may be made under this Section 9.3 which would change
any rights with respect to any Shares of the Trust by reducing the
amount payable thereon upon
30
<PAGE> 34
liquidation of the Trust or by diminishing or eliminating any voting
rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares outstanding and entitled to vote,
or by such other vote as may be established by the Trustees with
respect to any Series of Shares. Nothing contained in this Declaration
shall permit the amendment of this Declaration to impair the exemption
from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon
Shareholders without the express consent of each Shareholder or Trustee
involved.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or
by the Trustees as aforesaid or a copy of the Declaration, as amended,
and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall become effective, or
at any time there are no longer outstanding any Shares of the Trust, this
Declaration may be terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OR DISPOSITION OF ASSETS.
The Trustees may sell, convey and transfer the assets of the Trust, or the
assets belonging to one or more or all Series, to another trust, partnership,
association or corporation organized under the laws of any state of the United
States, or to the Trust to be held as assets belonging to one or more Series of
the Trust, in exchange for cash, shares or other securities (including, in the
case of a transfer to another Series of the Trust, Shares of such other Series)
with such transfer being made subject to, or with the assumption by the
transferee, of the liabilities belonging to each Series the assets of which are
so transferred; provided, however, that if Shareholder approval is required by
the 1940 Act, no assets belonging to any particular Series shall be so
transferred unless the terms of such transfer shall have first been approved at
a meeting called for that purpose by the affirmative vote of Shareholders
holding a majority of the voting power of that Series. Following such transfer,
the Trustees shall distribute such cash, shares or other securities (giving due
effect to the assets and liabilities belonging to and any other differences
among the various Series the assets belonging to which have so been transferred)
among the Shareholders of the Series the assets belonging to which have been so
transferred; and if all the assets of the Series or Trust have been so
transferred, the Series or Trust, as the case may be, shall be terminated.
The Trust or any Series thereof may be a party, with one or more
entities (including another Series) to an agreement of merger or consolidation;
provided, however, that any such agreement of
31
<PAGE> 35
merger or consolidation shall be approved by the Trustees, and if Shareholder
approval is required by the 1940 Act, by the affirmative vote of Shareholders
holding a majority of the voting power of the Trust or of each Series affected.
SECTION 9.5. INCORPORATION. With the approval of the holders of a
majority of the Shares outstanding and voting, or by such other vote as may be
established by the Trustees with respect to any Series of Shares (if Shareholder
approval is required), the Trustees may cause to be organized or assist in
organizing a corporation or corporations under the laws of any jurisdiction or
any other trust, partnership, association or other organization to take over all
of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, association or organization in
exchange for the shares or securities thereof or otherwise, and to lend money
to, subscribe for the shares or securities of, and enter into any contracts with
any such corporation, trust, partnership, association or organization in which
the Trust holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided under the
law then in effect.
SECTION 9.6. ABSENCE OF DISSENTERS' RIGHTS. No shareholder shall be
entitled, as a matter of right, to relief as a dissenting shareholder in respect
of any proposal or action involving the Trust.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1. FILING. The original or a copy of this instrument and of
each amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. This Declaration, any amendment and the report
required by Section 1746.04, Ohio Revised Code, hereto shall be filed in the
office of the Secretary of the of Ohio and in such other places as may be
required under the laws of Ohio and may also be filed or recorded in such other
places as the Trustees deem appropriate. The Declaration and each amendment
thereto shall be effective upon adoption. A restated Declaration, integrating
into a single instrument all of the provisions of the Declaration which are then
in effect and operative, may be executed from time to time by a majority of the
Trustees and shall, upon filing with the Secretary of the of Ohio, be conclusive
evidence of all amendments contained herein and may thereafter be referred to in
lieu of the original Declaration and the various amendments thereto.
32
<PAGE> 36
SECTION 10.2. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered with reference to the laws of the of Ohio, and the rights
of all parties and the validity and construction of every provision hereof shall
be subject to and construed according to the laws of said State.
SECTION 10.3. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall sufficiently evidenced by any such original counterpart.
SECTION 10.4. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any Bylaws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
SECTION 10.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of the Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Internal Revenue Code or with other
applicable laws and regulations, the conflicting provisions shall be
deemed never to have constituted a part of the Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of the Declaration or render invalid or improper any action
taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not
in any manner affect such provision in any other jurisdiction or any
other provision of the Declaration in any jurisdiction.
