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Securities Act Registration No. 2-73024
Investment Company Act Registration No. 811-3213
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933/ /
POST-EFFECTIVE AMENDMENT NO. 22 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/ /
Amendment No. 23 /X/
NATIONWIDE SEPARATE ACCOUNT TRUST
(Exact Name of Registrant as Specified in Charter)
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(Address of Principal Executive Office)(Zip Code)
Registrant's Telephone Number, including Area Code: (614) 249-7111
Send Copies of Communications to:
MS. RAE MERCER POLLINA
ONE NATIONWIDE PLAZA DRUEN, RATH & DIETRICH
COLUMBUS, OHIO 43216 ONE NATIONWIDE PLAZA
(NAME AND ADDRESS OF AGENT FOR SERVICE) COLUMBUS, OHIO 43216
/X/ It is proposed that this filing will become effective on January 4,
1997 pursuant to paragraph (b) of Rule 485.
Registrant has declared that an indefinite number of its shares are
registered statement in accordance with Rule 24f-2 under the Investment Company
Act of 1940. Registrant filed its Rule 24f-2 Notice for the fiscal year ended
December 31, 1995, on February 29, 1996.
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NATIONWIDE SEPARATE ACCOUNT TRUST
TOTAL RETURN FUND
CAPITAL APPRECIATION FUND
GOVERNMENT BOND FUND
MONEY MARKET FUND
NATIONWIDE SMALL COMPANY FUND
NATIONWIDE INCOME FUND
CROSS REFERENCE SHEET
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N-1A Item No. Location
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PART A (for Nationwide Income Fund)
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Item 1. Cover Page Cover Page
Item 2. Synopsis *
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant Investment Objectives and Policies;
Investment Techniques,
Considerations and Risk Factors
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 Sale of Fund Shares; 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
</TABLE>
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<TABLE>
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<S> <C> <C>
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; Tax Consequences for the
Small Company Fund; Tax
Consequences to Shareholders
Item 21. Underwriters *
Item 22. Calculation of Performance Data Calculating Yield --- The Money
Market Fund; Calculating Yield and
Total Return --- Non-Money Market
Funds
Item 23. Financial Statements 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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The Prospectus for the Total Return Fund, Capital Appreciation Fund, Government
Bond Fund and Money Market Fund, dated May 1, 1996 and the Prospectus for the
Nationwide Small Company Fund, dated May 1, 1996 are incorporated by reference
into this filing of Post-Effective Amendment No. 22 to the Registration
Statement.
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PROSPECTUS
JANUARY __, 1997
SHARES OF BENEFICIAL INTEREST
NATIONWIDE INCOME FUND
NATIONWIDE SEPARATE ACCOUNT TRUST
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
FOR INFORMATION AND ASSISTANCE,
CALL (614) 249-5134
Nationwide Income Fund (the "Fund") is a diversified portfolio of the Nationwide
Separate Account Trust (the "Trust"). The Trust is an open-end management
investment company organized under the laws of Massachusetts, by a Declaration
of Trust, dated June 30, 1981, as subsequently amended. The Trust offers shares
in six separate mutual funds, each with its own investment objective. This
Prospectus relates only to the Nationwide Income Fund. The shares of the Fund
are sold to other open-end investment companies created by Nationwide Advisory
Services, Inc., the Fund's investment adviser, as well as to life insurance
company separate accounts to fund the benefits of variable life insurance
policies and annuity contracts.
The Fund seeks to provide as high a level of income as is consistent with
reasonable concern for safety of principal. The Fund intends to pursue its
investment objective by investing in investment grade corporate and U.S.
Government debt obligations.
This Prospectus provides you with the basic information you should know before
investing in the Fund. You should read it and keep it for future reference. A
Statement of Additional Information dated January 2, 1997, has been filed with
the Securities and Exchange Commission. You can obtain a copy without charge by
calling (614) 249-5134, or writing Nationwide Life Insurance Company, One
Nationwide Plaza, Columbus, Ohio 43216.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES 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.
THE STATEMENT OF ADDITIONAL INFORMATION FOR THE TRUST, DATED
JANUARY 2, 1997, IS INCORPORATED BY REFERENCE.
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SALE OF FUND SHARES
Shares of the Fund may be sold to life insurance company separate accounts (the
"Accounts") to fund the benefits of variable life insurance policies or annuity
contracts ("Contracts") issued by life insurance companies, as well as to other
open-end investment companies (each , a "Fund of Funds") created by Nationwide
Advisory Services, Inc. (the "Adviser"), the Fund's investment adviser. The
Accounts purchase shares of the Fund in accordance with variable account
allocation instructions received from owners of the Contracts. The Fund then
uses the proceeds to buy securities for its portfolio. The Adviser, together
with a group of subadvisers, manages the portfolio from day to day to accomplish
the Fund's investment objective. The types of investments and the way they are
managed depend on what is happening in the economy and the financial
marketplaces. Each Fund of Funds and Accounts, as a shareholder, has an
ownership in the Fund's investments. The Fund also offers to buy back (redeem)
shares of the Fund from the Fund of Funds or the Accounts at any time at net
asset value.
INVESTMENT OBJECTIVE AND POLICIES
Nationwide Income Fund (the "Fund") seeks to provide as high a level of income
as is consistent with reasonable concern for safety of principal. The Fund
intends to pursue its investment objective by investing at least 65% of its
assets, under normal market conditions, in investment grade corporate and U.S.
Government debt obligations. Under normal market conditions, the Fund may invest
up to 35% of its assets in cash or cash equivalents, commercial paper and
certain other money market instruments, as well as repurchase agreements
collateralized by these types of securities (collectively, "short-term money
market obligations"). For a further discussion of the types of debt obligations
in which the Fund may invest, see "INVESTMENT TECHNIQUES, CONSIDERATIONS AND
RISK FACTORS" below.
In addition, for temporary or emergency purposes, the Fund can invest up to 100%
of total assets in short-term money market obligations.
While there is careful selection and constant supervision by a group of
professional investment managers, there can be no guarantee that the Fund's
objective will be achieved. The investment objective of the Fund is not
fundamental and shareholder approval is not required to change the Fund's
investment objective.
MANAGEMENT OF THE FUND
Nationwide Advisory Services, Inc. (the "Adviser") has employed two subadvisers
(each, a "Subadviser") each of which will manage part of the Fund's portfolio.
Although the Adviser reserves the right to allocate and reallocate the assets
among the Subadvisers at any time, it is anticipated that each of the
Subadvisers will receive a substantially equal proportion of the funds that are
invested in the Fund and will generally retain such assets and any capital
appreciation attributable to them.
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The Adviser has chosen the Subadvisers because they approach investing in debt
obligations in different ways. The Adviser has decided to employ a number of
Subadvisers because even successful investment managers may experience
fluctuations in performance which may be caused by factors or conditions that
affect the particular securities emphasized by that Subadviser or that may
impact its particular investment style. As a result of the diversification among
securities and styles, the Adviser expects to increase prospects for investment
return and to reduce market risk and volatility.
The following is a brief description of the investment strategies for each of
the Subadvisers:
NCM CAPITAL MANAGEMENT GROUP, INC. ("NCM Capital") manages fixed income
securities by selecting a diversified portfolio of investment grade issues in
which overall credit risk is minimized. NCM Capital established the average
maturity and duration of a portfolio based on the intermediate and longer-term
outlook of interest rates, the economy and the financial markets. No attempt is
made to manage portfolios based on daily or short-term fluctuations in interest
rates or economic statistics.
Subsequent to establishing the average maturity and duration of a portfolio, NCM
Capital determines which sectors of the fixed income market offer the most
attractive potential returns. Over a market cycle, individual sectors are either
emphasized or de-emphasized based on their relative value after analyzing the
current and prospective developments in the economy and the financial markets.
After determining the sector to be emphasized or de-emphasized, NCM Capital
selects the specific issues which offer the greatest potential returns over a
selected time horizon.
SMITH GRAHAM & CO. ASSET MANAGERS, L.P. ("Smith Graham") Smith Graham's
investment process centers around maximizing stable cash flows across the yield
curve. Cash flows in this context consist of coupon income on fixed income
securities, prepayments from mortgage securities and the reinvestment of income
and prepayments. Smith Graham begins by analyzing the characteristics that
determine performance and then utilizes proprietary software models to identify
the least expensive segments of the yield curve. Incremental performance is also
obtained by investing in undervalued sectors and undervalued securities.
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
DEBT OBLIGATIONS - Debt obligations in which the Fund may invest generally will
be investment grade debt obligations, although the Fund may invest up to 35% of
its assets in high-quality short-term money market obligations. The Fund's risk
and return potential depends in part on the maturity and credit-quality
characteristics of the underlying investments in its portfolio. 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 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.
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Debt obligations in which the Fund may invest 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 two highest
ratings categories of any NRSRO; 4) short-term bank obligations that are rated
in one of the two highest categories by any NRSRO, with respect to obligations
maturing in one year or less; 5) repurchase agreements relating to debt
obligations which the Fund could purchase directly; or 6) unrated debt
obligations which are determined by the Adviser or a Subadviser to be of
comparable quality.
Medium-quality obligations are obligations rated in the fourth highest rating
category by any NRSRO. Medium-quality securities, although considered
investment-grade, may have some speculative characteristics and may be subject
to greater fluctuations in value than higher-rated securities. In addition, the
issuers of medium-quality securities may be more vulnerable to adverse economic
conditions or changing circumstances than that of higher-rated issuers.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Adviser or a Subadviser
to consider what action, if any, the Fund should take consistent with its
investment objective; such event will not automatically require the sale of the
downgraded securities.
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:
- 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, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and
- the Student Loan Marketing Association and the International Bank for
Reconstruction and Development, 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.
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MORTGAGE- AND ASSET-BACKED SECURITIES - The Fund may purchase both 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 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
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.
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- 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 the 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 the 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 Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.
The Fund may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. 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. 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 Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
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REPURCHASE AGREEMENTS - The Fund 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, the 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.
The Fund will enter into repurchase agreements with respect to securities in
which it may invest with member banks of the Federal Reserve System or certain
non-bank dealers. 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. The Adviser or a Subadviser, acting under the
supervision of the Board of Trustees, reviews the creditworthiness of those
banks and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate these risks. See "Repurchase Agreements" in the Statement of
Additional Information.
BANK OBLIGATIONS - The Fund may invest in bank obligations, such as certificates
of deposit, banker's acceptances, and time deposits of domestic or foreign banks
and their subsidiaries and branches (only if the time deposits are denominated
in U.S. dollars), and domestic savings and loan associations. While these bank
obligations will be issued by institutions whose accounts are insured by the
Federal Deposit Insurance Corporation ("FDIC"), the Fund may invest in the
obligations in amounts in excess of the FDIC insurance coverage (currently
$100,000 per account).
WHEN-ISSUED SECURITIES - The Fund may invest without limitation 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, generally within 45 days (for mortgage-backed securities, the
delivery date may extend to as long as 120 days). Purchasing when-issued
securities allows the Fund to lock in a fixed price or yield on a security it
intends to purchase. However, when the 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 Fund's outstanding commitments for these securities, the greater
the exposure to potential fluctuations in the net asset value of a 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 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 guidelines issued by the Securities and
Exchange Commission, the Fund will set aside permissible liquid assets in a
segregated account to secure its outstanding commitments for when-issued
securities.
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LENDING PORTFOLIO SECURITIES - From time to time, the Fund 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 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 Fund can increase its income through
the investment of such collateral. The 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 Fund might experience
risk of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.
BORROWING MONEY - As a fundamental policy, the Fund is permitted to borrow to
the extent permitted under the Investment Company Act of 1940. However, the Fund
currently intends to borrow money only for temporary or emergency purposes (but
not for leverage or the purchase of investments), in an amount up to 5% of the
value of the Fund's total assets (including the amount borrowed) valued at the
time the borrowing is made.
PORTFOLIO TURNOVER
The Fund will attempt to purchase securities with the intent of holding them for
investment but may purchase and sell portfolio securities whenever the Adviser
or a Subadviser believes it to be in the best interests of the Fund. The Fund
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies.
The portfolio turnover rate for the Fund is not expected to exceed 150%. Higher
turnover rates will generally result in higher transaction costs to the Fund, as
well as higher brokerage expenses and higher levels of capital gains. The
portfolio turnover rates for the Fund may vary greatly from year to year and
within a particular year.
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.
INVESTMENT MANAGEMENT OF THE FUND
THE ADVISER - Under the terms of the Investment Advisory Agreement, Nationwide
Advisory Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216, oversees
the investment of the assets for the Fund and supervises the daily business
affairs of the Fund. Subject to the supervision and
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direction of the Trustees, the Adviser also determines the allocation of assets
among the Subadvisers and evaluates and monitors the performance of Subadvisers.
The Adviser is also authorized to select and place portfolio investments on
behalf of the Fund; however, the Adviser does not intend to do so at this time.
The Adviser provides to the Fund investment management evaluation services
principally by performing initial due diligence on prospective Subadvisers for
the Fund and thereafter monitoring the performance of the Subadvisers through
quantitative and qualitative analysis as well as periodic in-person, telephonic
and written consultations with the Subadvisers. The Adviser has responsibility
for communicating performance expectations and evaluations to the Subadvisers
and ultimately recommending to the Trust's Board of Trustees whether a
Subadviser's contract should be renewed, modified or terminated; however, the
Adviser does not expect to recommend frequent changes of Subadvisers. The
Adviser will regularly provide written reports to the Board of Trustees
regarding the results of its evaluation and monitoring functions. Although the
Adviser will monitor the performance of the Subadvisers, there is no certainty
that any Subadviser or the Fund will obtain favorable results at any given time.
The Adviser, an Ohio corporation, is a wholly owned subsidiary of Nationwide
Life Insurance Company, which is wholly owned by Nationwide Corporation, a
holding company in the Nationwide Insurance Enterprise. The Fund pays to the
Adviser a fee at the annual rate of 0.45% of the Fund's average daily net
assets.
THE SUBADVISERS - Subject to the supervision of the Adviser and the Trustees,
the Subadvisers each manage separate portions of the Fund's assets in accordance
with the Fund's investment objective and policies. With regard to the portion of
the Fund's assets allocated to it, each Subadviser shall make investment
decisions for the Fund and in connection with such investment decisions shall
place purchase and sell orders for securities. No Subadviser shall have any
investment responsibility for any portion of the Fund's assets not allocated to
it for investment management. For the investment management services they
provide to the Fund, each Subadviser receives an annual fee from the Adviser
based on the average daily net assets of the portion of the Fund managed by that
Subadviser as specified below:
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Subadvisory Fees Average Daily Net Assets
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0.25% on the first $100 million
0.15% on assets in excess of $100
million
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The fees for each of the Subadvisers are subject to the following annual minimum
fees: $15,000 for NCM Capital and $25,000 for Smith Graham.
Below is a brief description of each of the subadvisers.
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NCM Capital Management Group, Inc. NCM Capital was founded in 1986 and serves as
one of the Fund's Subadvisers. As of September 30, 1996, NCM Capital had
approximately $3.86 billion in assets under management, of which $1.35 billion
represents fixed income management.
NCM Capital's Chairman of the Board, President and Chief Executive Officer is
Maceo K. Sloan. Other directors are Justin F. Beckett, Executive Vice President;
Peter J. Anderson, Chairman and Chief Investment Officer of IDS Advisory Group,
Inc.; and Morris Goodwin, Jr., Vice President, Corporate Treasurer, American
Express Financial Advisers Inc.
NCM Capital is a wholly-owned subsidiary of Sloan Financial Group, Inc. Both NCM
Capital and Sloan Financial Group, Inc. are located at 103 West Main Street, 4th
Floor, Durham, North Carolina 27701. Sloan Financial Group, Inc. is a
corporation of which Maceo K. Sloan, CFA, Chairman, President and Chief
Executive Officer of NCM Capital, owns 43%; Justin F. Beckett, Executive Vice
President and director of NCM Capital, owns 17%; and IDS Financial Services
Inc., a wholly-owned subsidiary of American Express Company owns 40% as of
September 30, 1996.
NCM Capital utilizes a team approach in the management of fixed income
portfolios. Although David C. Carter, Vice President and Senior Portfolio
Manager, is the portfolio manager who will manage NCM Capital's portion of the
Fund, he will interact daily with the other members of the fixed income team for
purposes of discussing investment needs, economic trends, and development, and
the overall financial markets. Listed below are the members of the fixed income
team who will be involved with the Fund and their backgrounds:
Paul L. Van Kampen, CFA Mr. Van Kampen joined NCM Capital as Senior
Vice President and the Director of Fixed Income Research. Prior to joining NCM
Capital, he was an Executive Director of Aon Advisors, Inc. Mr. Van Kampen has
both an M.A. and B.S. from the University of Alabama and has over 28 years of
investment experience.
David C. Carter Mr. Carter has been a Vice President and Portfolio
Manager for NCM since 1992. Formerly he was an Investment Manager in Fixed
Income Management at Grace Capital, Inc. and earned an M.B.A. and B.S. from New
York University. Mr. Carter has over 19 years of investment experience.
Lorenzo Newsome Mr. Newsome joined NCM Capital in 1993 as a Vice
President and Portfolio Manager. Prior to joining NCM Capital, he was a
Quantitative Analyst for the USF&G Corporation. Mr. Newsome acquired his B.S.
from the University of Pittsburgh and M.A. from Bowie State University. He has
over 8 years of investment experience.
Smith Graham & Co. Asset Managers, L.P. Smith Graham also serves as a
sub-adviser to the Fund. Its corporate offices are located at 6900 Texas
Commerce Tower, 600 Travis Street, Houston, Texas 77002-3007. Smith Graham
serves as an investment adviser to a variety of corporate, foundation, public,
Taft Hartley and mutual fund clients. The firm provides global and international
money
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management through its affiliate Smith Graham Robeco Global Advisers. As of
October 1, 1996, Smith Graham managed approximately $2 billion of assets.
Smith Graham is 60% owned by its Managing General Partner, Smith Graham & Co.,
Inc., while 40% of the firm is owned by the Dutch based Robeco Group. Smith
Graham & Co., Inc. is wholly owned by Gerald B. Smith, Ladell Graham and Jamie
G. House.
The management group of Smith Graham consists of Gerald B. Smith, Chairman and
Chief Executive Officer; Ladell Graham, President and Chief Investment Officer;
Jamie G. House, Executive Vice President and Chief Financial Officer; and
Gilbert A. Garcia, Executive Vice President and Director of Marketing.
The primary portfolio manager of the portion of the Fund's portfolio managed by
Smith Graham is Mark Delaney. Mr. Delaney joined Smith Graham in November 1994
and currently serves as a Portfolio Manager. From July 1988 to November 1994, he
was a Senior Portfolio Manager for Transamerica Fund Management. Mr. Delaney has
over 15 years of experience in fixed income investing.
OTHER SERVICES
Under the terms of an Administrative Services Agreement, the Adviser also
provides various administrative and accounting services, including daily
valuation of each Fund's shares, preparation of financial statements, taxes, and
regulatory reports. For these services the Fund pays to the Adviser a fee at the
annual rate of 0.10% of the Fund's average daily net assets.
The Transfer and Dividend Disbursing Agent, Nationwide Investors Services, Inc.,
("NIS"), One Nationwide Plaza, Columbus, Ohio 43216, serves as transfer agent
and dividend disbursing agent for the Trust. NIS is a wholly owned subsidiary of
the Adviser.
INVESTMENT IN FUND SHARES
An insurance company may purchase the shares of the Fund at the Fund's net asset
value using purchase payments received on Contracts issued by Accounts. These
Accounts are funded by shares of the Fund. Funds of Funds may also purchase
shares of the Fund for their portfolios. There is no sales charge. All shares
are sold at net asset value.
Shares of the Fund are currently sold only to separate accounts of Nationwide
Life Insurance Company and its wholly owned subsidiary Nationwide Life and
Annuity Insurance Company to fund the benefits under the Contract and to
affiliated Fund of Funds. The address for each of these entities is One
Nationwide Plaza, Columbus, Ohio 43216,
All investments in the Fund are credited to the shareholder's account in the
form of full and fractional shares of the Fund (rounded to the nearest 1/1000 of
a share). The Trust does not issue share
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<PAGE> 15
certificates. Initial and subsequent purchase payments allocated to the Fund are
subject to the limits applicable to the Contracts.
SHARE REDEMPTION
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 net asset value per share of the Fund is determined once daily, as of 4:00
P.M. on each business day the New York Stock Exchange is open and on such other
days as the Board determines and on any other day during which there is a
sufficient degree of trading in the Fund's portfolio securities that the net
asset value of the Fund is materially affected by changes in the value of
portfolio securities. The Trust will not compute net asset value on customary
national business holidays, including the following: Christmas, New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, and
Thanksgiving Day. 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.
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 Funds will be
paid as dividends in March, June, September, and December. In those years in
which sales of the Fund's portfolio securities result in net realized capital
gains, the Fund 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 the
Fund 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 the Fund represents an equal proportionate interest in that
Fund
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<PAGE> 16
with each other share. The Trust reserves the right to create and issue shares
from a number of different Funds. In that case, the shares of each Fund would
participate equally in the earnings, dividends, and assets of the particular
Fund, but shares of all Funds would vote together in the election of Trustees.
Upon liquidation of a Fund, its shareholders are entitled to share pro rata in
the net assets of such Fund available for distribution to shareholders.
VOTING RIGHTS - Shareholders are entitled to one vote for each share held.
Shareholders may vote in the election or removal of Trustees and on other
matters submitted to meetings of shareholders. No amendment may be made to the
Declaration of Trust without the affirmative vote of a majority of the
outstanding shares of the Trust. The sole shareholders of the Fund initially
will be the affiliated Funds of Funds and Nationwide Life Insurance Company. The
Trustees may, however, amend the Declaration of Trust without the vote or
consent of shareholders to:
- - designate series of the Trust;
- - change the name of the Trust; or
- - supply any omission, cure, correct, or supplement any ambiguous,
defective, or inconsistent provision to conform the Declaration of
Trust to the requirements of applicable federal and state laws or
regulations if they deem it necessary.
Shares have no pre-emptive or conversion rights. Shares are fully paid and
nonassessable, except as set forth below. In regard to termination, sale of
assets, or changes of investment restrictions, the right to vote is limited to
the holders of shares of the particular Fund affected by the proposal. When a
majority is required, it means the lesser of 67% or more of the shares present
at a meeting when the holders of more than 50% of the outstanding shares are
present or represented by proxy, or more than 50% of the outstanding shares.
SHAREHOLDER INQUIRIES - All inquiries regarding the Fund should be directed to
the Trust at the telephone number or address shown on the cover page of this
Prospectus.
PERFORMANCE ADVERTISING FOR THE FUND
The Fund 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 the
Fund 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
The Trust's policy is to qualify as a regulated investment company and to meet
the requirements of Subchapter M of the Internal Revenue Code (the "Code"). The
Fund intends to distribute all its
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<PAGE> 17
taxable net investment income and capital gains to shareholders, and therefore,
will not be required to pay any federal income taxes.
Because each Fund 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 the Fund are considered separately for purposes of determining
whether or not the Fund qualifies as a regulated investment company. The Fund
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 an Account to a Contractholder is
described in the separate account prospectus.
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<PAGE> 18
CONTENTS
Sale of Fund Shares
Investment Objective and Policies
Investment Techniques, Considerations and Risk Factors
Management of the Trust
Investment in Fund Shares
Share Redemption
Net Income and Distributions
Additional Information
Performance Advertising for the Fund
Tax Status
INVESTMENT ADVISER AND ADMINISTRATOR
Nationwide Advisory Services, Inc.
One Nationwide Plaza
Columbus, Ohio 43216
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
Box 1492
One Nationwide Plaza
Columbus, Ohio 43216
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Druen, Rath & Dietrich
One Nationwide Plaza
Columbus, Ohio 43216
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<PAGE> 19
STATEMENT OF ADDITIONAL INFORMATION
JANUARY __, 1997
NATIONWIDE SEPARATE ACCOUNT TRUST
--TOTAL RETURN FUND
--CAPITAL APPRECIATION FUND
--GOVERNMENT BOND FUND
--MONEY MARKET FUND
--SMALL COMPANY FUND
--INCOME FUND
This Statement of Additional Information is not a prospectus. It
contains information in addition to and more detailed than that set forth in the
Prospectuses for the Funds and should be read in conjunction with the
Prospectuses, dated May 1, 1996 for all of the Funds except for the Income Fund
and dated January ___, 1997 for the Income Fund. The Prospectuses may be
obtained from Nationwide Life Insurance Company, One Nationwide Plaza, Columbus,
Ohio 43216, or by calling (614) 249-5134.
TABLE OF CONTENTS PAGE
- ----------------- ----
<TABLE>
<CAPTION>
<S> <C>
General Information and History 1
Investment Objectives and Policies 1
Investment Restrictions 25
Major Shareholders 29
Trustees and Officers of the Trust 29
Calculating Yield - The Money Market Fund 30
Calculating Yield and Total Return-Non-Money Market Funds 31
Investment Adviser and Other Services 31
Brokerage Allocations 37
Purchases, Redemptions and Pricing of Shares 39
Additional Information 40
Tax Status 41
Tax Consequences for the Small Company Fund 42
Tax Consequences to Shareholders 44
Appendix A - Bond Ratings 45
Independent Auditors' Report 54
Financial Statements 55
</TABLE>
GENERAL INFORMATION AND HISTORY
Nationwide Separate Accounts Trust is an open-end investment company
organized under the laws of Massachusetts, by a Declaration of Trust, dated June
30, 1981, as amended October 22, 1981, September 3, 1982, April 16, 1987, May 1,
1992, August 9, 1995, November 3, 1995 and October 17, 1996. The Trust offers
shares in six separate mutual funds, each with its own investment objective.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds'
investment objectives and policies discussed in the Prospectuses.
The investment policies and types of permitted investments described
here may be changed without prior approval by, or notice to, the shareholders.
There is no guarantee that the objectives will be realized.
<PAGE> 20
- --TOTAL RETURN FUND
This Fund's investment objective is to obtain a reasonable, long term
total return on invested capital from a flexible combination of dividend return
and capital gains. The Fund seeks to achieve its objective through investments
in common stocks, convertible issues, money market instruments, and bonds, with
a primary emphasis on common stocks.
While it is the intention of the Fund to invest in common stocks or in
issues convertible to common stock, there are no restrictive provisions covering
the proportion of one or another class of securities that may be held, or other
restriction, other than those stated in the investment restrictions.
- --CAPITAL APPRECIATION FUND
The Fund is designed for investors who are interested in long-term
growth. The Fund seeks to meet its objectives primarily through a diversified
portfolio of the common stock of companies which the investment manager
determines have a better-than-average potential for sustained capital growth
over the long term.
While it is the intention of the Fund to invest in common stocks or in
issues convertible to common stock, there are no restrictive provisions covering
the proportion of one or another class of securities that may be held, or other
restriction, other than those stated in the investment restrictions.
The investment manager will focus mainly on a company's or industry's
potential for long term growth, with dividend and interest income being
secondary in importance. The manager's evaluation of a company or industry will
be based more on probable future earnings, relative financial strength and
competitive position. The manager believes this approach will provide a greater
return potential over the long run than simply seeking current dividend or
interest income. The Fund's portfolio will not be limited to any particular type
of company or industry.
- --GOVERNMENT BOND FUND
The investment objective of the Government Bond Fund is to provide as
high a level of income as is consistent with the preservation of capital. It
seeks to achieve its objective by investing in a diversified portfolio of
securities issued or backed by the U.S. Government, it agencies or
instrumentalities.
These securities are of varying types which include but are not limited
to:
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
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<PAGE> 21
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 Government Bond Fund will normally invest at least 65% of its
assets in bonds issued by the U.S. Government, and its agencies and
instrumentalities. These bonds pay interest at regular intervals, usually
semi-annually, and pay principal at maturity.
The Government Bond Fund may invest up to 35% of its assets in zero
coupon securities or mortgage-related securities and up to 20% of its assets in
securities purchased on a "when-issued" or on a "forward delivery" basis,
provided those securities are issued or backed by the U.S. Government, its
agencies or instrumentalities. The Government Bond Fund may also enter into
repurchase agreements in any of the securities described above.
The Government Bond Fund will normally invest no more than 20% of its
assets in repurchase agreements or in U.S. Government securities maturing in
less than one year. For temporary defensive purposes, however the Fund may
invest up to 100% of its assets in these securities.
There is a minimal risk involved in the purchase of U.S. Government or
U.S. Government guaranteed securities. Securities issued by U.S. Government
agencies or instrumentalities, while perhaps having the implicit backing of the
U.S. Government, may not have an explicit guarantee of the payment of principal
and interest.
The value of shares of the Government Bond 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 Government Bond
Fund will 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. Thus, the
Government Bond Fund is designed for those willing to accept market fluctuations
to obtain income.
- --MONEY MARKET FUND
The investment objective of this Fund is to seek as high a level of
current income as it considered consistent with the preservation of capital and
liquidity through investments in a portfolio of money market instruments with
remaining maturities of 397 days or less. The Fund seeks to achieve its
objective by investing primarily in instruments receiving a rating in one of the
two highest categories by the following six nationally recognized statistical
rating organizations ("NRSROs"): Duff and Phelps, Inc. ("D&P"), Fitch Investors
Services, Inc. ("Fitch"), Moody's Investors Service Inc. ("Moody's"), Standard &
Poor's Ratings Group ("Standard & Poor's"), IBCA Limited and its affiliate, IBCA
Inc. ("IBCA"), and Thomson Bank Watch ("Thomson"). See Appendix A for a further
description of the NRSRO ratings.
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<PAGE> 22
The Fund may invest in the following 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, subject to the restrictions set
forth under "Investment Restrictions." Potential risks
associated with investment in repurchase agreements are
twofold: (a) in the event of default of an issuer and a
decrease in the value of the underlying securities below the
repurchase price, the Fund could suffer a loss, and (b) in the
event of an issuer's bankruptcy, the Fund's ability to dispose
of underlying securities could be delayed.
-- obligations of banks which at the date of investment are
rated A2 or better by IBCA or TBW1 by Thomson. Obligations of
savings and loan associations (including certificates of
deposit and bankers' acceptances) which at the date of
investment have capital, surplus, and undivided profits (as of
the date of their most recently published financial
statements) in excess of $100 million; and obligations of
other banks or savings and loan associations if such
obligations are insured by the Federal Deposit Insurance
Corporation, provided that not more than 10% of the Fund's
total assets shall be invested in such insured obligations.
-- commercial paper which at the date of investment is rated
Duff 1 or Duff 2, by D&F, F-1 or F-2 by Fitch, P-1 or P-2 by
Moody's, or A-1 or A-2 by Standard & Poor's, or if not rated,
is issued and guaranteed as to payment of principal and
interest by companies which at the date of investment have an
outstanding debt issue rated AA or better by D&F, AA or better
by Fitch, Aa or better by Moody's, or AA or better by Standard
& Poor's.
-- up to 5% of its total assets in commercial paper which at
the date of investment is rated F-2 by Fitch, Duff 2 by D&P,
P-2 by Moody's, or A-2 by Standard and Poor's. However, the
Fund is limited as to the amount it may invest in the
commercial paper of a single issuer to the greater of 1% of
the Fund's total assets or $1 million.
-- short-term (maturity in 397 days or less) corporate
obligations which at the date of investment are rated AA or
better by D&F, AA or better by Fitch, Aa or better by Moody's,
or AA or better by Standard & Poor's.
-- bank loan participation agreements representing
corporations and banks having a short-term rating, at the date
of investment, of F-1 or F-2 by Fitch, Duff 1 or Duff 2 by
D&P, P-1 or P-2 by Moody's or A-1 or A-2 by Standard & Poor's,
under which the 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.
All the assets of the Fund will be invested in obligations with stated
remaining maturities of 397 days or less and which will be held to maturity. The
Fund will, to the extent feasible, make portfolio investments primarily in
anticipation of, or in response to, changing economic and financial conditions.
The Fund will attempt to maximize the return on its investments through careful
analysis of a wide range of investments available and different yield
relationships existing among various sectors of the market. The average dollar
weighted maturity of the Fund's investments may not exceed 90 days. There can be
no assurance that the Fund's investment objective will be achieved.
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<PAGE> 23
The Fund 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 which at the
date of investment are rated A1 or A2 by IBCA or TBW1 by Thomson. Because of
this, investment in the 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.
- -- INCOME FUND
The Income Fund seeks to provide as high a level of income as is
consistent with reasonable concern for safety of principal. The Fund intends to
pursue its investment objective by investing at least 65% of its assets, under
normal market conditions, in investment grade corporate and U.S. Government debt
obligations. The Fund may invest the remainder of its portfolio in high quality
short-term money market obligations.
DEBT OBLIGATIONS. Debt obligations 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.
RATINGS AS INVESTMENT CRITERIA. The Income Fund may invest in
high-quality and medium quality debt obligations which 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
the Fund as initial criteria for the selection of portfolio securities, but the
Fund will also rely upon the independent advice of the Subadvisers 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 the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the 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 Fund's Subadviser will
consider such events in its determination of whether the 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 reorganizations, the Fund will attempt to use comparable ratings as
standards for its investments in accordance with its investment objective and
policies.
5
<PAGE> 24
MONEY MARKET INSTRUMENTS. The Income Fund 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
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
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.
MORTGAGE- AND ASSET-BACKED SECURITIES - The Income Fund may purchase both
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 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 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, and guarantees by third parties.
Private lenders or government-related entities may also create mortgage loan
pools offering pass-through investments 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 previously customary. As new types of
mortgage-related securities are developed
6
<PAGE> 25
and offered to investors, the Fund, consistent with its investment objective and
policies, may consider making investments in such new types of securities.
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 credit quality of most asset-backed
securities depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated from the
credit risk of the originator any other affiliated entities, and the amount and
quality of any credit enhancement of the 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 the 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 the 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 Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.
The Fund may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. 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. 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 Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
REPURCHASE AGREEMENTS. In connection with the purchase of a repurchase agreement
by the Income Fund, the fund's custodian will have custody of, and will hold in
a segregated account, securities acquired by the 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, and will
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<PAGE> 26
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 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 Fund seeks to assert its
rights to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or part of the income from the repurchase
agreement.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Income Fund 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 the 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 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 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 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. The Income Fund 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, the Fund can increase its income through the investment of the cash
collateral. For the purposes of this policy, the 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 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
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<PAGE> 27
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 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 Fund's
ability to recover the loaned securities or dispose of the collateral for the
loan.
BORROWING. The Income Fund may borrow money from banks, limited by any
investment restrictions to 33 1/3% of its total assets. However, the Fund
currently intends to borrow money only for temporary or emergency purposes in an
amount of up to 5% of the value of the Fund's total asset (including the amount
borrowed) valued at the time the borrowing is made. 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.
SMALL COMPANY FUND
The Small Company Fund seeks long-term growth of capital. It seeks to
achieve this objective by investing primarily in equity securities of both
domestic and foreign small market capitalization companies ("small company
stocks"). To attempt to achieve this objective, the Adviser has hired a number
of subadvisers to direct the day-to-day management of the Small Company Fund.
The following information supplements the discussion of the Fund's objectives,
policies and techniques that are described in the Fund's prospectus under
"INVESTMENT OBJECTIVES AND POLICIES" and "INVESTMENT TECHNIQUES, CONSIDERATIONS
AND RISK FACTORS."
Special Situation Companies. The Small Company Fund 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. The Fund believes, however, that if a
Subadviser analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, the Fund may achieve
capital growth. There can be no assurance however, that a special situation that
exists at the time the Fund makes its investment will be consummated under the
terms and within the time period contemplated.
Foreign Securities. Investors in the Small Company Fund should
recognize that investing in foreign securities involves 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 Fund may hold securities
and funds in foreign currencies, the Fund 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 Fund endeavors to achieve the most favorable net
results on their
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portfolio transactions. There is generally less government supervision and
regulation of 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 Fund 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 Small Company Fund 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 fund. 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 the 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, the 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, the Fund's inability to dispose fully and promptly of
positions in declining markets will cause the 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.
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 the
Fund's investments in those countries and the availability to the 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
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<PAGE> 29
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. As indicated in the Fund's prospectus, the Small
Company Fund 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. For purposes of the Fund's investment policies, ADRs and EDRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR or EDR representing ownership of common stock will be
treated as common stock. (For further information on these instruments, see the
descriptions above for the Government Bond Fund and the Money Market Fund.)
The Small Company 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 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.
Debt Obligations. While the emphasis of the Small Company Fund's
investment is on common stocks and other equity securities (including preferred
stocks and securities convertible into or exchangeable for common stocks), it
may also invest in money market instruments, U.S. Government or Agency
securities, (for further information concerning these securities, see the
descriptions above for the Government Bond and the Money Market Funds) and
corporate bonds and debentures receiving one of the four highest ratings from a
nationally recognized statistical rating organization ("NRSRO"), or if not rated
by any NRSRO, deemed comparable by a Subadviser 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.
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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 the Fund, an issue of securities
may cease to be rated or its rating may be reduced, so that the securities would
not be eligible for purchase by the Fund. In such a case, the Subadviser will
evaluate whether the downgraded security should be disposed of.
High-Yield (High-Risk) Securities -- In General. The Fund has the
authority to invest up to 5% of its net 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. Refer to Appendix A of this Statement of Additional Information for a
discussion of securities ratings.
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, the 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
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 Fund's net asset value. If the 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 Fund may be forced to liquidate these securities at a substantial
discount. Any such liquidation would reduce the Fund's asset base over which
expenses could be allocated and could result in a reduced rate of return for the
Fund.
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
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<PAGE> 31
lower interest rate. To the extent an issuer is able to refinance the
securities, or otherwise redeem them, the Fund may have to replace the
securities with a lower yielding security, which would result in a lower return
for the 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 a Subadviser's credit
analysis than would be the case with investments in investment-grade debt
securities. Each Subadviser 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, each Subadviser will continually monitor the
investments in the 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. The 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. The Fund
anticipates that such securities could 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, the Fund's
asset value and ability to dispose of particular securities, when necessary to
meet the 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 Fund to obtain accurate market quotations
for purposes of valuing the 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.
Proposed Legislation. From time to time proposals have been discussed,
regarding new legislation designed to limit the use of certain lower-quality and
comparable unrated securities by certain issuers. However, it is possible that
if legislation is enacted or proposed, it could have a material affect on the
value of these securities and the existence of a secondary trading market for
the securities.
Convertible Securities. Convertible securities in which the Fund 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.
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Warrants. The Small Company Fund 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. The Fund may purchase warrants, valued at the lower
of cost or market value, of up to 5% of the Fund's net assets. Included in that
amount, but not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on any recognized U.S. or foreign stock exchange. Warrants acquired
by the Fund in units or attached to securities are not subject to these
restrictions. 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.
Repurchase Agreements. The Small Company Fund's custodian or a
sub-custodian will have custody of, and will hold in a segregated account,
securities acquired by the 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. In an attempt to reduce the risk
of incurring a loss on the repurchase agreement, the Fund will enter into
repurchase agreements with certain banks and non-bank dealers, all of whose use
has been approved by the Board of Trustees. 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, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below resale price. Each Subadviser will monitor on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. The Fund will consider on an ongoing basis the
creditworthiness of the institutions with which the Fund enters into repurchase
agreements. Repurchase agreements involve certain risks in the event of default
or insolvency by the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
Short Sales "Against The Box". In a short sale, the Small Company Fund
sells a borrowed security and has a corresponding obligation to the lender to
return the identical security. The Fund may engage in short sales 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."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Fund engages in a short sale, the collateral for the short
position will be maintained by the Fund's custodian or qualified sub-custodian.
While the short sale is open, the Fund will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Fund's long position. Not more than 15% of the
Fund's net assets (taken at current value) may be held as collateral for such
short sales at any one time.
The Fund does not intend to engage in short sales against the box for
investment purposes. The Fund may, however, make a short sale as a hedge, when
it believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund (or a security convertible or exchangeable
for such security), or when the Fund wants to sell the security at an attractive
current price, but also wishes to defer recognition of gain or loss for U.S.
federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Code. In such case, any
future losses in the Fund's long position should be offset by a gain in the
short position and, conversely,
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<PAGE> 33
any gain in the long position should be reduced by a loss in the short position.
The extent to which such gains or losses are reduced will depend upon the amount
of the security sold short relative to the amount the Fund owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Fund will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.