SECTION 10.6. INDEX AND HEADING FOR REFERENCE ONLY. The Index and
heading preceding the text, articles and sections hereof have been inserted for
convenience and reference only and shall not be construed to affect the meaning,
construction or effect of this Declaration.
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<PAGE> 37
IN WITNESS WHEREOF, the undersigned Trustees have hereunto each set his or her
hand as of the 9th day of January, 1998.
-----------------------------------------------------
John C. Bryant
-----------------------------------------------------
Sue A. Doody
-----------------------------------------------------
Robert M. Duncan
-----------------------------------------------------
Joseph J. Gasper
-----------------------------------------------------
Thomas J. Kerr, IV
------------------------------------------------------
Douglas F. Kridler
-----------------------------------------------------
Robert J. Woodward, Jr.
Trust Address: Three Nationwide Plaza
26th Floor
Columbus, Ohio 43215
34
<PAGE> 1
Exhibit 2
NATIONWIDE ASSET ALLOCATION TRUST
------------------------------------------------------------------------------
BYLAWS
------------------------------------------------------------------------------
Dated September 9, 1997
<PAGE> 2
BYLAWS
OF
NATIONWIDE ASSET ALLOCATION TRUST
ARTICLE I
DEFINITIONS
The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT
ADVISER", "MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES",
"TRANSFER AGENT", "TRUST", "TRUST PROPERTY" and "TRUSTEES" have the respective
meaning given them in the Declaration of Trust of Nationwide Asset Allocation
Trust adopted September 9, 1997, and as amended from time to time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the State of Ohio shall be in the City of
Columbus, County of Franklin, with the principal office at Three Nationwide
Plaza, Columbus, Ohio.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places within as well as without the State of Ohio, as the Trustees may from
time to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. There is no requirement that the Trustees have
annual meetings of the Shareholders. In the event the Trustees determine to have
an annual meeting of the Shareholders, it shall be held at such place within or
without the State of Ohio on such day and at such time as the Trustees shall
designate. Special meetings of the Shareholders may be called at any time by a
majority of the Trustees and shall be called by any Trustee upon written request
of Shareholders holding in the aggregate not less than ten percent (10%) of the
outstanding Shares having voting rights, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without the State of Ohio on such day and at such time as the Trustees
shall designate.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of the Shareholders,
stating the time, place and purpose of the meeting, shall be given by the
Trustees by mail to each Shareholder at his address as recorded on the register
of the Trust, mailed at least ten (10) days and not more than sixty (60) days
before the meeting. Only the business stated in the notice of the meeting shall
be considered at
<PAGE> 3
such meeting. No notice need be given to any Shareholder who shall have failed
to inform the Trust of his current address or if a written waiver of notice,
executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
SECTION 3. QUORUM AND REQUIRED VOTE. At any meeting of Shareholders, a
quorum for the transaction of business shall consist of a majority represented
in person or by proxy of all votes attributable to the outstanding Shares
(without regard to individual series) entitled to vote with respect to a matter;
provided, however, that at any meeting at which the only actions to be taken are
actions required by the 1940 Act to be taken by vote of the Shareholders of an
individual series, a quorum shall consist of a majority of all votes
attributable to the outstanding Shares of such individual series entitled to
vote thereon, and that at any meeting at which the only action to be taken shall
have been determined by the Board of Trustees to affect the rights and interests
of one or more but not all series of the Trust, a quorum shall consist of a
majority of all votes attributable to the outstanding Shares of the series so
affected; and provided, further, that reasonable adjournments of such meeting
until a quorum is obtained may be made by a vote attributable so the Shares
present in person or by proxy. A majority of the votes shall decide any question
or a plurality shall elect a Trustee, subject to any applicable requirements of
law or of this Bylaws or the Declaration of Trust; provided, however, that when
any provisions of law or of this Bylaws requires the holders of Shares of any
particular series to vote by series and not in the aggregate with respect to a
matter, then a majority of all votes attributable to the outstanding Shares of
that series shall decide such matter insofar as that particular series shall be
concerned.
SECTION 4. RECORD DATE FOR MEETINGS. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than sixty (60) days
prior to the date of any meeting of Shareholders or distribution or other action
as a record date for the determinations of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by the Declaration. Only Shareholders of record at the close
of business on the record date will be entitled to notice of and to vote at any
meeting.