Restricted, Non-Publicly Traded and Illiquid Securities. The Small
Company 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 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 Fund may 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 the
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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<PAGE> 34
Each Subadviser will monitor the liquidity of restricted securities in
the portion of the Fund it manages under the supervision of the Board and the
Adviser. In reaching liquidity decisions, each Subadviser may consider the
following factors: (A) the unregistered nature of the security; (B) the
frequency of trades and quotes for the security; (C) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (D) dealer undertakings to make a market in the security and (E) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
When-Issued Securities And Delayed-Delivery Transactions. The Small
Company Fund 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 Fund
will enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for the purpose of leverage, but may sell the securities
before the settlement date if a Subadviser which purchased such security deems
it advantageous to do so. 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 the 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 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 the
Fund's commitment. It may be expected that the 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 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 the Fund
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
Lending Portfolio Securities. The Small Company Fund 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, the Fund can increase its income
through the investment of the cash collateral. For the purposes of this policy,
the 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 Fund
may return to the borrower or a third party which is unaffiliated with the Fund,
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 Trust's 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 be subject to future modification. Loan agreements involve certain risks in
the event of default or
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<PAGE> 35
insolvency of the other party including possible delays or restrictions upon the
Fund's ability to recover the loaned securities or dispose of the collateral for
the loan.
Borrowing. The Small Company Fund may borrow money from banks, limited
by the Fund's fundamental investment restriction to 33-1/3% of its total assets,
and may engage in reverse repurchase agreements which may be considered a form
of borrowing. (See "INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS -
Reverse Repurchase Agreements" in the Small Company Fund's Prospectus.) In
addition, the Fund may borrow up to an additional 5% of its total assets from
banks for temporary or emergency purposes. The Fund will not purchase securities
when bank borrowings exceed 5% of the Fund's total assets. The Fund expects that
some of its borrowings 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, each of the
Small Company Fund's Subadvisers may use a variety of derivative instruments,
including options, futures contracts (sometimes referred to as "futures"),
options on futures contracts, stock index options and forward currency contracts
to hedge the 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, the 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 a
Subadviser'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 each Subadviser 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, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because a Subadviser projected a decline in the price of a security
in the 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 Fund could suffer a
loss.
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(4) As described below, the 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 the 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 the 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 Fund sell a portfolio security at a disadvantageous
time. The 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 Fund.
For a discussion of the federal income tax treatment of the Fund's
derivative instruments, see "Tax Status" below.
Options. The Small Company Fund may purchase or write put and call
options on securities and indices, and may purchase options on foreign currency,
and enter into closing transactions with respect to such options to terminate an
existing position. 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 the 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 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
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 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 the 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.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the 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, the 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 fund to
realize the profit or limit the loss on an option position prior to its exercise
or expiration.
The 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 fund and the counter party (usually a
securities dealer
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or a bank) with no clearing organization guarantee. Thus, when the 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 fund as well as the loss of any expected benefit of the transaction.
The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. 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 the
Fund will enter into OTC options only with counter parties that are expected to
be capable of entering into closing transactions with the fund, there is no
assurance that the 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, the Fund might be unable to close out an OTC option position at any time
prior to its expiration.
If the 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 Fund could cause material losses because the Fund would be
unable to sell the investment used as a cover for the written option until the
option expires or is exercised.
The 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.
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 the
Fund to counter party risk. To the extent required by sec guidelines, the 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 high grade debt obligations with a value sufficient at all times
to cover its potential obligations to the extent not covered as provided in (1)
above. The Fund will also 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 the Fund's assets to segregated accounts as a cover could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
Spread Transactions. The Small Company Fund may purchase covered spread
options from securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put, or sell, a security that it owns at a fixed dollar spread
or fixed yield spread in relationship to another security that the Fund does not
own, but which is used as a benchmark. The risk to the Fund in purchasing
covered spread options it the cost of the premium paid for the spread option and
any transaction costs. In addition, there is no assurance that closing
transactions will be available. The purchase of spread options will be used to
protect the Fund against adverse changes in prevailing credit quality spreads,
i.e., the yield spread between high quality and lower quality securities. Such
protection is only provided during the life of the spread option.
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Futures Contracts. The Small Company Fund 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 as a limited long hedge, using a strategy
similar to that used for writing covered options in securities. The 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. The 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. The Fund
will engage in this strategy only when a Subadviser believes it is more
advantageous to the Fund than is purchasing the futures contract.
The Fund will 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 the Fund to trade in futures contracts may be limited by the requirements of
the code applicable to a regulated investment company.
The Fund will not enter into futures contracts and related options for
other than "bona fide hedging" purposes for which the aggregate initial margin
and premiums required to establish positions exceed 5% of the Fund's net asset
value after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into. There is no overall limit on the percentage
of the Fund's assets that may be at risk with respect to futures activities.
Although techniques other than sales and purchases of futures contracts could be
used to reduce the Fund's exposure to market, currency, or interest rate
fluctuations, the Fund may be able to hedge its exposure more effectively and
perhaps at a lower cost through using futures contracts.
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, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that the Fund will be able to enter into an offsetting transaction with respect
to a particular futures contract at a particular time. If the 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.
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No price is paid by the Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, the 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, "initial margin" consisting of cash,
U.S. government securities or other liquid, high grade debt 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 Fund at the termination of the transaction if all contractual obligations
have been satisfied. Under certain circumstances, such as periods of high
volatility, the 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 a Fund's obligations to or from a futures
broker. When the fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the 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 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 the Fund intends to 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 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. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the 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 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
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the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
Swap Agreements. The Small Company Fund may enter into interest rate,
securities index, commodity, or security and currency exchange rate swap
agreements for any lawful purpose consistent with the Fund's investment
objective, such as for the purpose of attempting to obtain or preserve a
particular desired return or spread at a lower cost to the Fund than if the Fund
had invested directly in an instrument that yielded that desired return or
spread. The Fund also may enter into swaps in order to protect against an
increase in the price of, or the currency exchange rate applicable to,
securities that the Fund anticipates purchasing at a later date. Swap agreements
are two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to several years. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount, " i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Swap agreements may include interest rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates exceed a specified rate, or "cap";
interest rate floors under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates fall below a
specified level, or "floor"; and interest rate collars, under which a party
sells a cap and purchases a floor, or vice versa, in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
The "notional amount" of the swap agreement is the agreed upon basis
for calculating the obligations that the parties to a swap agreement have agreed
to exchange. Under most swap agreements entered into by the Fund, the
obligations of the parties would be exchanged on a "net basis." Consequently,
the Fund's obligation (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). The Fund's obligation under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregate
account consisting of cash, or liquid high grade debt obligations.
Whether the Fund's use of swap agreements will be successful in
furthering its investment objective will depend, in part, on a Subadviser's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Swap agreements may be
considered to be illiquid. Moreover, the Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. Certain restrictions
imposed on the Fund by the Internal Revenue Code may limit the Fund's ability to
use swap agreements. The swaps market is largely unregulated.
The Fund will enter swap agreements only with counterparties that a
Subadviser reasonably believes are capable of performing under the swap
agreements. If there is a default by the other party to such a transaction, the
Fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction.
Foreign Currency-Related Derivative Strategies - Special
Considerations. The Small Company 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 Fund's securities are denominated.
The 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
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currency hedges can protect against price movements in a security the 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.
The 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 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 a subadviser
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, the 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 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, the 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 Fund will normally purchase OTC options on
foreign currency only when a Subadviser 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, the Small Company 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 the Fund retains the
portfolio security and engages in an offsetting transaction, the Fund, at the
time of execution of the
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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, the 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 the Small Company 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 Fund's investments denominated in foreign
currency will change in response to many factors other than exchange rates, a
currency hedge may not be entirely successful in mitigating changes in the value
of the Fund's investments denominated in that currency over time.
A decline in the dollar value of a foreign currency in which the 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, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the 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, the 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.
The 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 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. The Fund may not position hedge to
an extent greater than the aggregate market value (at the time of making such
sale) of the hedged securities.
Securities Of Other Investment Companies. Some of the countries in
which the Small Company Fund may invest may not permit direct investment by
outside investors. investments in such countries may only be permitted through
foreign government-approved or government-authorized investment vehicles, which
may include other investment companies. Investing through such vehicles may
involve frequent or layered fees or expenses and may also be subject to
limitation under the 1940 act. Under the 1940 Act, a Fund may invest up to 10%
of its assets in shares of investment companies and up to 5% of its assets in
any one investment company as long as the investment does not represent more
than 3% of the voting stock of the acquired investment company.
Commercial Paper. The Small Company Fund may invest in commercial paper
which is indexed to certain specific foreign currency exchange rates. The terms
of such commercial paper provide that its
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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. The 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 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. The 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
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 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.
INVESTMENT RESTRICTIONS
The following policies, which cannot be changed without the approval of
the holders of a majority of the shares of the Fund for which the change is
proposed, apply to all of the Funds of the Trust (except the Small Company and
Income Funds, whose restrictions are listed separately below), unless otherwise
stated.
The Trust may not:
1. borrow money, except an amount equal to no more than 5% of the value of
each of the Fund's total assets (calculated when the loan is made) for
temporary, emergency purposes or for the clearance of transactions.
This limited borrowing authority will not be used to leverage the Funds
or to borrow for extended periods of time. This authority is intended
to provide the investment manager additional flexibility in the
execution of routine daily transactions, and allow for more efficient
cash management.
2. purchase securities on margin, but the Trust may obtain such credits as
may be necessary for the clearance of purchases and sales of
securities.
3. make short sales of securities.
4. write or purchase any put or call options.
5. make loans to other persons, except by the purchase of obligations in
which the Trust is authorized to invest. The Trust may, however, enter
into repurchase agreements, but a Fund will not enter into repurchase
agreements if, as a result thereof, more than 10% of the Fund's total
assets (taken at current value) would be subject to repurchase
agreements maturing in more than 7 days.
6. purchase voting securities of any issuer or purchase the securities of
any issuer if, as a result thereof: (a) more than 5% of a Fund's total
assets (taken at current value) would be invested in the securities of
such issuer (except that the Money Market Fund may invest up to 10% of
its total assets in the highest rated securities of a single issuer for
a period of up to three business
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days thereafter, provided that the Money Market Fund does not make more
than one such investment at any one time), (b) a Fund would hold more
than 10% of the voting securities of such issuer, or (c) more than 25%
of a Fund's total assets (taken at current value) would be concentrated
in any one industry. There is, however no limitation on investments in
obligations issued or guaranteed by the U.S. government, its agencies,
or instrumentalities. The Money Market Fund only may invest up to 75%
of its assets in all finance companies as a group, all banks and bank
holding companies as a group, and all utility companies as a group,
when in the opinion of management, yield differentials and money market
conditions suggest, and when cash is available for such investment and
instruments are available for purchase which fulfill the Money Market
Fund's objective in terms of quality and marketability.
7. invest in securities which are restricted as to disposition under
federal securities law, or securities with other legal or contractual
restrictions on resale (except for repurchase agreements).
8. purchase securities issued by any registered investment company, except
by purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary
broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation. The
Trust shall not, however, purchase the securities of any registered
investment companies if such purchase at the time thereof would cause
more than 10% of the total assets of a Fund, taken at current value, to
be invested in the securities of such issuers. Further, the Trust shall
not purchase securities issued by any open-end investment company.
9. invest more than 5% of a Fund's total assets (taken at current value)
in companies which, including predecessors, have a record of less than
three years continuous operation.
10. purchase or retain securities of any issuer, any of whose officers,
directors, or securityholders is a trustee, director, or officer of the
Trust, or of the Adviser, if or so long as, one or more of such persons
owns beneficially more than 1/2% of any class of securities, taken at
market value, of such issuer, and such persons owning more than 1/2% of
such securities together own beneficially more than 5% of any class of
securities of such issuer, taken at market value.
11. act as an underwriter, except as it may technically be deemed an
underwriter under the Securities Act of 1933 in selling a portfolio
security.
12. invest in companies for the purpose of exercising control or
management.
13. purchase or retain real estate (including limited partnership
interests, but excluding securities of companies which deal in real
estate or interests therein), mineral leases, commodities, or commodity
contracts.
14. issue securities except as permitted by the Investment Company Act of
1940.
INVESTMENT RESTRICTIONS FOR THE SMALL COMPANY FUND AND THE INCOME FUND -- The
following are fundamental investment limitations for the Small Company and the
Income Fund which cannot be changed without shareholder approval:
THE SMALL COMPANY FUND AND THE INCOME FUND:
1. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the Investment Company
Act of 1940 (the "1940 Act") which may involve a
26
<PAGE> 45
borrowing, provided that the combination of (i) and (ii) shall not
exceed 33-1/3% of the value of the Fund's total assets (including the
amount borrowed), less the Fund's liabilities (other than borrowings),
except that the Fund may borrow up to an additional 5% of its total
assets (not including the amount borrowed) from a bank for temporary or
emergency purposes (but not for leverage or the purchase of
investments). The Fund may also borrow money from other persons to the
extent permitted by applicable law. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment
transactions and dollar roll transactions that are not accounted for as
financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.
2. May not issue senior securities, except as permitted under the 1940
Act.
3. 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.
4. May not purchase or sell physical commodities 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.
5. May not lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets (taken at current value) would be lent
to other parties, except in accordance with its investment objective,
policies and limitations through (i) purchase of debt securities or
other debt instruments, including loan participations, assignments and
structured securities, or (ii) by engaging in repurchase agreements.
6. May not purchase the securities of any issuer if, as a result, more
than 25% (taken at current value) of the Fund's total assets would be
invested in the securities of issuers, the principal activities of
which are in the same industry. This limitation does not apply to
securities issued by the U.S. government or its agencies or
instrumentalities.
7. May not purchase or sell real estate unless acquired as a result of
ownership of securities or instruments, but this restriction shall not
prohibit the Fund from purchasing or selling securities issued by
entities or investment vehicles that own or deal in real estate or
interests therein or instruments secured by real estate or interests
therein.
The following are the non-fundamental operating policies Small Company Fund and
the Income Fund's which may be changed by the Board of Trustees of the Trust
without shareholder approval:
The Small Company and the Income Fund each 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 sale as required by the current rules
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 securities short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with
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<PAGE> 46
options, futures contracts, options on futures contracts, transactions
in currencies or other derivative instruments shall not constitute
purchasing securities on margin.
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
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 in connection
with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
5. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of issuers that, including predecessor or
unconditional guarantors, have a record of less than three years of
continuous operation. This policy does not apply to securities of
pooled investment vehicles or mortgage or asset-backed securities.
6. Invest in direct interests in oil, gas, or other mineral exploration or
development programs or leases, except that the Fund may invest in
securities of companies that invest in, engage in, or sponsor oil, gas
or mineral exploration or development programs or leases.
7. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may
not exceed 33 1/3% of the Fund's total assets at the time of the
borrowing or investment.
8. Purchase or retain the securities of any issuer if, to the knowledge of
the Fund, any officer or trustee of the Fund, or one or more of the
officers, directors or partners of the adviser or of the subadviser
responsible for the investment beneficially owns more than 1/2 of 1% of
the outstanding securities of such issuer and together own beneficially
more than 5% of the securities of such issuer.
9. Invest in the securities of a company for the purpose of exercising
management or control, but the Fund will vote the securities it owns as
a shareholder in accordance with its views.
10. Invest in warrants (other than warrants acquired by the Fund as part of
a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets.
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 Fund 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 Fund 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.
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<PAGE> 47
MAJOR SHAREHOLDERS
As of September 30, 1996, separate accounts of Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company had shared
voting and investment power of 92.7% and 7.3% of the shares of the Total Return
Fund, 92.0% and 8.0% of the shares of Government Bond Fund, 99.2% and 0.8% of
the shares of Money Market Fund, and 95.0% and 5.0% of the shares of Capital
Appreciation Fund, respectively. As of September 30, 1996, Nationwide Life
Insurance Company owned beneficially 5.7% and had shared voting and investment
power for 94.3% of the shares of the Small Company Fund.
As of September 30, 1996, the Trustees and Officers of the Trust as a
group owned less than 1% of the shares of the Funds.
TRUSTEES AND OFFICERS OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and Officers during the last
five years and their affiliations are:
Dr. John C. Bryant, Trustee.
44 Faculty Place, Wilmington, Ohio.
Dr. Bryant is Executive Director of the Cincinnati Youth Collaborative.
He was formerly Professor of Education, Wilmington College.
Robert M. Duncan, Trustee.
1397 Haddon Road, Columbus, Ohio.
Mr. Duncan is Vice President-General Counsel of the Ohio State
University. He was formerly a partner in the law firm of Jones, Day,
Reavis & Pogue in Columbus, Ohio. He was formerly U.S.
District Court Judge, Southern District of Ohio.
Dr. Thomas J. Kerr, IV, Trustee
4890 Smoketalk Lane, Westerville, Ohio.
Dr. Kerr is retired. He was formerly President of Kendall College.
Prior to that, he served as the President of Grant Hospital Development
Foundation.
D. Richard McFerson, Trustee*, Chairman.
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is Chairman and Chief Executive Officer of the Nationwide
Insurance Enterprise.
James F. Laird, Jr., Treasurer.
One Nationwide Plaza, Columbus, Ohio.
Mr. Laird is Vice President and General Manager of Nationwide Financial
Services, Inc., the Distributor and Investment Adviser. He was formerly
Treasurer of Nationwide Financial Services,
Inc.
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<PAGE> 48
Rae Mercer Pollina, Secretary.
One Nationwide Plaza, Columbus, Ohio.
Mrs. Pollina is Corporate Secretary of Nationwide Financial Services,
Inc., the Distributor and Investment Adviser.
*A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act of 1940.
The Funds do not pay any fees to Officers or to Trustees who are
considered "interested persons" of the Trust. The table below lists the
aggregate compensation paid by the Trust to each disinterested Trustee during
the fiscal year ended December 31, 1995, and the aggregate compensation paid to
each disinterested Trustee during the year by all registered investment
companies to which the Adviser provides investment advisory services (the
"Nationwide Fund Complex").
The Trust does not maintain any pension or retirement plans for the
Officers or Trustees of the Trust.
FISCAL YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM THE
AGGREGATE NATIONWIDE FUND
COMPENSATION COMPLEX INCLUDING
FROM THE TRUST THE TRUST
-------------- ---------
<S> <C> <C>
Dr. John C. Bryant $1,000 $12,500
ROBERT M. DUNCAN $1,000 $12,500
DR. THOMAS J. KERR IV $1,000 $12,500
</TABLE>
CALCULATING YIELD - THE MONEY MARKET FUND
Any current Fund yield quotations, subject to Rule 482 under the
Securities Act of 1933, shall consist of a seven calendar day historical yield,
carried at least to the nearest hundredth of a percent. The yield shall be
calculated by determining the net change, excluding realized and unrealized
gains and losses, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by 365/7
(or 366/7 during a leap year). For purposes of this calculation, the net change
in account value reflects the value of additional shares purchased with
dividends from the original share, and dividends declared on both the original
share and any such additional shares. As of June 30, 1996, the Fund's seven-day
current yield was 4.99%. The Fund's effective yield represents an annualization
of the current seven day return with all dividends reinvested, and for the
period ended June 30, 1996 was 5.12%.
The Fund's yield will fluctuate daily. Actual yields will depend on
factors such as the type of instruments in the Fund's portfolio, portfolio
quality and average maturity, changes in interest rates, and the Fund's
expenses. There is no assurance that the yield quoted on any given occasion will
remain in effect for any period of time and there is no guarantee that the net
asset value will remain constant. It
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<PAGE> 49
should be noted that a shareholder's investment in the Fund is not guaranteed or
insured. Yields of other money market funds may not be comparable if a different
base period or another method of calculation is used.
CALCULATING YIELD AND TOTAL RETURN - NON-MONEY MARKET FUNDS
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 uniformly calculated average annual total returns for the one year,
five year, and ten year periods for the Total Return and Government Bond Funds,
ended June 30, 1996 are shown below.
<TABLE>
<CAPTION>
TOTAL GOVERNMENT
RETURN BOND
------ ----
<S> <C> <C>
1 YEAR 20.8% 4.4%
5 YEARS 15.6% 8.4%
10 YEARS 11.1% 8.5%
</TABLE>
The Capital Appreciation Fund began operations on May 1, 1992. Its
annualized average annual total return for one year ended June 30, 1996 and for
the three years and eight months from May 1, 1992 through June 30, 1996 was
29.6% and 13.4%, respectively. The Small Company Fund began operations on
October 23, 1995. It's average total return (not annualized) for the period from
October 23, 1995 through June 30,1996 was 34.4%.
The Government Bond Fund 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. The Government Bond Fund yield for the 30-day period ended June 30,
1996 was 7.06%.
INVESTMENT ADVISER AND OTHER SERVICES
The Adviser manages the Funds (except the Small Company Fund and the
Income Fund) pursuant to an Investment Advisory Agreement (the "Agreement")
dated October 22, 1981. This Agreement was assigned on May 1, 1984 to the
Adviser by the former Adviser, Nationwide Annuity Advisers, Inc., with
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<PAGE> 50
the consent of the Trust and ratification by the Trust's shareholders. The
Adviser provides the Trust with overall investment advisory and administrative
services, and general office facilities. Subject to such policies as the
Trustees may determine, the Adviser makes investment decisions for the Trust.
For these services and facilities, the Adviser receives a fee computed and paid
monthly at the annual rate equal to .5% of the average daily net assets of each
Fund of the Trust (except for the Small Company and Income Funds).
The Trust pays the compensation of the three Trustees who are not
affiliated with the Adviser and all expenses (other than those assumed by the
Adviser), including governmental fees, interest charges, taxes, membership dues
in the Investment Company Institute allocable to the Trust; fees and expenses of
independent certified public accountants, legal counsel, and any transfer agent,
registrar, and dividend disbursing agent of the Trust; expenses of preparing,
printing, and mailing shareholders' reports, notices, proxy statements, and
reports to governmental offices and commissions; expenses connected with the
execution, recording, and settlement of portfolio security transactions,
insurance premiums, fees and expenses of the custodian for all services to the
Trust; and expenses of calculating the net asset value of shares of the Trust,
expenses of shareholders' meetings, and expenses relating to the issuance,
registration, and qualification of shares of the Trust.
For the years ended December 31, 1995, 1994 and 1993, the Adviser
received fees in the following amounts: Total Return Fund $3,406,571, $2,556,765
and $1,999,186, respectively; Government Bond Fund $2,088,523, $1,997,185 and
$1,915,951, respectively; Money Market Fund $3,574,486, $3,269,449 and
$1,564,076, respectively; and Capital Appreciation Fund $326,158, $237,838 and
$139,873, respectively.
The Adviser pays the compensation of the Trustee affiliated with the
Adviser. The officers of the Trust receive no compensation from the Trust. The
Adviser also furnishes, at its own expense, all necessary administrative
services, office space, equipment, and clerical personnel for servicing the
investments of the Trust and maintaining its organization, investment advisory
facilities, and executive and supervisory personnel for managing the investments
and effecting the portfolio transactions of the Trust.
The Agreement also specifically provides that the Adviser, 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 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 Agreement or interested
persons of any such party. The 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 Agreement further provides that the
Adviser may render services to others.
ADVISORY SERVICES FOR THE SMALL COMPANY FUND
The Adviser oversees the management of the Small Company Fund pursuant
to an Investment Advisory Agreement dated October 20, 1995. Subject to the
supervision and direction of the Trustees, the Adviser determines the allocation
of assets among the Subadvisers and evaluates and monitors the performance of
the Subadvisers. The Adviser is also authorized to select and place portfolio
investments on behalf of the Fund; however, the Adviser generally intends to
limit its direct portfolio management to the investment of a portion of the
Fund's assets in cash or money market instruments. The Adviser has
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<PAGE> 51
responsibility for communicating performance expectations and evaluations to the
Subadvisers and ultimately recommending to the Trust's Board of Trustees whether
a Subadviser's contract should be renewed, modified or terminated; however, the
Adviser does not expect to recommend frequent changes of subadvisers. The
Adviser will regularly provide written reports to the Board of Trustees
regarding the results of its evaluation and monitoring functions. The Advisory
Agreement of the Small Company Fund contains termination and indemnification
provisions similar to those in the Agreement as described above.
The Fund pays to the Adviser a fee at the annual rate of 1.00% of the
Fund's average daily net assets. The Adviser has voluntarily agreed to waive all
or part of its fees in order to limit the Fund's total operating expenses to not
more than 1.25% of the Fund's average daily net assets on an annual basis. These
fee waivers are voluntary and may be terminated at any time. During the period
from October 23, 1995 (date of commencement of operations) through December 31,
1995, the Adviser received advisory fees in the amount of $11,003 and waived
fees and reimbursed expenses in the amount of $10,495.
The Subadvisers - Pursuant to Subadvisory Agreements between each of
the Subadvisers and the Adviser, each of which are dated October 20, 1995, the
Subadvisers each manage a portion of the Fund's assets in accordance with the
Fund's investment objective and policies. With regard to the portion of the
Fund's assets allocated to it, each Subadviser shall make investment decisions
for the Fund and in connection with such decisions place purchase and sell
orders for the securities in the Fund. For the investment management services
they provide to the Fund, each Subadviser, or PIML and VEAC together, receives a
fee from the Adviser at the annual rate of 60% of the average daily net assets
of the portion of the Fund managed by that Subadviser or group of Subadvisers.
During the period from October 23 (date of commencement of operations)
through December 31, 1995, the Adviser paid $11,394 in fees to the subadvisers.
Each of the Subadvisory Agreements specifically provides that the
Subadviser, including its directors, officers, partners 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 Small Company Fund, 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 such Agreement. Each Subadvisory
Agreement will continue in effect for an initial period of two years and
thereafter shall continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trustees, or
by vote of a majority of the outstanding voting securities of the Fund, and in
either case, by a majority of the Trustees who are not parties to the Agreement
or interested persons of any such party. Each Subadvisory Agreement terminates
automatically if it is assigned. It may also 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.
Below is a brief description of each of the subadvisers.
The Dreyfus Corporation. Dreyfus, located at 200 Park Avenue, New York,
New York 10166, was formed in 1947 and serves as one of the Fund's Subadvisers.
Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As of February
29, 1996, Dreyfus managed or administered approximately $85 billion in assets
for approximately 1.7 million investor accounts nationwide.
Mellon is a publicly owned multibank holding company incorporated under
Pennsylvania law in 1971 and registered under the Federal Bank Holding Company
Act of 1956, as amended. Mellon provides a comprehensive range of financial
products and services in domestic and selected international markets. Mellon is
among the twenty-five largest bank holding companies in the United States based
on
33
<PAGE> 52
total assets. Mellon's principal wholly-owned subsidiaries are Mellon Bank,
N.A., Mellon Bank (DE) National Association, Mellon Bank (MD), The Boston
Company, Inc. AFCO Credit Corporation and a number of companies known as Mellon
Financial Services Corporations. Through its subsidiaries, including Dreyfus,
Mellon managed approximately $233 billion in assets as of December 31, 1995,
including approximately $81 billion in mutual fund assets. As of December 31,
1995, various subsidiaries of Mellon provided non-investment services, such as
custodial or administration services, for approximately $786 billion in assets
including approximately $60 billion in mutual fund assets.
Neuberger & Berman L.P. Neuberger & Berman, also serves as a
sub-adviser to the Fund. Neuberger & Berman and its predecessor firms have
specialized in the management of no-load mutual funds since 1950. Neuberger &
Berman and its affiliates manage securities accounts that had approximately $40
billion of assets as of December 31, 1995. Neuberger & Berman is a member firm
of the NYSE and other principal exchanges and acts as the Fund's principal
broker in the purchase and sale of their securities for that portion of the
Fund's portfolio managed by Neuberger & Berman.
Strong Capital Management, Inc. Strong, which also serves as one of the
Subadvisers for the Fund, began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and profit-sharing
plans. Strong also acts as investment advisor for each of the mutual funds
within the Strong Family of Funds. As of March 31, 1996, Strong had over $18
billion under management. Strong's principal mailing address is P.O. Box 2936,
Milwaukee, Wisconsin 53201. Mr. Richard S. Strong is the controlling shareholder
of Strong.
Pictet International Management Limited and Van Eck Associates
Corporation. PIML and VEAC will together manage a portion of the Fund. VEAC is
located at 99 Park Avenue, New York, New York 10016. PIML is located at Cutlers
Gardens, 5 Devonshire Square, London, United Kingdom EC2M 4LD. PIML is primarily
responsible for managing the portion of the Fund's assets allocated to the PIML
and VEAC. PIML determines which securities are to be bought and sold. VEAC,
however, makes recommendations to PIML regarding Hard Asset securities. VEAC
will also make recommendations regarding the allocation among each of the Hard
Asset sectors. PIML is not obligated to act on VEAC'S recommendation's and the
amount, if any, allocated to Hard Assets will be determined by PIML. VEAC will
also assist PIML on issues regarding determining the liquidity of securities,
portfolio diversification and matters involving United States federal securities
and tax law as they apply to management of the Fund.
PIML is an operating company of Pictet (London) Limited, an affiliate
of Pictet & Cie ("Pictet"). Pictet was founded in 1805 and is the largest
private Swiss Bank, as well as the leading specialist investment bank domiciled
in Europe. Pictet has a worldwide network of offices employing over 200
investment professionals in Geneva, London, Zurich, Luxembourg, Hong Kong,
Tokyo, Montreal and Nassau. PIML has access to all of Pictet's investment
infrastructure. As of March 31, 1996, total assets under management by Pictet
and its affiliates, including PIML, on behalf of all clients, was in excess of
$40 billion.
Warburg, Pincus Counsellors, Inc. The Fund also employs Warburg as a
Subadviser to the Fund. Warburg is a professional investment counseling firm
which provides investment services to endowment funds, foundations and other
institutions and individuals. As of February 29, 1996, Warburg managed
approximately $13.5 billion of assets including approximately $7.5 billion of
assets of twenty-six mutual funds. Incorporated in 1970, Warburg is a wholly
owned subsidiary of Warburg, Pincus Counsellors G.P. ("Warburg G.P."), a New
York general partnership. E.M. Warburg, Pincus & Co., Inc. ("EMW") controls
Warburg through its ownership of a class of voting preferred stock of Warburg.
Warburg G.P.
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<PAGE> 53
has no business other than being a holding company of Warburg and its
subsidiaries. Warburg address is 466 Lexington Avenue, New York, New York
10017-3147.
ADVISORY SERVICES FOR THE INCOME FUND
The Adviser oversees the management of the Income Fund pursuant to an
Investment Advisory Agreement dated January ____, 1997. Subject to the
supervision and direction of the Trustees, the Adviser determines the allocation
of assets among the Subadvisers and evaluates and monitors the performance of
Subadvisers. The Adviser is also authorized to select and place portfolio
investments on behalf of the Fund; however, the Adviser currently does not
intend to do so. The Adviser has responsibility for communicating performance
expectations and evaluations to the Subadvisers and ultimately recommending to
the Trust's Board of Trustees whether a Subadviser's contract should be renewed,
modified or terminated; however, the Adviser does not expect to recommend
frequent changes of subadvisers. The Adviser will regularly provide written
reports to the Board of Trustees regarding the results of its evaluation and
monitoring functions. The Advisory Agreement of the Income Fund contains
termination and indemnification provisions similar to those in the Agreement as
described above.
The Fund pays to the Adviser a fee at the annual rate of 0.45% of the
Fund's average daily net assets. the Adviser has voluntarily agreed to waive all
or part of its fees in order to limit the Fund's total operating expenses to not
more than 0.75% of the Fund's average daily net assets on an annual basis. These
fee waivers are voluntary and may be terminated at any time.
The Subadvisers - Pursuant to Subadvisory Agreements between each of
the Subadvisers and the Adviser, each of which are dated January ____, 1997, the
Subadvisers each manage a portion of the Fund's assets in accordance with the
Fund's investment objective and policies. With regard to the portion of the
Fund's assets allocated to it, each Subadviser shall make investment decisions
for the Fund and in connection with such decisions place purchase and sell
orders for the securities in the Fund. For the investment management services
they provide to the Fund, each Subadviser receives an annual fee from the
Adviser based on the average daily net assets of the portion of the Fund managed
by that Subadviser as specified below:
<TABLE>
<CAPTION>
Subadvisory Fees Average Daily Net Assets
---------------- ------------------------
<S> <C>
0.25% on the first $100 million
0.15% on assets in excess of $100
million
</TABLE>
The fees for each of the Subadvisers are subject to the following
annual minimum fees: $15,000 for NCM Capital and $25,000 for Smith Graham.
Below is a brief description of each of the subadvisers.
NCM Capital Management Group, Inc. NCM Capital was founded in 1986 and serves
as one of the Fund's Subadvisers. As of September 30, 1996, NCM Capital had
approximately $3.86 billion in assets under management, of which $1.35 billion
represents fixed income management.
NCM Capital's Chairman of the Board, President and Chief Executive Officer is
Maceo K. Sloan. Other directors are Justin F. Beckett, Executive Vice President;
Peter J. Anderson, Chairman and Chief Investment Officer of IDS Advisory Group,
Inc.; and Morris Goodwin, Jr., Vice President, Corporate Treasurer, American
Express Financial Advisers Inc.
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<PAGE> 54
NCM Capital is a wholly-owned subsidiary of Sloan Financial Group, Inc. Both NCM
Capital and Sloan Financial Group, Inc. are located at 103 West Main Street, 4th
Floor, Durham, North Carolina 27701. Sloan Financial Group, Inc. is a
corporation of which Maceo K. Sloan, CFA, Chairman, President and Chief
Executive Officer of NCM Capital, owns 43%; Justin F. Beckett, Executive Vice
President and director of NCM Capital, owns 17%; and IDS Financial Services
Inc., a wholly-owned subsidiary of American Express Company owns 40% as of
September 30, 1996.
Smith Graham & Co. Asset Managers, L.P. Smith Graham also serves as a
sub-adviser to the Fund. Its corporate offices are located at 6900 Texas
Commerce Tower, 600 Travis Street, Houston, Texas 77002-3007. Smith Graham
serves as an investment adviser to a variety of corporate, foundation, public,
Taft Hartley and mutual fund clients. The firm provides global and international
money management through its affiliate Smith Graham Robeco Global Advisers. As
of October 1, 1996, Smith Graham managed approximately $2 billion of assets.
Smith Graham is 60% owned by its Managing General Partner, Smith Graham & Co.,
Inc., while 40% of the firm is owned by the Dutch based Robeco Group. Smith
Graham & Co., Inc. is wholly owned by Gerald B. Smith, Ladell Graham and Jamie
G. House.
Each of the Subadvisory Agreements specifically provides that the
Subadviser, including its directors, officers, partners 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 Income Fund, 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 such Agreement. Each Subadvisory
Agreement will continue in effect for an initial period of two years and
thereafter shall continue automatically for successive annual periods provided
such continuance is specifically approved at least annually by the Trustees, or
by vote of a majority of the outstanding voting securities of the Fund, and in
either case, by a majority of the Trustees who are not parties to the Agreement
or interested persons of any such party. Each Subadvisory Agreement terminates
automatically if it is assigned. It may also be terminated without penalty by
vote of a majority of the outstanding voting securities, or by either party, on
60 days written notice.
OTHER SERVICES PROVIDED BY THE ADVISER FOR THE INCOME FUND
Under the terms of an Administrative Services Agreement, the Adviser
also provides various administrative and accounting services, including daily
valuation of the Income Fund's shares, preparation of financial statements,
taxes, and regulatory reports. For these services the Fund pays to the Adviser a
fee at the annual rate of 0.10% of the Fund's average daily net assets. These
services are provided to the Trust's other Funds under the terms of their
Investment Advisory Agreements.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, OH 45263,
is the Custodian for the Funds and makes all receipts and disbursements under a
Custodian Agreement. The Custodian performs no managerial or policymaking
functions for the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc. (NIS) is the Transfer Agent and
Dividend Disbursing Agent for the Funds. NIS is a wholly-owned subsidiary of
Nationwide Financial Services, Inc. Management believes the charges for the
services performed are comparable to fees charged by other companies performing
similar services.
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<PAGE> 55
BROKERAGE ALLOCATIONS
IN GENERAL. During the fiscal years ended December 31, 1995, 1994, and
1993, the Total Return Fund, paid brokerage commissions of $377,463, $258,714
and $177,675, respectively, and the Capital Appreciation Fund paid brokerage
commissions of $36,471, $52,032 and $42,439, all to firms rendering statistical
services. The Money Market Fund and Government Bond Fund paid no brokerage
commissions during the periods covered by the financial statements.
The Adviser (or a Subadviser) is responsible for decisions to buy and
sell securities and other investments for the Funds, the selection of brokers
and dealers to effect the transactions and the negotiation of brokerage
commissions, if any. In transactions on stock and commodity exchanges in the
United States, these commissions are negotiated, whereas on foreign stock and
commodity exchanges these commissions are generally fixed and are generally
higher than brokerage commissions in the United States. In the case of
securities traded on the OTC markets, there is generally no commission, but the
price includes a spread between the dealer's purchase and sale price which makes
up the dealer's profit. In underwritten offerings, the price includes a
disclosed, fixed commission or discount. Most short term obligations are
normally traded 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. The Adviser or Subadvisers 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
the Adviser or a Subadviser. In placing orders with such broker-dealers, the
Adviser will, where possible, take into account the comparative usefulness of
such information. Such information is useful to the Adviser or a Subadviser even
though its dollar value may be indeterminable, and its receipt or availability
generally does not reduce the Adviser's or a Subadviser's normal research
activities or expenses.
Trust portfolio transactions may be effected with broker-dealers who
have assisted investors in the purchase of Policies. However, neither such
assistance nor sale of other investment company shares is a qualifying or
disqualifying factor in a broker-dealer's selection, nor is the selection of any
broker-dealer based on the volume of shares sold.
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 the
Adviser or a Subadviser. Although such concurrent authorizations potentially
could be either advantageous or disadvantageous to the Trust, they are effected
only when the Adviser or a Subadviser 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.
The Trustees periodically review the Adviser's and each Subadviser's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Fund and review the commissions paid by
the Fund over representative periods of time to determine if they are reasonable
in relation to the benefits to the Fund.
SPECIAL BROKERAGE ALLOCATION CONSIDERATIONS RELATING TO THE SMALL
COMPANY FUND AND THE INCOME FUND. In purchasing and selling portfolio
investments for these Funds, it is the policy of each of
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<PAGE> 56
the Subadvisers to obtain best execution at the most favorable prices through
responsible broker-dealers. In selecting broker-dealers, each Subadviser will
consider various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for the
security or asset to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer's firm; the
broker-dealer's execution services, rendered on a continuing basis; and the
reasonableness of any commissions. During the period ended December 31, 1995,
the Small Company Fund paid brokerage commissions of $27,100.
Each Subadviser may cause the Small Company or the Income Fund to pay a
broker-dealer who furnishes brokerage and/or research services a commission that
is in excess of the commission another broker-dealer would have received for
executing the transaction if it is determined that such commission is reasonable
in relation to the value of the brokerage and/or research services as defined in
Section 28(e) of the Securities Exchange Act of 1934 which have been provided.
Such research services may include, among other things, analyses and reports
concerning issuers, industries, securities, economic factors and trends, and
portfolio strategy. Any such research and other information provided by brokers
to a Subadviser is considered to be in addition to and not in lieu of services
required to be performed by the Subadviser under its subadvisory agreement with
the Adviser. The fees to each of the Subadvisers pursuant to its subadvisory
agreement with the Adviser is not reduced by reason of its receiving any
brokerage and research services. The research services provided by
broker-dealers can be useful to a Subadviser in serving its other clients or
clients of the Subadviser's affiliates. Subject to the policy of the Subadvisers
to obtain best execution at the most favorable prices through responsible
broker-dealers, a Subadviser also may consider the broker-dealer's sale of
shares of any fund for which the Subadviser serves as investment adviser,
sub-adviser or administrator.
CONSIDERATIONS RELATING TO THE SMALL COMPANY FUND. Neuberger & Berman will act
as the principal broker in the purchase and sale of portfolio securities for the
portion of the Fund advised by Neuberger & Berman and in connection with the
writing of covered call options on their securities. Transactions in portfolio
securities for which Neuberger & Berman serves as broker will be affected in
accordance with Rule 17e-1 under the 1940 Act.
The Fund will continue to use Neuberger & Berman as its principal
broker for the portion of the Fund advised by Neuberger & Berman where, in the
judgment of Neuberger & Berman, the firm is able to obtain a price and execution
at least as favorable as that provided by other qualified brokers. To the Fund's
knowledge, however, no affiliate of Neuberger & Berman receives give-ups or
reciprocal business in connection with their securities transactions.
Under the 1940 Act, commissions paid by the Fund to Neuberger & Berman
in connection with a purchase or sale of securities offered on a securities
exchange may not exceed the usual and customary broker's commission.