SECTION 5. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Trustees may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of
<PAGE> 4
any other person as regards the change or management of such Share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
To the extent that Series are included as underlying investment options
in variable contracts issued by Nationwide Life Insurance Company or Nationwide
Life and Annuity Insurance Company (collectively, "Nationwide"), Nationwide will
vote the shares of each series at any meeting in accordance with timely
instructions under the variable contracts issued by Nationwide. Nationwide will
vote shares attributable to variable contracts as to which no voting
instructions are received in proportion (for, against or abstain) to those for
which timely instructions are received. If a proxy is received that does not
specify a choice, Nationwide will consider its timely receipt as an instruction
to vote in favor the proposal to which it relates. In certain circumstances,
Nationwide has the right to disregard voting instructions from certain variable
contract owners. Variable contract owners may revoke previously submitted voting
instructions given to Nationwide at any time prior to any meeting by either
submitting to the Trust a subsequently dated proxy, delivering to the Trust a
written notice of revocation or otherwise giving notice of revocation in open
meeting, in all cases prior to the exercise of the authority granted in the
proxy.
SECTION 6. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of an Ohio business corporation or as required by the 1940 Act.
SECTION 7. ACTION WITHOUT A MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these Bylaws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than by regular or stated meetings shall be held whenever called by the
Chairman, or by any one of the Trustees, at the time being in office. Notice of
the time and place of each meeting other than regular or stated meetings shall
be given by the Secretary or an Assistant Secretary or by the officer or Trustee
calling the meeting and shall be mailed to each Trustee at least two days before
the meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at
his business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by an Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar
<PAGE> 5
communications equipment by means of which all persons participating in the
meeting can hear each other, which telephone conference meeting shall be deemed
to have been held at a place designated by the Trustees at the meeting.
Participation in a telephone conference meeting shall constitute presence in
person at such meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if all
the Trustees consent to the action in writing and the written consents are filed
with the records of the Trustees' meetings. Such consents shall be treated as a
vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these Bylaws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these Bylaws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees and powers conferred
upon the same (subject to the same limitations with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees. The Trustees may designate a chairman of any such Committee. In the
absence of such designation, the Committee may elect its own Chairman.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING. The Trustees may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written action of the requisite number of members of a Committee
without a meeting and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the offices of the Trust.
<PAGE> 6
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board
to consist in the first instance of not less than three (3) members. Members of
such Advisory Board shall not be Trustees or officers and need not be
Shareholders. Members of this Board shall hold office for such period as the
Trustees may by resolution provide. Any member of such Board may resign
therefrom by a written instrument signed by him which shall take effect upon
delivery to the Trustees. The Advisory Board shall have no legal powers and
shall not perform the functions of Trustees in any manner, said Board being
intended merely to act in an advisory capacity. Such Advisory Board shall meet
at such times and upon such notice as the Trustees may by resolution provide.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
Chairman, a Vice Chairman, a Treasurer and a Secretary, who shall be elected by
the Trustees. The Trustees may elect or appoint such other officers or agents as
the business of the Trust may require, including one or more Assistant
Secretaries and one or more Assistant Treasurers. The Trustees may delegate to
any officer or committee the power to appoint any subordinate officers or
agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration of Trust or the Bylaws, the Chairman, the Vice
Chairman, the Treasurer and the Secretary shall hold office until such officer's
successor shall have been duly elected and qualified, and all other officers
shall hold office at the pleasure of the Trustees.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause by a vote of a
majority of the Trustees. Any officer or agent appointed by any officer or
committee may be removed with or without cause by such appointing officer or
committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and any Committees of the Trustees, within their respective
spheres, as provided by the Trustees, he shall at all times exercise a general
supervision and direction over the affairs of the Trust. He shall have the power
to employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust. He shall also have the power to grant, issue, execute or
sign such powers of attorney, proxies or other documents as may be deemed
advisable or necessary in furtherance of the interest of the Trust. The Chairman
shall have such other powers and duties as, from time to time, may be conferred
upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF VICE CHAIRMAN. In the absence or
disability of the Chairman, the Vice Chairman or, if there be more than one Vice
Chairman, any Vice Chairman designated by the Trustees shall perform all the
duties and may exercise any of the powers of the Chairman, subject to the
control of the Trustees. Each Vice Chairman shall perform such other duties as
may be assigned to him from time to time by the Trustees and the Chairman.