Accordingly, it is the Fund's policy that the commissions to be paid to
Neuberger & Berman must, in its judgment, be (1) at least as favorable as those
that would be charged by other brokers having comparable execution capability
and (2) at least as favorable as commissions contemporaneously charged by
Neuberger & Berman on comparable transactions for its most favored unaffiliated
customers, except for accounts for which Neuberger & Berman acts as a clearing
broker for another brokerage firm and customers of Neuberger & Berman considered
by a majority of the independent trustees not to be comparable to the Fund. The
Fund does not deem it practicable and in its best interests to solicit
competitive bids for commissions on each transaction. However, consideration
regularly is given to information concerning the prevailing level of commissions
charged on comparable transactions by other brokers during comparable periods of
time. The 1940 Act generally prohibits Neuberger & Berman from acting as
principal in the purchase or sale of securities for the Fund's account, unless
an appropriate exemption is available.
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<PAGE> 57
During the period ended December 31, 1995, the Small Company Fund paid
brokerage commissions to Neuberger & Berman in the amount of $4,434 representing
16.4% of the total commissions paid by the Fund. The aggregate dollar amount of
transactions involving the payment of commissions to Neuberger & Berman
represented 20.2% of total transactions on which commissions were paid by the
Fund during the period ended December 31, 1995.
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 Accounts. These
Accounts are funded by shares of the Trust. For certain of the Funds, shares may
also be sold to affiliated Fund of Funds.
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
Trust will not compute net asset value for the Funds on customary national
business holidays, including the following: Christmas, New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day and
Thanksgiving Day. 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.
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 of a share of each Fund on which offering and
redemption prices are based is the net asset value of that Fund, divided by the
number of shares outstanding, the result being adjusted to the nearer cent. The
net asset value of each Fund is determined by subtracting the liabilities of the
Fund from the value of its assets (chiefly composed of investment securities).
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. For each
Fund (except the Money Market Fund), short-term notes and bank certificates of
deposit are valued at amortized cost, which approximates market. For the Money
Market Fund, all securities are valued at amortized cost, which approximates
market value, in accordance with Rule 2a-7 of the Investment Company Act of
1940.
The net income of the Money Market Fund is determined once daily, as of
the close of the New York Stock Exchange (currently 4:00 P.M., New York time) on
each business day on which such Exchange is open. All the net income of the
Fund, so determined, is declared in shares as a dividend to shareholders of
record at the time of such determination. (Shares purchased become entitled to
dividends declared as of the first day following the date of investment.)
Dividends are distributed in the form of additional shares of the Fund on the
last business day of each month at the rate of one share (and fraction thereof)
of the Fund for each one dollar (and fraction thereof) of dividend income.
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<PAGE> 58
For this purpose, the net income of the Money Market Fund (from the
time of the immediately preceding determination thereof) shall consist of: (a)
all interest income accrued on the portfolio assets of the Fund, (b) less all
actual and accrued expenses and (c) plus or minus net realized gains and losses
on the assets of the Fund determined in accordance with generally accepted
accounting principles. Interest income shall include discount earned (including
both original issue and market discount) on discount paper accrued ratably to
the date of maturity. Securities are valued at market or amortized cost which
approximates market, which the Trustees have determined in good faith
constitutes fair value for the purposes of complying with the Investment Company
Act of 1940.
Because the net income of the Money Market Fund is declared as a
dividend each time the net income is determined, the net asset value per share
(i.e., the value of the net assets of the Fund divided by the number of shares
outstanding) remains at one dollar per share immediately after each such
determination and dividend declaration. Any increase in the value of a
shareholder's investment in the Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in its
account.
Pursuant to its objective of maintaining a fixed one dollar share
price, the Fund will not purchase securities with a remaining maturity of more
than 397 days and will maintain a dollar weighted average portfolio maturity of
90 days or less.
An insurance company separate account redeems shares to make benefit or
surrender payments under the terms of its Policies. 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 of shares. In that case, the shares of each
series would participate equally in the earnings, dividends, and assets of the
particular series, 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 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 are entitled to one vote for each share
held. Shareholders may vote in the election of Trustees and on other matters
submitted to meetings of shareholders. No amendment may be made to the
Declaration of Trust without the affirmative vote of a majority of the
outstanding shares of the Trust. The Trustees may, however, amend the
Declaration of Trust without the vote or consent of shareholders to:
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<PAGE> 59
- designate series of the Trust; or
x
- change the name of the Trust; or
x
- supply any omission, cure, correct, or supplement any
ambiguous, defective, or inconsistent provision to conform the
Declaration of Trust to the requirements of applicable federal
laws or regulations if they deem it necessary.
Shares have no pre-emptive or conversion rights. Shares are fully paid
and nonassessable, except as set forth below. In regard to termination, sale of
assets, or change of investment restrictions, the right to vote is limited to
the holders of shares of the particular Fund affected by the proposal. When a
majority is required, it means the lesser of 67% or more of the shares present
at a meeting when the holders of more than 50% of the outstanding shares are
present or represented by proxy, or more than 50% of the outstanding shares.
SHAREHOLDER INQUIRIES - All inquiries regarding the Trust should be
directed to the Trust at the telephone number or address shown on the cover page
of this Prospectus.
TAX STATUS
Nationwide Life Insurance Company and Nationwide Life and Annuity
Insurance are currently the sole shareholders of record for each Fund 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) 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); (ii) 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; (iii) derive less than 30% of its annual
gross income from the sale or other disposition of securities, options, futures
or forward contracts held for less than three months; and (iv) diversify its
holdings so that, at the end of each fiscal quarter of the Fund (a) at least 50%
of the market value of the Fund assets is represented by cash, U.S. government
securities and other securities, with those other securities limited, with
respect to any one issuer, to an amount no greater in value than 5% of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer, and (b) not more than 25% of the market value of the
Fund's assets is invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment companies) or
of two or more issuers that the Fund controls and that are determined to be in
the same or similar trades or businesses or related trades or businesses. In
meeting these requirements, a Fund may be restricted in the selling of
securities held by the Fund for less than three months and in the utilization of
certain of the investment techniques described above and in the respective
Fund's Prospectus. 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
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<PAGE> 60
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.
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 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 Policy owner's control of the
investments of a separate account may cause the Policy owner, rather than the
participating insurance company, to be treated as the owner of the assets held
by the separate account. If the Policy 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 Policy 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 Policy owner to be considered the owner of
the shares of the Fund underlying the separate account.
TAX CONSEQUENCES FOR THE SMALL COMPANY FUND
Foreign Transactions. Dividends and interest received by the Small
Company Fund may be subject to income, withholding, or other taxes imposed by
foreign countries and U.S. possessions that would reduce the yield on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors. Policy holders will bear the cost of foreign tax withholding in the
form of increased expenses to the Fund but generally will not be able to claim a
foreign tax credit or deduction for foreign taxes paid by the Fund by reason of
the tax-deferred status of the policies.
The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Fund, defer Fund losses and
cause the fund to be subject to hyperinflationary currency rules. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Fund to mark-to-market
certain types of its positions (i.e., treat them as if they were closed out) and
(b) may cause the fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment so
that (i) neither the Fund nor its shareholders will be treated as receiving a
materially greater amount of capital gains or distributions than actually
realized or received, (ii) the Fund will be able to use substantially all of its
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<PAGE> 61
losses for the fiscal years in which the losses actually occur, and (iii) the
Fund will continue to qualify as a regulated investment company.
As described in the Prospectus, because shares of the Fund may only be
purchased through Policies, it is anticipated that dividends and distributions
will be exempt from current taxation if left to accumulate within the Policies.
Investment in Passive Foreign Investment Companies. If the Fund
purchases shares in certain foreign entities classified under the Code as
"passive foreign investment companies" ("PFICs"), the Fund may be subject to
federal income tax on a portion of an "excess distribution" or gain from the
disposition of the shares, even though the income may have to be distributed by
the Fund to its shareholders, the Policies. In addition, gain on the disposition
of shares in a PFIC generally is treated as ordinary income even though the
shares are capital assets in the hands of the Fund. Certain interest charges may
be imposed on the Fund with respect to any taxes arising from excess
distributions or gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did not
make the election. In addition, information required to make such an election
may not be available to the Fund.
On April 1, 1992 proposed regulations of the Internal Revenue Service
(the "IRS") were published providing a mark-to-market election for shares in
certain PFICs held by regulated investment companies. If the Fund is able to
make the foregoing election in the first year in which it is permitted to do so,
it may be able to avoid the interest charge (but not the ordinary income
treatment) on disposition of the PFIC stock by each year marking-to-market the
stock (that is, by treating it as if it were sold for fair market value on the
last day of the year). Such an election could also result in acceleration of
income to the Fund.
Derivative Instruments. The use of derivatives strategies, such as
purchasing and selling (writing) options and futures and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses the
Small Company Fund realizes in connection therewith. Gains from the disposition
of foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures, and
forward currency contracts derived by the Fund with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income. However, income from the disposition of options and futures (other than
those on foreign currencies) will be subject to a 30% limitation if they are
held for less than three months. Income from the disposition of foreign
currencies, and options, futures, and forward contracts on foreign currencies,
that are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect to securities) also will be
subject to a 30% limitation if they are held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) for the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% limitation on the gross income that can be derived from the sale or other
disposition of securities or derivative instruments that were held for less than
three months. Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. The Fund intends that,
when it engages in hedging strategies, the hedging transactions will qualify for
this treatment, but at the present time it is not clear whether this treatment
will be available for all of the Fund's hedging
43
<PAGE> 62
transactions. To the extent this treatment is not available or is not elected by
the Fund, it may be forced to defer the closing out of certain options, futures,
or forward currency contracts beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.
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 Contracts. For information concerning the Federal income tax
consequences to such holders, see the Prospectuses for such Contracts.
44
<PAGE> 63
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.
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.
45
<PAGE> 64
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 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.
46
<PAGE> 65
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.
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.
47
<PAGE> 66
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
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.
48
<PAGE> 67
C Bonds are in imminent default in payment of interest or principal.
DDD, Bonds are in default on interest and/or principal payments. Such bonds
DD, are extremely speculative should be valued on the basis of their
and ultimate recovery value in liquidation or reorganization of the
D obligor.'DDD' represents the highest potential for recovery of these
bonds, and 'D' represents the lowest potential for recovery.
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.
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
49
<PAGE> 68
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. 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.
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
50
<PAGE> 69
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.
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.
51
<PAGE> 70
LOC The symbol loc indicates that the rating is based on
a letter of credit issued by a commercial bank.
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
Duff1+ 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
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
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<PAGE> 71
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 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.
53
<PAGE> 72
<TABLE>
<CAPTION>
SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares Security Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.2%)
AEROSPACE/DEFENSE (0.2%)
<S> <C> <C>
12,700 Atlas Converting Equipment ORD $146,539
1,400 Celsius Industrier* 18,356
1,400 Forsheda 30,277
---------
195,172
---------
AGRICULTURAL PRODUCTS (0.1%)
1,249 Delta & Pine Land Co. 52,770
---------
AUTO & AUTO PARTS (0.7%)
11,400 Clarcor Inc. 282,150
7,600 Donaldson Inc. 195,700
5,000 Meiwa Industry Co. 28,492
5,000 Trinity Holdings ORD 28,205
---------
534,547
---------
BANK/SAVINGS & LOAN (1.6%)
2,800 Banco Latinoamerican de Export
SA Class E 157,500
1,000 Bank of Iwate 57,804
1,700 Charter One Financial, Inc. 59,288
2,200 First Bank Systm Inc. 127,600
74,000 International Bank of Asia 47,800
20,000 Reliance Bancorp, Inc. 312,500
12,000 Texas Regal Bancshares Class A 300,000
10,400 Webster Financial Corp. 291,200
---------
1,353,692
---------
BUILDING MATERIALS (0.7%)
60,000 AMEC 91,375
29,170 Keller Group ORD 76,608
2,000 Komatsu Wall Industry Co. 47,775
2,400 Lindab 26,585
4,000 Max Co. 83,879
2,000 Nippon Filing Co. 30,269
4,000 P S Corp. 76,585
5,000 TOC 59,263
11,000 Unicem* 80,368
---------
572,707
---------
BUSINESS SERVICES (1.7%)
250 Assystem 29,138
3,000 Chodai Co.* 108,040
4,000 Dainippon Shigyo 31,364
3,000 Daiseki Co. 82,603
6,000 Health Management System Inc.* 190,500
2,000 Iberica DE Autopistas S.A. 33,772
6,000 Kanto Biomedical Laboratory 94,638
4,000 Meitec 90,809
1,000 Oyo Corp. 57,530
10,300 Physicians Resource Group Inc.* 343,762
1,200 Prosegur 42,118
121,000 Radius ORD 116,581
35,000 Ricardo Group 74,514
60,130 Shanks & McEwan Grp 113,065
---------
1,408,434
---------
CHEMICALS & FERTILIZER (1.4%)
27,170 Amberley Group 36,362
150 Andreae Noriz Zahn 50,358
3,000 Borsodchem GDR 57,926
11,000 Itoki Crebio Corp. 99,388
3,000 Kaigen 27,352
3,000 Lawter Intl. Inc. 37,500
24,000 Lilly Industries Inc 408,000
10,300 McWhorter Technologies, Inc.* 182,825
17,000 Nylex (Malaysia) 65,405
3,000 Osaka Organic Chemical 47,866
5,000 Teikoku Hormone 70,659
100 Tessenderlo Chemie 36,229
4,000 Tsurumi Soda Co. 26,477
6,200 United Drug 32,689
---------
1,179,036
---------
COMMERCIAL SERVICES (5.3%)
4,000 ABR Information Services, Inc.* 201,000
15,000 Accustaff Inc.* 408,750
6,000 Alternative Resources Corp.* 220,500
6,000 BT Office Products International Inc.* 107,250
3,600 CRA Managed Care, Inc.* 161,100
4,000 Career Horizons, Inc.* 140,000
4,000 Catalina Marketing Corp.* 366,000
11,000 Corestaff Inc.* 492,250
8,000 Danka Business Systems Plc ADR 234,000
3,000 Data Processing Resources Corp.* 82,875
4,100 DST Systems Inc. Del* 131,200
4,400 Fritz Companies, Inc.* 141,900
9,000 ICT Group, Inc.* 173,250
6,000 Lanvision Systems Inc.* 71,250
4,300 On Assignment, Inc.* 160,175
4,900 PIA Merchandising Services Inc.* 71,050
7,900 QuickResponse Services, Inc.* 227,125
6,000 Robert Half International, Inc.* 167,250
4,000 Romac International* 102,000
4,800 SITEL Corporation* 201,600
6,000 Solectron Corp.* 227,250
9,700 Viking Office Products, Inc.* 304,337
---------
4,392,112
---------
COMMUNICATIONS & MEDIA (4.2%)
70 Affichage Genuss 35,794
4,000 Aspect Telecommunications Corp.* 198,000
420 Bantex 27,140
2,000 Broadcasting System of Niigata 29,358
2,000 Cascade Communications Corp.* 136,000
7,900 Central European Media
Enterprises LTD* 197,500
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 1
<PAGE> 73
SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS & MEDIA (CONTINUED)
13,700 Chancellor Broadcasting Corp.
Class A* $ 428,125
2,000 Clear Channel Communications* 164,750
23,650 Harte-Hanks Communications Inc. 656,287
12,400 Heritage Media Corp. Class A* 494,450
7,000 Independent Newspaper 23,978
500 Integrated Systems Consulting Group* 9,750
15,000 InterVoice* 298,125
11,200 K-III Communications Inc.* 140,000
6,800 Nitto Electric Works 112,216
7,900 Paging Network Inc.* 189,600
2,500 Schibsted A/S 32,326
2,500 Teleport Communications Group* 47,812
3,000 Tonichi Cable Ltd 28,173
16,000 World Talk* 196,000
---------
3,445,384
---------
COMPUTER EQUIPMENT (2.1%)
5,600 Citrix Systems Inc.* 212,800
8,400 Cognex Corp.* 135,450
7,500 D H Technology Inc.* 180,000
11,600 National Instruments Corp.* 261,000
11,100 Platinum Technology* 167,888
9,400 Synopsys Inc.* 373,650
4,000 U.S. Robotics Corp.* 342,000
2,000 VideoServer Inc.* 78,000
---------
1,750,788
---------
COMPUTER SERVICE (1.3%)
1,700 Computer Horizons* 67,150
6,000 Decisionone Holdings* 142,500
14,700 Logica ORD 146,886
6,000 Reynolds & Reynolds Co. Class A 319,500
600 Sterling Commerce Inc.* 22,275
8,000 Sykes Enterprises* 394,000
---------
1,092,311
---------
COMPUTER SOFTWARE (2.7%)
7,000 CBT Group PLC ADR* 323,750
6,900 Cambridge Tech Partners Inc.* 210,450
5,000 Clarify Inc.* 247,500
3,600 Edify Corp.* 95,400
5,000 HNC Software Inc.* 231,250
5,000 Integrated Systems* 200,312
5,000 Mcafee Associates* 245,000
4,000 Pure Software Inc.* 136,000
4,000 Segue Software Inc.* 119,000
6,900 System Software Associates Inc. 117,300
7,000 Visio Corp.* 252,000
2,500 Workgroup Technology Corp.* 62,813
---------
2,240,775
---------
CONGLOMERATES (4.5%)
1,000 Aeon Credit Service $ 67,377
2,900 Alco Standard Corp. 131,225
1,100 Azkoyen 76,959
50 Bien-Haus 14,618
1,300 Blom 26,015
2,100 Blue Range Resources Corp. Class A* 15,147
15,000 Breakwater Resources* 26,361
6,000 Bridgestone Metalpha 85,885
4,540 Business Post PLC 30,972
4,000 CTI Enginneering 138,583
3,500 Cardo AB 73,583
1,000 Carli Gry* 32,735
200 Cewe Color Holdings 72,926
100 Chemische Werke Brockhues 57,158
52,000 Chen Hsong ORD 27,879
2,000 Co-Cos Nobuoka Co 31,546
2,000 Content Beheer 72,763
1,500 Corel Corp.* 15,378
2,200 DY 4 Systems Inc.* 16,110
20 Daetwyler Holding 35,634
193 Deceuninck 26,798
4,000 Econosto 65,382
1,400 Enator* 32,176
14,000 Esaote Biomedica* 50,184
1,400 Esselte AB 28,589
7,200 Frontec AB* 88,435
3,000 Fujix Ltd 27,078
3,000 Gewiss ORD 45,011
15,000 Giovanni Crespi 61,646
1,800 Groupe Zannier 40,210
1,000 H I S Co LTD 60,813
30,000 Haw Par Brothers 68,443
5,000 Hokuetsu Paper 42,168
1,200 Huhtamaki OY 40,035
4,000 IMA 28,181
216 Infogrames Entertainment* 42,000
4,000 Intec Inc. 64,915
3,000 International Forest Production* 26,362
2,000 Jeans Mate 87,162
1,875 Lukoil Holdings ADR 91,973
200 Manitou 22,533
5,950 Mayborn Group Plc ORD 26,352
3,000 Morito Co. 34,190
3,000 Nokian Tyres LTD. 43,910
2,050 OM Gruppen Sek5 56,229
105 Orell Fuessli Graph 82,215
35,000 Pentex-Schweizer Circuits LTD. 59,019
30,000 Perseverence Corp. 24,793
60 Phoenix Meccano 29,626
20,000 RCO Holdings 74,592
1,000 Riso Kagaku Corp. 80,232
1,000 Saes Getters Spa 27,985
12,000 Scandia Consult AB 88,616
36,000 Shaw Bros LTD. 41,858
</TABLE>
2 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
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SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
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CONGLOMERATES (Continued)
4,000 Shoei Foods Corp. $ $ 27,534
7,000 Siddons Ramset 30,303
100 Siegfried AG 83,094
30 Sig Schw Sirx 70,949
60,000 Snia BDP 67,204
2,310 Sol Melia SA* 48,646
500 Synthelabo 42,249
60 Tecan* 69,990
3,000 Toyo Exterior Co LTD 70,021
1,500 Tri Link Resources* 18,399
800 Trio Information System* 22,184
4,000 Tsutsumi Jewelry Co. 193,287
300 Va Technologies Ag 36,743
16,000 Varitronix International 33,383
750 Vidrala 38,023
1,500 WM Data 94,945
4,000 Yokohama Maruuo 29,577
---------
3,735,096
---------
CONSUMER GOODS & SERVICE (4.0%)
5,000 Bush Industries 170,000
4,000 Chofu Seisakusho 99,561
4,600 Devry Inc.* 207,000
3,000 Enix Corp. 93,817
6,000 Fuji Denki Reiki 76,585
8,100 Garden Botanika Inc.* 178,200
11,500 Helen of Troy* 327,750
10,000 ITT Educational Services Inc.* 288,750
7,500 Mentor Corp. Minnesota 191,250
12,500 Outboard Marine 226,563
1,000 Sangetsu Co. 26,714
14,000 Sola International* 402,500
12,500 TCA Cable TV Inc. 378,125
1,500 Tribune Co. 108,937
5,000 USA Detergents Inc.* 199,375
12,500 Warnaco Group Class A 321,875
---------
3,297,002
---------
CONTAINERS (0.7%)
13,000 Alltrista Corp.* 308,750
9,800 Libbey Inc. 271,950
---------
580,700
---------
ELECTRICAL EQUIPMENT (0.2%)
9,550 Holophane Corp.* 150,412
---------
ELECTRONICS (5.3%)
20,000 Acma 58,382
1,800 Allgon AB 29,976
270 Batenburg Beheer 34,325
9,500 Black Box Corp. DE* 225,625
5,150 Chemring Grp Plc Ord 30,412
15,100 Continental Circuits Corp.* 177,425
300 Cubic Modulsystem Class B 26,853
20,700 Dallas Semiconductor Corp. 375,187
700 Eff Eff Fritz Fuss Gmbh & Co. 32,652
1,500 Elec. Reunida DE Zaragoza 40,948
400 Eriks Holdings 36,909
11,000 Fusion Systems Corp.* 272,250
2,000 Geomatec Co. 89,350
7,350 Glenayre Technologies Inc.* 367,500
2,000 Jastec 31,181
6,000 Jeol* 46,225
8,600 Kent Electronics* 268,750
17,900 Kewill Systems PLC 131,294
7,890 MMT Comptng PLC ord 55,543
5,000 Macro 4 ORD 36,907
6,200 Maxim Integrated Products Inc.* 169,337
45,520 Neotronics Technology ORD* 33,247
4,000 Nihon Dempa 94,820
20,700 Nu Horizons Electrs Corp.* 228,994
17,200 Pioneer Standard Electronics Inc. 227,900
230 Radiall 25,377
3,000 Ryoyo Electric 64,551
14,600 Sanderson Electronic PLC 35,848
4,500 Securitas AB 94,267
5,400 SCI Systems Inc.* 219,375
5,000 Seiwa Electric Manufacturing Co. 82,056
20,700 Servomex ORD 134,140
30,000 TT Group ORD 159,907
292,000 Techtronic 40,364
910 Twentsche Kabel Holdings 39,029
8,000 Uniphase Corporation* 284,000
31,200 Venture Manufacturing 57,475
---------
4,358,381
---------
ELECTRONICS-SEMICONDUCTOR (0.6%)
2,800 Checkpoint Systems Inc.* 96,250
8,000 Computer Products* 137,000
11,000 Sipex Corporation* 235,125
---------
468,375
---------
ENGINEERING AND CONSTRUCTION (0.3%)
10,200 Jacobs Engineering Group Inc.* 269,025
---------
ENVIRONMENTAL SERVICES (0.7%)
4,000 Sanifill Inc. 197,000
12,700 USA Waste Services Inc. 376,238
---------
573,238
---------
FINANCIAL SERVICES (5.7%)
7,300 Aames Financial Corp 261,888
1,000 Acom Co. LTD 39,113
12,500 Alexander & AlexanderServices Inc. 246,875
12,500 American Travelers Corp.* 287,500
4,000 Cap Volmac Group 78,505
5,000 Capital RE Corp. 183,750
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 3
<PAGE> 75
SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
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FINANCIAL SERVICES (CONTINUED)
5,850 Capmac Holdings $166,725
10,000 City National Corp. 157,500
25,000 D&N Financial Corp.* 350,000
15,000 Dime Bancorp* 195,000
9,000 Enhance Financial Services Group 252,000
15,000 Everest Reinsurance Holdings Inc. 388,125
8,000 First Financial Caribbean 164,000
8,800 Frontier Insurance Group 303,600
22,500 Hibernia Corp. Class A 244,688
7,000 Ichiyoshi Securities 45,249
8,540 London Forfaiting Co. 37,425
1,500 Medaphis Corp.* 59,625
6,500 PMT Services Inc.* 186,062
1,000 Promise 49,234
400 Shohkoh Fund 83,879
9,200 Titan Holdings 128,800
6,500 Transaction System Architects `A'* 435,500
3,800 United Companies Financial Corp. 129,200
17,500 Willis Corroon Group 207,812
---------
4,682,055
---------
FOOD & BEVERAGE (0.5%)
3,000 B-R 31 Ice Cream 34,190
4,000 Bush Boake Allen Inc* 87,000
2,000 Hokkaido Coca-Cola Bottling 27,900
250 Nordstern Lebensmittel 41,883
10,000 Robinson Co. 42,511
6,000 Soken Co. Ltd 31,126
9,000 Tokushima Bank 71,471
5,000 Yokohama Reito 66,100
---------
402,181
---------
FOREST PRODUCTS (0.3%)
641 Emin Leydier 56,654
11,300 Meyer International 66,729
10,000 Munksjo 78,368
10,000 Nippon Hi-Pack Co. 82,329
---------
284,080
---------
FURNISHINGS & APPLIANCES (0.5%)
7,500 Consolidated Products Co.* 121,875
5,300 Kimball Intl Inc ClB 146,413
7,000 Rival Co. 161,000
---------
429,288
---------
GOLDMINES (0.2%)
50,000 Black Hawk Mining* 21,232
24,000 Deelkral Gold Mines* 22,724
3,000 Free State Consolidated Gold Mines 28,231
2,500 Harmony Gold Mining* 23,901
8,000 Hartebeestfontein Gold Mining Co. 26,973
4,000 Hullas Del Coto Cortes 74,253
---------
197,314
---------
HEALTHCARE (7.9%)
10,600 Adac Labs 241,150
5,000 Aksys Limited* 76,250
6,600 American Oncology Resources Inc.* 143,550
10,000 Amerisource Health Corp. Class A* 332,500
7,500 Bio-Rad Labs Class A* 269,062
3,000 Biofermin Pharmac. 32,275
4,300 Biopsys Medical Inc.* 86,000
5,500 CYTYC Corp.* 142,313
10,000 Cohr Inc.* 237,500
5,000 Corvel Corp.* 178,750
5,000 Dura Pharmaceuticals Inc* 280,000
3,000 ESC Medical Systems Limited* 84,750
210 Ecco Travail Temporaire 16,725
3,000 Elan Corp. PLC ADR* 171,375
800 Elekta Class B 30,382
7,700 EmCare Holdings* 229,075
2,000 Fesil 22,782
4,000 Genesis Health Ventures Inc.* 125,500
8,100 Gilead Sciences Inc.* 204,525
3,000 Guidant Corporation 147,750
12,300 Heartport Inc.* 372,076
13,400 Incontrol Inc.* 157,450
18,200 Kinetic Concepts Inc 282,100
17,100 La Jolla Pharmaceutical Co.* 94,050
12,100 Ligand Pharmaceuticals Inc. Class B* 201,162
4,100 Lincare Holdings Inc* 160,925
10,000 Meridian Diagnostics Inc. 153,125
6,600 NCS Healthcare Inc. Class A* 199,650
20,000 Nacional De Drogas 59,765
1,100 Neurosearch* 42,198
8,000 Occusystems* 299,000
7,700 Orthodontic Centers of America* 204,050
2,000 Parexel Intrntl Corp* 96,500
7,400 Physician Reliance Network Inc.* 164,650
2,000 Physician Sales & Service Inc.* 48,500
1,700 Recordati 11,644
4,000 SRL 81,691
4,100 Thermotrex Corp.* 201,925
5,100 Total Renal Care* 215,475
810 Trex Medical* 15,289
5,000 United Dental Care Corp.* 211,250
12,500 VWR Scientific Products* 200,000
---------
6,524,689
---------
HOUSING (2.6%)
2,400 Alinco 33,698
10,200 Coachmen Industries Inc. 357,000
200 Dyckerhoff & Widmann 26,542
71,000 Heiton 113,437
6,000 Higashi Nihon House 105,031
400 Hollandsche Beton 76,630
300 IHC Caland 14,764
5,000 Japan Airport Terminal Co. 70,659
</TABLE>
4 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
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SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
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HOUSING (CONTINUED)
10,000 Matsuo Bridge $ 68,562
21,130 McCarthy & Stone 29,881
8,000 Nippon Denwa Shisetsu 86,067
8,000 Nissei Build Kogyo 104,302
6,000 Nissei Industries 68,380
11,800 Oakwood Homes Corp. 243,375
1,600 Svedala Industri 30,262
3,000 Tanabe Industries 40,481
6,700 Texas Industries Inc 459,788
200 VBH Ver Baubes Handel 52,559
5,400 Watsco Inc. 113,400
9,850 Wilson (Connolly) 24,797
4,600 Wilson Bowden 31,453
---------
2,151,068
---------
INDUSTRIAL MFG & PROCESSING (0.3%)
6,500 Waters Inc.* 214,500
---------
INDUSTRIAL MISC. (3.2%)
4,000 Allied Products Corp DE 113,500
11,400 Apogee Enterprises 390,450
32,000 ASM Pacific Technology 25,218
9,400 BMC Industries Inc. Minnesota 270,250
11,900 Brady WH Co. 264,775
22,000 Carraro SPA 115,385
24,700 Dawson Production Services Inc.* 284,050
810 Ecia 111,399
3,000 Material Sciences* 51,750
9,000 Pentair Inc. 270,000
19,600 Sealright Co. Inc. 213,150
1,485 Semperit AG Holdings 66,540
800 Sylea 88,889
1,000 Tenryu Saw Mfg. Co. 25,255
13,090 Varlen Corp. 274,890
---------
2,565,501
---------
INSURANCE (0.5%)
9,000 E.W. Blanch Holdings Co. 178,875
22,000 Heath (C.E.) PLC 36,239
9,000 Integon Corp. 181,125
12,190 Lloyds Thomson 33,719
---------
429,958
---------
LEISURE/ENTERTAINMENT (1.9%)
29,100 Casino Data System* 440,137
13,000 First Capital Corp. 32,238
8,000 HFS Inc.* 560,000
80,650 Kunick 34,466
6,000 Platinmun Entertainment Inc.* 93,000
7,000 Regal Cinemas Inc.* 320,250
7,000 Shingakukai Co. Ltd 70,203
110,000 Yue Yuen Industrial Holdings Co. 31,264
---------
1,581,558
---------
LEISURE PRODUCTS (0.4%)
4,000 Harley-Davidson Inc. 164,500
200 Wayss Und Freytag 43,361
2,000 West Marine Inc.* 143,000
---------
350,861
---------
LODGING (1.4%)
5,600 Doubletree Corp.* 198,800
2,000 Marcus Corp. 50,250
9,200 Prime Hospitality Cp* 151,800
2,300 Promus Hotel Corporation* 68,137
5,400 Renaissance Hotel Group NV* 116,100
3,500 Studio Plus Hotels Inc.* 115,500
7,500 Sun International Hotels LTD.* 363,750
5,700 Wyndham Hotel Corp.* 118,988
---------
1,183,325
---------
MACHINERY & CAPITAL GOODS (3.6%)
16,760 Abbeycrest PLC 35,161
12,100 Alamo Group Inc. 220,825
6,000 Ashia Diamond Industrial 78,226
43,850 Bardon Group 25,635
6,090 Carclo Engineering Group ORD 27,445
400 DMW Corporation 28,446
5,000 Danto Corp. 67,468
3,000 Denkyosha Co. 30,087
3,800 Dionex Corp.* 122,550
100 Duerr Beteiligungs 37,974
410 Fives-Lille (Compagnie DE) 45,715
27,500 Futuris Corporation 31,602
2,000 Glory 66,192
12,750 Graco Inc. 258,187
25,000 Herald Resources 32,074
550 Hoek's Machine 39,955
7,000 IDEX Corp. 266,000
3,400 Kaydon Corp. 146,200
3,000 Koito Industries 36,925
1,500 Konecranes International* 36,484
7,500 Lincoln Electric Co. Class A 226,875
74,000 Mayflower Corp. ORD 121,321
2,000 Nihon Decoluxe 31,911
3,000 Nikko Co. 29,814
4,000 Nippon Cable System 41,210
3,000 Odawara Engineering 45,131
2,000 Oiles Corp. 90,261
400 Reesink 35,151
2,000 Ricoh Elemex 30,999
4,000 Sodick* 47,775
4,000 Toa Medical Electronics 98,832
4,000 Uehara Sei Shoji 27,972
150 Vossloh 52,625
11,700 Wolverine Tube Co.* 409,500
---------
2,922,528
---------
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 5
<PAGE> 77
SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
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MANUFACTURING-SHOES & APPAREL (0.5%)
2,500 Gucci Group NV $161,250
1,000 Mossimo* 39,875
7,000 Nautica Enterprises* 201,250
---------
402,375
---------
MATERIALS & PROCESSING (2.1%)
15,000 CFC International Inc.* 243,750
7,500 Cambrex Corp. 383,438
5,000 Culligan Water* 190,000
15,000 International Specialty Products* 165,000
3,500 Mineral Technologies Inc. 119,875
30,000 Rexene Inc. 296,250
17,500 Strategic Distribution Inc.* 137,812
12,500 Uniroyal Chemical Corp.* 185,938
---------
1,722,063
---------
METAL PRODUCT & FABRICATION (0.5%)
30,000 Croesus Mining 21,724
9,900 Falck Acciaierie Ferriere Lomb 37,070
5,000 Miller Industries Inc.* 143,125
6,000 NN Ball & Roller Inc 124,500
3,000 Osaka Steel 47,045
---------
373,464
---------
MISCELLANEOUS (0.5%)
7,300 America Homestar Corp.* 189,800
14,500 York Group 250,125
---------
439,925
---------
NONFERROUS METALS (0.3%)
5,400 Alumax, Inc.* 164,025
6,000 Commonwealth Alum Corp. 93,750
---------
257,775
---------
OIL & GAS/ENERGY (5.0%)
1,300 Barrett Resources Corp.* 38,675
9,900 Brown (Tom) Inc.* 169,538
20,600 Cairn Energy USA Inc* 296,125
7,000 Caltex Australia 28,099
6,800 Chieftain International Inc.* 137,700
14,300 Dreco Energy Service LTD. Class A* 393,250
14,500 Global Industries* 431,375
10,000 Input/Output Inc.* 323,750
11,000 Marine Drilling Cos Inc.* 111,375
4,400 Mosenergo ADR 117,480
33,300 Nabors Industries Inc.* 541,125
21,500 Oceaneering International Inc.* 325,187
13,000 Offshore Logistics I* 180,375
7,800 Petroleum Geo Services ADR* 221,325
30,000 Ranger Oil Ltd. 221,250
6,600 Smith Internatnl Inc* 198,825
6,300 TPC Corp.* 45,675
21,700 Texas Meridian Resources Corp.* 195,300
15,000 Tuboscope Vetco Intnl. Corp.* 166,875
---------
4,143,304
---------
OIL & GAS: EQUIPMENT & SERVICES (1.2%)
17,500 Flores & Rucks Inc.* 603,750
25,700 Pride Petroleum Services Inc.* 366,225
---------
969,975
---------
OIL & GAS EXPLORATION/PRODUCTION (0.2%)
1,400 Chesapeke Energy Corporation* 125,825
---------
PRODUCER DURABLES (1.8%)
6,500 Albany International 147,062
15,000 Applied Extrusion TE* 191,250
8,000 Huntco Inc. Class A 148,000
17,500 Powell Industry Inc.* 203,437
17,500 Rohr Inc.* 365,313
7,500 Special Devices Inc.* 120,000
17,500 Titan Wheel 280,000
---------
1,455,062
---------
PUBLISHING (0.5%)
3,700 Central Newspapers Inc. 138,750
1,500 McClatchy Newspaper Class A 41,438
3,900 Pulitzer Publishing Co 231,075
---------
411,263
---------
REAL ESTATE (0.4%)
7,000 Cesar Co. 69,565
100,000 Grand Hotel Holdings Class A 39,403
9,600 NHP Inc.* 198,000
---------
306,968
---------
RESTAURANTS (0.6%)
6,000 Rainforest Cafe Inc.* 300,000
7,300 Planet Hollywood
International Inc. Class A* 197,100
---------
497,100
---------
RETAIL STORES (3.8%)
8,500 Borders Group Inc.* 274,125
4,000 Chiyoda Co. 93,726
6,000 Consolidated Stores Corp.* 220,500
8,000 Corporate Express* 320,000
6,500 Cost Plus Inc.* 180,375
2,000 Daiichi Corp. 57,986
1,000 Dennys Japan 35,466
40,000 Dickson Concept Int. 51,160
7,800 Dollar Tree Stores* 247,650
230 Fust (Dipling AG) 67,074
6,000 Gadzooks Inc.* 193,500
4,200 Garden Ridge Corp.* 212,100
4,000 Just For Feet Inc.* 211,500
1,500 Kohls Corporation* 54,938
</TABLE>
6 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
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STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
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RETAIL STORES (CONTINUED)
6,000 Matsuyadenki $ 87,526
22,000 Metrojaya Berhad 67,009
3,150 Monro Muffler Brake Inc.* 57,881
8,200 Payless Shoesource* 260,350
5,600 Petsmart Inc.* 267,400
13,000 Schultz Sav O Stores 162,500
---------
3,122,766
---------
RETAILING & DISTRIBUTORS (0.4%)
10,100 Richfood Holdings Inc 328,250
---------
TECHNOLOGY (3.4%)
9,400 Auspex Systems Inc.* 141,000
8,000 Gensym* 176,000
20,400 I Z Technology* 872,100
10,000 Picturetel Corporation* 393,750
21,900 Planning SCI International ADR* 492,750
3,000 Safeguard Scientifics Inc.* 234,000
7,500 Thiokol Corp. Del 296,250
15,000 Xircom Inc.* 221,250
---------
2,827,100
---------
TELECOMMUNICATIONS (0.8%)
2,000 Airphone Co. 50,327
10,500 McLeod Inc.* 252,000
1,600 Premiere Technologies Inc.* 50,400
10,000 Saipem 42,076
33,000 Sistem Televisyen 67,450
4,600 U.S. Long Distance* 163,300
---------
625,553
---------
TELECOMMUNCIATION EQUIPMENT (0.1%)
2,700 Coherent Communication Systems* 57,375
---------
TEXTILE/APPAREL (1.0%)
4,000 Aoki International 85,703
420 Bazar DE LHotel DE Ville 44,545
2,000 Charle Co. 30,634
4,000 Designer Holdings* 106,500
390 Devanlay SA 46,212
100 Etienne Aigner 53,873
10,000 Gunze 62,636
20,520 Hicking Pentecost Plc ORD 110,971
4,000 Isamu Paint Co. Ltd 29,540
6,550 Pagnossin 36,960
3,000 Sotoh 34,190
3,200 St. John Knits Inc. 142,800
4,000 Tokyo Style 69,656
---------
854,220
---------
TRANSPORTATION (0.8%)
500 Asko-A 22,601
15,000 Avondale Industry Inc.* 270,000
3,000 FCC Co. LTD 111,322
TRANSPORTATION (CONTINUED)
5,000 Isewan Terminal Services $ 36,469
200 Leonische Draht 67,670
4,800 Midwest Express Holding Inc.* 154,200
4,000 Tokyo Kisen 31,692
---------
693,954
---------
WHOLESALE & INTERNATIONAL TRADE (1.0%)
72,000 Alexon Group ORD* 163,357
500 Bioblock Scientific 32,051
250 But SA 17,094
2,000 Circle K Japan Co 103,573
5,000 Dahl* 71,963
3,000 Fast Retailing Co. 125,545
32,500 Headlam Group ORD 145,455
4,000 Inaba Denkisangyo 100,290
5,200 Joyfull Co. 96,716
----------
856,044
----------
TOTAL COMMON STOCK 76,039,224
----------
(cost $69,133,291)
PREFERRED STOCK (0.4%)
CHEMICALS & FERTILIZER (0.1%)
450 Jungheinrich 79,824
---------
CONGLOMERATE (0.1%)
600 Gerry Weber AG 31,338
250 WMF (Wuertt Metallw) 45,168
---------
76,506
---------
CONSTRUCTION & HOUSING (0.1%)
250 Hans Einhell NV 36,956
100 Sto Vorz 49,931
86,887
---------
FOOD & HOUSEHOLD PRODUCTS (0.1%)
1,500 Berentzen Group 62,085
---------
TOTAL PREFERRED STOCK 305,302
---------
(cost $307,960)
RIGHTS (0.1%)
100 Tessenderlo Chemie Rights 3,658
3,000 Haw Par Brothers Rights 1,158
---------
TOTAL RIGHTS 4,816
---------
(cost $5,191)
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 7
<PAGE> 79
SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
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PRINCIPAL SECURITY VALUE
- -----------------------------------------------------------------
<S> <C> <C>
SHORT-TERM DEBT (2.8%)
$ 2,275,000 Marsh & Mclennan Co.