<PAGE> 7
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust which may come into his hands to such custodian as the
Trustees may employ pursuant to Article X of these Bylaws. He shall render a
statement of condition of the finances of the Trust to the Trustees as often as
they shall require the same and he shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Shareholders and the Trustees in proper books
provided for that purpose; he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of the Transfer Agent. The Secretary shall attend to the
giving and serving of all notices by the Trust in accordance with the provisions
of these Bylaws and as required by law; and subject to these Bylaws, he shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF THE ASSISTANT TREASURERS. In the
absence or disability of the Treasurer, any Assistant Treasurer designated by
the Trustees shall perform all the duties, and may exercise any of the powers,
of the Treasurer. The Assistant Treasurers shall perform such other duties as
from time to time may be assigned to them by the Trustees. Each Assistant
Treasurer shall give a bond for the faithful discharge of his duties, if
required to so by the Trustees, in such sum and with such surety or sureties as
the Trustees shall require.
SECTION 9. POWERS AND DUTIES OF THE ASSISTANT SECRETARIES. In the
absence or disability of the Secretary, any Assistant Secretary designated by
the Trustees shall perform all of the duties, and may exercise any of the
powers, of the Secretary. The Assistant Secretaries shall perform such other
duties as from time to time may be assigned to them by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the last day of December in each year, provided,
however, that the Trustees may from time to time change the fiscal year.
<PAGE> 8
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wirelessed for the purposes of these Bylaws when it
has been delivered to a representative of any telegraph, cable or wireless
company with instruction that it be telegraphed, cabled or wirelessed. Any
notice shall be deemed to be given at the time when the same shall be mailed,
telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODIAN
The Trustees shall at all times employ a bank or trust company as
Custodian in accordance with the 1940 Act as amended and the rules promulgated
thereunder as amended.
ARTICLE XI
AMENDMENTS
These Bylaws, or any of them, may be altered, amended or repealed, or
new Bylaws may be adopted (a) by Majority Shareholder Vote, or (b) by the
Trustees, provided, however that no Bylaw may be amended, adopted or repealed by
the Trustees if such amendment, adoption or repeal requires, pursuant to law,
the Declaration or these Bylaws, a vote of the Shareholders.
<PAGE> 1
Exhibit 11
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 7, 1998, relating to the statements of assets and liabiities of The
Aggressive Portfolio, The Moderately Aggressive Portfolio, The Moderate
Portfolio, The Moderately Conservative Portfolio and The Conservative Portfolio
(separate portfolios constituting Nationwide Asset Allocation Trust), which
appears in such Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
January 13, 1998
<PAGE> 1
Exhibit 19
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as
Trustees and as Officer of NATIONWIDE ASSET ALLOCATION TRUST, an open-end
investment company created for the laws of the State of Ohio, which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and of the Investment Company Act of 1940,
as amended, a Registration Statement on Form N-1A for the registration under
said Acts of the sale of shares of Nationwide Asset Allocation Trust, hereby
constitute and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird,
Jr., W. Sidney Druen, and Joseph P. Rath his/her attorneys, and each of them,
with power to act without the others, his/her attorneys, with full power of
substitution and resubstitution, for and in his/her name, place and stead, in
any and all capacities, to approve and sign any and all amendments to such
Registration Statement, containing a combined Part A (Prospectus) for Nationwide
Asset Allocation Trust, and to file the same, with all exhibits thereto and
other documents including related Registration documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys, and each of them, full power and authority to do and perform all
and every act and thing requisite to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming that said attorneys, or
any one of them, may lawfully do or cause to be done by virtue hereof. This
instrument may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigneds have herewith set their names and
seals as of this 8th day of January, 1998.
/s/ Sue A. Doody /s/ Douglas F. Kridler
- -------------------------------------- ------------------------------------
Sue A. Doody, Trustee Douglas F. Kridler, Trustee
Nationwide Asset Allocation Trust Nationwide Asset Allocation Trust
/s/ Robert M. Duncan /s/ Joseph J. Gasper
- -------------------------------------- ------------------------------------
Robert M. Duncan, Trustee Joseph J. Gasper
Nationwide Asset Allocation Trust Nationwide Asset Allocation Trust
/s/ Robert J. Woodward, Jr. /s/ Thomas J. Kerr, IV
- -------------------------------------- ------------------------------------
Robert J. Woodward, Jr. Thomas J. Kerr, IV
Nationwide Asset Allocation Trust Nationwide Asset Allocation Trust
/s/ John C. Bryant
- --------------------------------------
John C. Bryant
Nationwide Asset Allocation Trust
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<DISTRIBUTIONS-OTHER> 0
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<NUMBER-OF-SHARES-REDEEMED> 0
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<AVERAGE-NET-ASSETS> 20,000
<PER-SHARE-NAV-BEGIN> 10.00
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<PER-SHARE-NAV-END> 10.00
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</TABLE>