5.52%, due 07//01/96 $ 2,275,000
(cost $2,275,000) ----------
U.S. GOVERNMENT OBLIGATIONS (1.4%)
1,180,000 U.S. Treasury Bills
5.05% through 5.11%,
due 9/19/96 1,166,653
(cost $1,166,653) ----------
REPURCHASE AGREEMENTS (4.2%)
3,244,000 Fifth Third Bank
5.20%, 07/01/96, collateralized
by $3,194,000 GNMA 8.50%,
due 05/15/10 market 3,244,000
value - $3,309,781
249,000 State Street Bank
5.10%, 07/01/96, collateralized
by $250,000 U.S. Treasury Note
6.0%, due 08/31/97, market
value - $254,687 249,000
----------
TOTAL REPURCHASE AGREEMENTS 3,493,000
(cost $3,493,000) ----------
Total investments $83,283,995
(cost $76,381,095) ==========
</TABLE>
8 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 80
SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FORWARD CURRENCY CONTRACTS
Currency Cost Value (Depreciation) Date
- -------- ---- ----- -------------- ----
<S> <C> <C> <C> <C>
Currency sold:
United States Dollars $ 11,829 $ 11,879 $ (50) 7/2/96
------ -----
Total currency sold: $ 11,879 $ (50)
====== =====
Currency purchased:
German Marks 22,177 $ 22,161 $ (16) 7/2/96
Italian Lira 63,843 63,720 (123) 7/1/96
Japanese Yen 180,649 180,185 (464) 7/1/96
------- -----
Total currency purchased $ 266,066 $(603)
======= =====
Net Payable for foreign currency contracts purchased and sold $(653)
=====
</TABLE>
SUMMARY OF INVESTMENTS BY CURRENCY
<TABLE>
<CAPTION>
% OF PORTFOLIO % OF PORTFOLIO
<S> <C> <C> <C>
United States Dollars 82.4% Malaysian Ringgit 0.2%
Japanese Yen 8.1% Australian Dollars 0.2%
British Pounds 3.0% Irish Punts 0.2%
German Marks 1.1% Canadian Dollars 0.2%
Swedish Krona 1.1% Danish Krone 0.2%
Italian Lira 0.8% Finnish Marks 0.2%
French Francs 0.8% South African Rand 0.1%
Netherland Guilders 0.6% Austrian Schillings 0.1%
Swiss Francs 0.6% Norwegian Krone 0.1%
Spanish Pesetas 0.4% Belegian Francs 0.1%
Hong Kong Dollars 0.4% Mexican Pesos 0.1%
Singapore Dollars 0.4% New Zealand Dollars 0.1%
<FN>
- -------------------------
*Denotes a non-income producing security.
Securities denominated in foreign currencies are shown at their U.S. dollar cost
and value.
Cost for Federal income tax purposes: $76,515,667
The abbreviation in the above statement stands for the following:
FNMA Federal National Mortgage Association
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 9
<PAGE> 81
SMALL COMPANY FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS (100.9%)
AUTO & AUTO PARTS (3.7%)
<S> <C> <C>
47,200 Chrysler Corp. $2,926,400
43,500 Ford Motor Company 1,408,313
----------
4,334,713
----------
BANKS (1.4%)
5,000 Bank of NY Co., Inc. 256,250
28,800 Charter One Financial, Inc. 1,004,400
10,000 St. Jude Medical 335,000
----------
1,595,650
----------
BROADCASTING (.4%)
4,125 Tel Com-Lib Med Gp A 109,312
19,800 Tele-Communications Inc., Class A* 358,875
----------
468,187
----------
BUILDING (4.8%)
98,800 Masco Corp. 2,988,700
44,200 Vulcan Materials Co. 2,624,375
----------
5,613,075
----------
CHEMICALS (10.6%)
63,600 Georgia Gulf Corp. 1,860,300
59,500 IMC Global, Inc. 2,238,688
3,500 Millipore Corp 146,562
62,100 Morton International, Inc. 2,313,225
71,600 OM Group, Inc. 2,810,300
43,610 Raychem Corp. 3,134,469
----------
12,503,544
----------
COMPUTER EQUIPMENT (4.6%)
54,300 International Business Machines 5,375,700
----------
CONGLOMERATES (2.9%)
88,600 Corning Inc. 3,400,025
----------
DRUGS (16.4%)
127,200 Allergan Inc. 4,992,600
19,400 American Home Products 1,166,425
20,000 Pfizer, Inc. 1,427,500
86,200 Schering-Plough Corp. 5,409,050
113,800 Warner-Lambert Co. 6,259,000
----------
19,254,575
----------
ELECTRICAL EQUIPMENT (1.7%)
51,300 Black & Decker Corp. 1,981,463
----------
ELECTRONICS (3.0%)
87,800 AMP, Inc. 3,522,975
----------
ENTERTAINMENT (2.2%)
42,177 Disney, Walt Co. 2,651,879
----------
FINANCIAL (13.5%)
18,000 Barnett Banks, Inc. 1,098,000
49,600 Chubb Corp. 2,473,800
7,300 CoreStates Financial Corp. 281,050
173,200 Horace Mann Educators Corp. 5,499,100
55,100 Mellon Bank Corp. 3,140,700
92,834 U S Bancorp 3,353,628
----------
15,846,278
----------
FOOD & BEVERAGES (13.6%)
20,400 Anheuser-Busch Companies, Inc. 1,530,000
210,000 Morningstar Group 2,336,250
147,600 PepsiCo, Inc. 5,221,350
6,800 Philip Morris Companies, Inc. 707,200
108,333 Ralcorp Holdings Inc.* 2,234,368
60,400 Ralston-Ralston Purina Group 3,873,150
----------
15,902,318
----------
FOREST PRODUCTS (0.7%)
24,600 Bowater Inc. 925,575
----------
FURNITURE/HOME APPLIANCE (1.1%)
61,500 Singer Co. N.V. The 1,245,375
----------
HOUSEHOLD PRODUCTS (2.6%)
55,400 Avon Products, Inc. 2,499,925
8,400 Gillette Company (The) 523,950
----------
3,023,875
----------
MACHINERY (.6%)
33,800 Johnstown America Industries, Inc.* 109,850
2,800 PACCAR, Inc. 137,200
15,000 Trinity Industries, Inc. 510,000
----------
757,050
----------
OIL & GAS (6.1%)
44,400 Texaco, Inc. 3,724,050
103,100 Unocal Corp. 3,479,625
----------
7,203,675
----------
PRINTING & PUBLISHING (4.7%)
77,200 American Greetings Corp., Class A 2,113,350
4,600 Gannett Company, Inc. 325,450
27,100 Tribune Co. 1,968,137
3,400 Washington Post Co. (The), Class B 1,101,600
----------
5,508,537
----------
RETAIL (1.8%)
84,300 Wal-Mart Stores Inc. 2,139,112
----------
TELECOMMUNICATIONS (2.2%)
12,000 Airtouch Communications 339,000
87,800 MCI Communications Corp. 2,249,875
----------
2,588,875
----------
</TABLE>
10 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 82
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
Statement of Investments - June 30, 1996 (Unaudited)
- ---------------------------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.9%)
AUTO & AUTO PARTS (3.7%)
47,200 Chrysler Corp. $ 2,926,400
43,500 Ford Motor Company 1,408,313
----------
4,334,713
----------
BANKS (1.4%)
5,000 Bank of NY Co., Inc. 256,250
28,800 Charter One Financial, Inc. 1,004,400
10,000 St. Jude Medical 335,000
----------
1,595,650
----------
BROADCASTING (.4%)
4,125 Tel Com-Lib Med Gp A 109,312
19,800 Tele-Communications Inc., Class A* 358,875
----------
468,187
----------
BUILDING (4.8%)
98,800 Masco Corp. 2,988,700
44,200 Vulcan Materials Co. 2,624,375
----------
5,613,075
----------
CHEMICALS (10.6%)
63,600 Georgia Gulf Corp. 1,860,300
59,500 IMC Global, Inc. 2,238,688
3,500 Millipore Corp 146,562
62,100 Morton International, Inc. 2,313,225
71,600 OM Group, Inc. 2,810,300
43,610 Raychem Corp. 3,134,469
----------
12,503,544
----------
COMPUTER EQUIPMENT (4.6%)
54,300 International Business Machines 5,375,700
----------
CONGLOMERATES (2.9%)
88,600 Corning Inc. 3,400,025
----------
DRUGS (16.4%)
127,200 Allergan Inc. 4,992,600
19,400 American Home Products 1,166,425
20,000 Pfizer, Inc. 1,427,500
86,200 Schering-Plough Corp. 5,409,050
113,800 Warner-Lambert Co. 6,259,000
----------
19,254,575
----------
ELECTRICAL EQUIPMENT (1.7%)
51,300 Black & Decker Corp. 1,981,463
----------
ELECTRONICS (3.0%)
87,800 AMP, Inc. 3,522,975
----------
ENTERTAINMENT (2.2%)
42,177 Disney, Walt Co. 2,651,879
----------
FINANCIAL (13.5%)
18,000 Barnett Banks, Inc. $ 1,098,000
49,600 Chubb Corp. 2,473,800
7,300 CoreStates Financial Corp 281,050
173,200 Horace Mann Educators Corp. 5,499,100
55,100 Mellon Bank Corp. 3,140,700
92,834 U S Bancorp 3,353,628
----------
15,846,278
----------
FOOD & BEVERAGES (13.6%)
20,400 Anheuser-Busch Companies, Inc. 1,530,000
210,000 Morningstar Group 2,336,250
147,600 PepsiCo, Inc. 5,221,350
6,800 Philip Morris Companies, Inc. 707,200
108,333 Ralcorp Holdings Inc.* 2,234,368
60,400 Ralston-Ralston Purina Group 3,873,150
----------
15,902,318
----------
FOREST PRODUCTS (0.7%)
24,600 Bowater Inc. 925,575
---------
FURNITURE/HOME APPLIANCE (1.1%)
61,500 Singer Co. N.V. The 1,245,375
---------
HOUSEHOLD PRODUCTS (2.6%)
55,400 Avon Products, Inc. 2,499,925
8,400 Gillette Company (The) 523,950
---------
3,023,875
---------
MACHINERY (.6%)
33,800 Johnstown America Industries, Inc. 109,850
2,800 PACCAR, Inc. 137,200
15,000 Trinity Industries, Inc. 510,000
---------
757,050
---------
OIL & GAS (6.1%)
44,400 Texaco, Inc. 3,724,050
103,100 Unocal Corp. 3,479,625
---------
7,203,675
---------
PRINTING & PUBLISHING (4.7%)
77,200 American Greetings Corp., Class A 2,113,350
4,600 Gannett Company, Inc. 325,450
27,100 Tribune Co. 1,968,137
3,400 Washington Post Co. (The), Class B 1,101,600
---------
5,508,537
---------
RETAIL (1.8%)
84,300 Wal-Mart Stores Inc. 2,139,112
---------
TELECOMMUNICATIONS (2.2%)
12,000 Airtouch Communications 339,000
87,800 MCI Communications Corp. 2,249,875
---------
2,588,875
---------
</TABLE>
<PAGE> 83
CAPITAL APPRECIATION FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------
SHARES SECURITY VALUE
- -------------------------------------------------------------
<S> <C> <C>
TOYS (2.3%)
93,435 Mattel, Inc. $ 2,674,577
----------
TOTAL COMMON STOCKS 118,517,033
(cost $97,973,914) =============
<CAPTION>
- -------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- -------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (.5%)
$1,029,000 Consorcio G. Grupo Dina,
8.00%, 2004 569,809
(cost $953,931) ----------
TOTAL INVESTMENTS $119,086,842
cost $98,927,845) ============
<FN>
- -----------------------
*Denotes a non-income producing security.
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 11
<PAGE> 84
TOTAL RETURN FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS (91.5%)
AEROSPACE/DEFENSE (1.0%)
<S> <C> <C>
110,000 The Boeing Company $ 9,583,750
-----------
AUTOMOBILES (3.2%)
266,400 Magna International 12,254,400
402,800 Genuine Parts Co. 18,409,800
-----------
30,664,200
-----------
BUSINESS SERVICES (0.7%)
236,250 (The) Olsten Corp. 6,939,844
-----------
CABLE (1.0%)
500,000 Comcast Corp. Cl. A 9,250,000
-----------
CHEMICALS (5.3%)
110,000 Air Products & Chemicals 6,352,500
400,500 Crompton & Knowles 6,708,375
236,200 Dupont (E.I.) DeNemours & Co. 18,689,325
100,000 Eastman Chemical Co. 6,087,500
268,400 Lawter International, Inc. 3,355,000
296,000 Monsanto Co. 9,620,000
-----------
50,812,700
-----------
COMPUTER EQUIPMENT (3.6%)
100,000 Hewlett-Packard Co. 9,962,500
250,000 International Business Machines 24,750,000
-----------
34,712,500
-----------
CONGLOMERATE (7.4%)
200,000 EG&G, Inc. 4,275,000
311,000 Eastman Kodak Co. 24,180,250
305,300 Honeywell, Inc. 16,638,850
444,200 Philips Electronics N.V. 14,492,025
200,000 Rockwell International Corp. 11,450,000
-----------
71,036,125
-----------
CONSUMER GOODS (1.0%)
153,900 Premark International, Inc. 2,847,150
153,900 Tupperware Corp. 6,502,275
-----------
9,349,425
-----------
DRUGS (8.1%)
400,000 Allergan Inc. 15,700,000
90,000 Bristol-Meyers 8,100,000
400,000 Glaxo Wellcome Plc ADR 10,700,000
80,000 Schering-Plough Corp. 5,020,000
700,000 Warner-Lambert Co. 38,500,000
-----------
78,020,000
-----------
ELECTRONICS (3.8%)
127,300 AMP, Inc. 5,107,913
380,000 Intel Corp. 27,906,250
133,800 Richardson Electronic Ltd. 1,271,100
ELECTRONICS (CONTINUED)
177,000 Woodhead Industries, Inc. 2,079,750
-----------
36,365,013
-----------
FINANCIAL (15.3%)
600,000 Allstate Corp. 27,375,000
130,000 Bankers Trust NY 9,603,750
607,752 Bear Stearns Company, Inc. 14,358,141
325,000 Chubb Corp. 16,209,375
1,478,100 Equitable Companies 36,767,737
61,500 Mellon Bank Corp. 3,505,500
350,000 Merrill Lynch & Co., Inc. 22,793,750
140,000 Morgan J.P. & Co., Inc. 11,847,500
100,000 Morgan Stanley Group Inc. 4,912,500
-----------
147,373,253
-----------
FOOD & BEVERAGES (6.7%)
2,000,000 Grand Metropolitan Plc 13,269,400
176,700 Grand Metropolitan ADR 4,726,725
283,500 Heinz (H.J.) Co. 8,611,312
100,100 International Flavor 4,767,263
303,000 Ralston-Ralston Purina 19,429,875
335,000 Seagram Co. Ltd. 11,264,375
54,100 Universal Foods Corp. 1,994,937
-----------
64,063,887
-----------
FOOD - GRAIN & AGRICULTURE (1.7%)
849,509 Archer-Daniels Midland Co. 16,246,860
-----------
HEALTHCARE SERVICES (2.5%)
455,600 Columbia/HCA Health 24,317,650
-----------
MACHINERY & CAPITAL GOODS (1.5%)
155,000 Cooper Industries, Inc. 6,432,500
60,000 Emerson Electric Co. 5,422,500
50,000 Nordson Corporation 2,825,000
-----------
14,680,000
-----------
OIL & GAS (11.9%)
180,000 Amoco Corporation 13,027,500
130,000 Exxon Corporation 11,293,750
308,900 Mobil Corp. 34,635,412
110,000 Royal Dutch Petroleum Co. 16,912,500
225,000 Texaco, Inc. 18,871,875
400,000 The Williams Companies, Inc. 19,800,000
-----------
114,541,037
-----------
PAPER & FOREST PRODUCTS (0.1%)
62,400 Glatfelter (P.H.) Company 1,146,600
-----------
POLLUTION CONTROL (1.2%)
350,000 WMX Technologies, Inc. 11,462,500
-----------
</TABLE>
12 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 85
TOTAL RETURN FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINTING & PUBLISHING (1.9%)
<S> <C> <C>
153,200 Dun & Bradstreet Corp. $ 9,575,000
217,600 Reader's Digest Assoc., Inc., ClassB 8,568,000
------------
18,143,000
------------
RETAIL (0.5%)
149,000 Supervalu Inc. 4,693,500
------------
TELECOMMUNICATIONS (11.7%)
440,800 360 Communications Co.* 10,579,200
614,300 AT&T Co. 38,086,600
840,000 MCI Communications Corp. 21,525,000
1,004,300 Sprint Corporation 42,180,600
------------
112,371,400
------------
TRANSPORTATION (1.4%)
193,000 Union Pacific Corp. 13,485,875
------------
TOTAL COMMON STOCKS 879,259,119
(cost $668,741,918) ------------
U.S. GOVERNMENT AGENCY (7.0%)
21,680,000 Federal Home Loan Mortage Corp.,
Discount Notes, 5.31% through
5.14%, due 7/08/96 through
10/22/96 21,467,764
46,760,000 Federal National Mortgage
Association, Discount Notes,
5.23% through 4.90%,
due 7/12/96 through 11/27/96 46,106,285
------------
TOTAL U.S. GOVERNMENT AGENCY 67,574,049
(cost $67,574,049) ------------
U.S. TREASURY BILLS (1.5%)
14,675,000 5.31% through 4.85%,
due 11/14/96 through 3/06/97
(cost $14,253,850) 14,253,850
-----------
REPURCHASE AGREEMENT (0.1%)
786,315 MBS Tri Party Repo
5.23%, due 07/01/96,
Collateralized by $905,000 GNMA
M008663AR 7.0%, market value-
$805,014 786,315
(cost $786,315) -----------
Total investments $961,873,333
(cost $751,356,132) ============
<FN>
- ---------------------------------
*Denotes a non-income producing security.
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 13
<PAGE> 86
GOVERNMENT BOND FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE BACKED SECURITIES (35.7%)
FEDERAL HOME LOAN MORTGAGE CORP., REMIC,
$ 13,000,000 Series 1344-D, 6.00%, due 08/15/07 $ 11,824,657
20,000,000 Series 1415-N, 6.75%, due 11/15/07 19,338,780
9,454,271 Series 31-E, 7.55%, due 05/15/20 9,288,528
10,000,000 Series 94-E, 8.95%, due 11/15/20 10,177,590
10,000,000 Series 1102-H, 8.875%, due 06/15/21 10,594,990
19,845,318 Series 1143-Z, 7.50%, due 10/15/21 18,833,981
3,377,327 Series 190-D, 9.20%, due 10/15/21 3,519,476
FEDERAL NATIONAL MORTGAGE ASSOCIATION DEBENTURES, REMIC,
5,526,837 Series 68-E, 8.35%, due 10/25/03 5,570,714
8,815,922 Series 94-100-M, 5.50%, due 09/25/09 8,576,120
5,000,000 Series 34-E, 9.85%, due 08/25/14 5,189,245
2,240,569 Series 88-25-B, 9.25%, due 10/25/18 2,328,934
14,000,000 Series 16-D, 9.00%, due 03/25/20 14,631,106
6,873,758 Series 67-Z, 9.00%, due 06/25/20 7,200,186
4,099,975 Series 73-A, 8.00%, due 07/25/21 4,179,593
8,479,227 Series 81-Z, 8.50%, due 04/25/22 8,792,866
17,000,000 Series 203-PJ, 6.50%, due 10/25/23 16,295,843
-----------
Total mortgage backed securities 156,342,609
(cost $154,924,798) -----------
U.S. GOVERNMENT AND AGENCY LONG-TERM OBLIGATIONS (61.4%)
FEDERAL HOME LOAN BANKS BOND,
12,000,000 6.36%, due 3/21/01 11,850,744
FEDERAL HOME LOAN MORTGAGE CORPORATION,
38,000,000 6.81%, due 03/11/04 37,025,566
26,000,000 7.445%, due 04/14/04 25,964,536
10,000,000 7.54%, due 05/03/04 10,065,790
8,710,000 7.97%, due 07/07/04 8,834,797
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
22,000,000 8.25%, due 10/12/04 22,566,588
21,000,000 7.26%, due 10/05/05 20,297,949
12,310,000 7.58%, due 04/26/06 12,174,208
</TABLE>
14 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 87
GOVERNMENT BOND FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY LONG-TERM OBLIGATIONS (CONTINUED)
PRIVATE EXPORT FUNDING CORPORATION,
$ 32,000,000 6.86%, due 04/30/04 $ 31,912,736
RESOLUTION FUNDING CORPORATION, STRIPS,
54,000,000 0.00%, due 04/15/06 27,569,106
25,000,000 0.00%, due 04/15/08 11,011,975
58,000,000 0.00%, due 07/15/13 17,094,862
40,000,000 0.00%, due 07/15/20 7,065,960
U.S. TREASURY NOTE,
25,000,000 6.875%, due 08/31/99 25,359,375
-----------
TOTAL U.S. GOVERNMENT AND AGENCY
LONG-TERM OBLIGATIONS 268,794,192
(cost $269,779,582) -----------
REPURCHASE AGREEMENT (1.9%)
8,162,000 UBS Securities
5.25%, due 07/01/96, Collateralized by
$7,682,000 U.S. Treasury Note, 7.875%, due 11/15/04,
market value $8,325,368 8,162,000
(cost $8,162,000) -----------
TOTAL INVESTMENTS $433,298,801
(cost $432,866,380) ============
<FN>
- --------------------------------
Cost also represent cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 15
<PAGE> 88
<TABLE>
<CAPTION>
MONEY MARKET FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CANADIAN GOVERNMENT OBLIGATIONS (6.3%)
British Columbia, Province of
$ 2,786,000 4.90%, due 07/03/96 $ 2,785,242
4,000,000 5.05%, due 07/10/96 3,994,950
4,500,000 5.37%, due 08/08/96 4,474,492
1,000,000 5.40%, due 08/09/96 994,150
6,000,000 5.22%, due 09/30/96 5,920,830
1,495,000 5.45%, due 10/29/96 1,467,841
Canadian Wheat Board
4,418,000 4.85%, due 07/12/96 4,411,453
3,600,000 5.38%, due 07/26/96 3,586,550
8,000,000 5.33%, due 08/01/96 7,963,282
450,000 5.37%, due 08/09/96 447,382
1,000,000 5.33%, due 08/09/96 994,226
5,000,000 4.82%, due 08/12/96 4,971,883
2,300,000 4.39%, due 09/25/96 2,270,385
Export Development
8,378,000 5.50%, due 07/02/96 8,376,720
5,857,000 5.37%, due 07/22/96 5,838,653
-----------
TOTAL CANADIAN GOVERNMENT
OBLIGATIONS 58,498,039
(cost $58,498,039) -----------
COMMERCIAL PAPER (95.7%)
AGRICULTURE/FINANCE (3.0%)
Deere, (John) Capital
5,000,000 5.32%, due 07/16/96 4,988,917
7,595,000 5.27%, due 07/18/96 7,576,099
8,000,000 5.28%, due 07/26/96 7,970,667
7,608,000 5.39%, due 08/27/96 7,543,072
-----------
28,078,755
-----------
AUTO/FINANCE (3.0%)
Ford Motor Credit Co.
5,000,000 5.30%, due 07/09/96 4,994,111
1,000,000 5.37%, due 07/26/96 996,271
5,000,000 5.29%, due 07/26/96 4,981,632
2,000,000 5.36%, due 07/29/96 1,991,662
5,000,000 5.28%, due 07/29/96 4,979,467
3,000,000 5.37%, due 07/31/96 2,986,575
3,000,000 5.38%, due 08/08/96 2,982,963
4,000,000 5.42%, due 10/08/96 3,940,380
-----------
27,853,061
-----------
BANKS(6.1%)
Corestates Capital
14,746,000 5.28%, due 07/02/96 14,743,837
MORGAN (J.P.) & CO.
5,880,000 5.30%, due 09/03/96 5,824,597
National City Credit
5,000,000 5.22%, due 07/11/96 4,992,750
8,000,000 5.39%, due 08/01/96 7,962,869
15,000,000 5.38%, due 09/10/96 14,840,842
Norwest Corp.
3,000,000 5.30%, due 07/19/96 2,992,050
5,000,000 5.31%, due 07/19/96 4,986,725
-----------
56,343,670
-----------
BROKER-DEALERS (13.3%)
Bear Stearns Company
5,000,000 5.33%, due 07/19/96 4,986,675
8,000,000 5.30%, due 07/30/96 7,965,845
3,000,000 5.30%, due 09/17/96 2,965,550
4,000,000 5.41%, due 09/18/96 3,952,512
Dean Witter Discover
7,000,000 5.28%, due 07/10/96 6,990,760
5,000,000 5.37%, due 07/26/96 4,981,354
8,000,000 5.30%, due 08/06/96 7,957,600
Merrill Lynch & Co.
12,000,000 5.33%, due 07/08/96 11,987,563
3,000,000 5.38%, due 07/08/96 2,996,862
307,000 5.42%, due 07/17/96 306,260
5,000,000 5.28%, due 07/24/96 4,983,133
2,055,000 5.37%, due 08/07/96 2,043,658
5,000,000 5.33%, due 08/09/96 4,971,129
Morgan Stanley Group
8,000,000 5.30%, due 07/17/96 7,981,156
5,000,000 5.35%, due 07/24/96 4,982,910
7,000,000 5.29%, due 07/24/96 6,976,342
7,000,000 5.37%, due 07/31/96 6,968,675
1,600,000 5.48%, due 09/30/96 1,577,836
Smith Barney Inc.
5,000,000 5.37%, due 07/23/96 4,983,592
8,000,000 5.29%, due 07/25/96 7,971,787
8,000,000 5.37%, due 08/05/96 7,958,233
7,000,000 5.38%, due 08/07/96 6,961,294
-----------
123,450,726
-----------
CAPTIVE BORROW CONDUIT (1.5%)
Prudential Funding
5,492,000 5.34%, due 07/18/96 5,478,151
8,000,000 5.38%, due 07/23/96 7,973,698
-----------
13,451,849
-----------
</TABLE>
16 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 89
MONEY MARKET FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CHEMICALS (8.3%)
Great Lakes Chemical
$ 1,189,000 5.28%, due 07/01/96 $ 1,189,000
8,000,000 5.27%, due 07/03/96 7,997,658
1,579,000 5.35%, due 07/08/96 1,577,357
4,000,000 5.31%, due 07/12/96 3,993,510
5,000,000 5.35%, due 07/19/96 4,986,625
7,000,000 5.34%, due 07/25/96 6,975,080
Monsanto Co.
10,600,000 5.31%, due 07/09/96 10,587,492
8,000,000 5.275%, due 07/18/96 7,980,072
4,000,000 5.35%, due 07/23/96 3,986,922
850,000 5.27%, due 08/12/96 844,774
3,800,000 5.35%, due 08/26/96 3,768,376
PPG Industries
2,850,000 5.32%, due 07/11/96 2,845,788
1,882,000 5.30%, due 07/11/96 1,879,229
12,505,000 5.29%, due 07/15/96 12,479,274
2,500,000 5.35%, due 07/17/96 2,494,056
3,800,000 5.33%, due 07/22/96 3,788,185
-----------
77,373,398
-----------
CONSUMER PRODUCTS (.5%)
Clorox Co.
4,668,000 5.41%, due 09/25/96 4,607,671
-----------
CONSUMER SALES FINANCE (10.4%)
Amer Exp Credit Corp
4,000,000 5.29%, due 07/02/96 3,999,412
5,866,000 5.32%, due 07/17/96 5,852,130
15,262,000 5.34%, due 07/29/96 15,198,612
Assoc. Corp. of N.A.
5,553,000 5.36%, due 07/29/96 5,529,850
Avco Financial Serv.
8,000,000 5.28%, due 07/01/96 8,000,000
3,434,000 5.29%, due 07/23/96 3,422,899
3,000,000 5.36%, due 08/01/96 2,986,153
5,000,000 5.39%, due 08/07/96 4,972,301
10,000,000 5.37%, due 08/20/96 9,925,417
Beneficial Corp.
3,000,000 5.27%, due 07/08/96 2,996,926
5,000,000 5.37%, due 07/31/96 4,977,625
Commercial Credit Co.
9,380,000 5.29%, due 07/26/96 9,345,542
Norwest Financial
9,000,000 5.30%, due 07/15/96 8,981,450
5,000,000 5.32%, due 07/17/96 4,988,178
3,000,000 5.29%, due 07/17/96 2,992,947
2,000,000 5.37%, due 07/31/96 1,991,050
-----------
96,160,492
-----------
CORPORATE CREDIT UNIONS (1.7%)
U.S. Central Credit
8,000,000 5.40% due 09/16/96 7,907,600
5,000,000 5.39%, due 09/16/96 4,942,357
3,445,000 5.39%, due 09/16/96 3,405,284
-----------
16,255,241
-----------
DIVERSIFIED FINANCE (3.1%)
GE Capital Corp.
5,000,000 5.23%, due 08/22/96 4,962,228
4,000,000 5.27%, due 10/22/96 3,933,832
3,000,000 5.30%, due 10/25/96 2,948,767
Transamerica Finance
2,240,000 5.27%, due 07/09/96 2,237,377
1,000,000 5.40%, due 07/11/96 998,500
6,000,000 5.31%, due 08/21/96 5,954,865
8,000,000 5.40%, due 08/26/96 7,932,800
-----------
28,968,369
-----------
DRUGS & COSMETICS (.2%)
Abbott Laboratories
2,000,000 5.34%, due 08/12/96 1,987,540
-----------
ELECTRICAL EQUIPMENT (1.6%)
Johnson Controls Inc.
3,925,000 5.36%, due 07/12/96 3,918,572
4,273,000 5.36%, due 07/15/96 4,264,093
7,000,000 5.38%, due 07/30/96 6,969,663
-----------
15,152,328
-----------
ENTERTAINMENT (1.1%)
Walt Disney Company
10,000,000 5.30%, due 09/04/96 9,904,305
-----------
FINANCE (1.6%)
Nestle Capital Corp.
10,000,000 5.07%, due 07/12/96 9,984,508
5,000,000 5.01%, due 07/22/96 4,985,387
-----------
14,969,895
-----------
FINANCIAL SERVICES /
UTILITIES (3.0%)
Nat. Rural Utilities
5,147,000 5.28%, due 07/10/96 5,140,206
6,000,000 5.30%, due 07/16/96 5,986,750
7,530,000 5.35%, due 08/08/96 7,487,476
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 17
<PAGE> 90
MONEY MARKET FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
NAT. RURAL UTILITIES (CONTINUED)
$ 868,000 5.27%, due 08/09/96 $ 863,045
1,962,000 5.28%, due 08/09/96 1,950,777
2,130,000 5.35%, due 08/12/96 2,116,705
4,000,000 5.36%, due 08/13/96 3,974,391
-----------
27,519,350
-----------
FOOD & BEVERAGE (7.6%)
Blue Diamond Growers
1,650,000 5.35%, due 07/25/96 1,644,115
1,350,000 5.40%, due 08/06/96 1,342,710
CPC International
15,000,000 5.30%, due 07/10/96 14,980,125
12,000,000 5.30%, due 07/11/96 11,982,333
Campbell Soup Co.
8,000,000 5.00%, due 10/04/96 7,894,444
Heinz "HJ" Company
1,000,000 5.37%, due 07/30/96 995,674
7,000,000 5.40%, due 07/30/96 6,969,550
20,000,000 5.34%, due 08/02/96 19,905,067
Sysco Corp.
5,000,000 5.32%, due 07/02/96 4,999,262
-----------
70,713,280
-----------
HEAVY EQUIPMENT/FINANCE (.6%)
Caterpillar Fin. Ser
5,616,000 5.28%, due 07/16/96 5,603,645
-----------
HOSPITAL SUPPLIES (1.6%)
Becton Dickinson
10,000,000 5.36%, due 10/03/96 9,860,044
5,000,000 5.45%, due 10/03/96 4,928,847
-----------
14,788,891
-----------
INSURANCE (4.9 %)
AIG Funding, Inc.
20,000,000 5.32%, due 08/12/96 19,875,867
Marsh & McLennan Co.
5,000,000 5.32%, due 07/11/96 4,992,611
Old Republic Capital
4,000,000 5.06%, due 07/09/96 3,995,502
1,000,000 5.25%, due 07/09/96 998,833
1,500,000 5.35%, due 07/09/96 1,498,217
7,000,000 5.30%, due 08/06/96 6,962,900
1,000,000 5.30%, due 08/06/96 994,700
6,000,000 5.32%, due 09/05/96 5,941,480
-----------
45,260,110
-----------
LEASE FINANCING (4.8%)
Fleet Funding, Inc.
3,000,000 5.28%, due 07/08/96 2,996,920
5,000,000 5.28%, due 07/10/96 4,993,400
8,000,000 5.28%, due 07/12/96 7,987,093
2,000,000 5.28%, due 07/12/96 1,996,773
PHH Corp.
6,000,000 5.35%, due 07/18/96 5,984,842
7,000,000 5.34%, due 07/22/96 6,978,195
3,500,000 5.31%, due 07/23/96 3,488,643
7,913,000 5.33%, due 07/25/96 7,884,883
2,000,000 5.36%, due 07/30/96 1,991,364
-----------
44,302,113
-----------
MISC. MANUFACTURING (2.0%)
Illinois Tool Works
3,000,000 5.40%, due 09/10/96 2,968,050
3,000,000 5.42%, due 09/17/96 2,964,770
8,000,000 5.38%, due 09/17/96 7,906,747
5,000,000 5.42%, due 09/30/96 4,931,497
-----------
18,771,064
-----------
OFFICE EQUIPMENT & SUPPLIES (1.2%)
Pitney Bowes Credit
1,645,000 5.29%, due 07/12/96 1,642,341
9,850,000 5.37%, due 08/19/96 9,778,005
-----------
11,420,346
-----------
OIL & GAS (2.7%)
Koch Industries
25,000,000 5.55%, due 07/01/96 25,000,000
-----------
OIL & GAS: EQUIP. & SERVICES (2.9%)
Chevron Transport
10,000,000 5.29%, due 07/08/96 9,989,714
10,000,000 5.32%, due 07/15/96 9,979,311
4,000,000 5.36%, due 07/24/96 3,986,302
3,000,000 5.35%, due 07/30/96 2,987,071
-----------
26,942,398
-----------
PACKAGING/CONTAINERS (1.0%)
Bemis Co., Inc.
3,915,000 5.32%, due 07/03/96 3,913,843
5,270,000 5.31%, due 07/11/96 5,262,227
-----------
9,176,070
-----------
PAPER & FOREST PRODUCTS (1.5%)
Sonoco Products Co.
5,000,000 5.30%, due 07/01/96 5,000,000
9,115,000 5.29%, due 07/09/96 9,104,285
-----------
14,104,285
-----------
</TABLE>
18 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 91
MONEY MARKET FUND
STATEMENT OF INVESTMENTS -- JUNE 30, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS /
HEALTHCARE (1.7%)
Schering Corp.
<S> <C> <C>
$ 3,200,000 5.38%, due 08/27/96 $ 3,172,741
3,450,000 5.38%, due 08/28/96 3,420,096
10,000,000 5.40%, due 10/16/96 9,839,500
-----------
16,432,337
-----------
PRINTING & PUBLISHING (.9%)
McGraw-Hill Inc.
8,000,000 5.40%, due 09/26/96 7,895,600
-----------
RAILROADS (2.9%)
Norfolk & Southern
10,000,000 5.34%, due 07/08/96 9,989,617
7,500,000 5.30%, due 07/19/96 7,480,125
4,000,000 5.26%, due 08/05/96 3,979,544
5,000,000 5.37%, due 09/20/96 4,939,587
-----------
26,388,873
-----------
TELECOMMUNICATIONS (.4%)
AT&T Capital Corp.
3,645,000 5.30%, due 07/16/96 3,636,951
-----------
UTILITIES (.6%)
Florida Power Corp.
2,000,000 5.37%, due 07/17/96 1,995,227
3,283,000 5.37%, due 07/17/96 3,275,165
-----------
5,270,392
-----------
Total commercial paper 887,783,005
(cost $887,783,005) -----------
U.S. GOVERNMENT OBLIGATIONS (1.7%)
U.S. Treasury Bills
10,000,000 5.00%, due 08/22/96 9,927,778
6,000,000 5.26%, due 04/03/97 5,758,040
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS 15,685,818
(cost $15,685,818) -----------
TOTAL INVESTMENTS $961,966,862
(cost $961,966,862) ============
- -----------------------------
<FN>
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 19
<PAGE> 92
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL
SMALL COMPANY APPRECIATION TOTAL RETURN
FUND FUND FUND
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost $76,381,095, $98,927,845, and $ 83,283,995 $ 119,086,842 $ 961,873,333
$751,356,132, respectively)
Cash - - 2,436
Accrued interest and dividends receivable 166,325 197,308 1,650,818
Receivable for investment securities sold 7,777,058 3,934,418 6,241,059
Receivable for fund shares sold 2,110,701 - 587,707
Deferred organization expenses 7,929 - -
------------- ------------ -------------
Total assets 93,346,008 123,218,568 970,355,353
------------- ------------ -------------
LIABILITIES
Payable for investment securities purchased 10,659,349 484,740 8,462,347
Payable for fund shares redeemed 199,045 5,223,220 -
Net payable for foreign currency contracts purchased 653 - -
Accrued management fees 70,908 51,009 390,513
Other accrued expenses 23,014 517 34
------------- ------------ -------------
Total liabilities 10,952,969 5,759,486 8,852,894
------------- ------------ -------------
NET ASSETS $ 82,393,039 $ 117,459,082 $ 961,502,459
============= ============= =============
REPRESENTED BY:
Capital 74,283,427 94,049,723 731,931,562
Net unrealized appreciation on investments and trans-
lation of assets and liabilities in foreign currencies 6,902,247 20,158,997 210,517,201
Undistributed net realized gain from investments and
foreign currency transactions 1,120,626 3,215,405 18,551,861
Undistributed net investment income 86,739 34,957 501,835
------------- ------------- -------------
NET ASSETS $ 82,393,039 $ 117,459,082 $ 961,502,459
============= ============= =============
Shares outstanding, no par value (unlimited number of
shares authorized) 6,149,471 7,967,050 77,511,007
============= ============= =============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 13.40 $ 14.74 $ 12.40
============= ============= =============
See accompanying notes to financial statements.
</TABLE>
20 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 93
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT BOND MONEY MARKET
FUND FUND
--------------- -----------
<S> <C> <C>
ASSETS
Investments in securities, at value
(cost $432,866,380 and $961,966,862, $ 433,298,801 $ 961,966,862
respectively)
Cash 513 -
Accrued interest and dividends receivable 4,753,106 -
Receivable for investment securities sold 8,308,894 13,875,000
--------------- -----------
Total assets 446,361,314 975,841,862
--------------- -----------
LIABILITIES
Payable for investment securities purchased 8,162,000 47,800,479
Payable for fund shares redeemed 77,048 136,695
Accrued management fees 175,552 346,070
Other accrued expenses 10,685 6,143
--------------- -----------
Total liabilities 8,425,285 48,289,387
--------------- -----------
NET ASSETS $ 437,936,029 $ 927,552,475
============== ===========
REPRESENTED BY:
Capital $ 442,594,612 $ 927,561,636
Net unrealized appreciation on investments 432,421 -
Undistributed net realized loss from investments (5,131,610) (6,910)
Undistributed (distribution in excess of) net investment income 40,606 (2,251)
--------------- -----------
NET ASSETS $ 437,936,029 $ 927,552,475
=============== ===========
Shares outstanding, no par value (unlimited number of 40,454,591 927,561,522
shares authorized)
=============== ===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 10.83 $ 1.00
=============== ===========
</TABLE>
See accompanying notes to financial statements.
NATIONWIDE SEPERATE ACCOUNT TRUST SEMI-ANNUAL REPORT 21
<PAGE> 94
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
CAPITAL
SMALL COMPANY APPRECIATION TOTAL RETURN
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 236,308 $ 251,155 $ 2,713,169
Dividends 276,983 1,034,132 9,159,305
Less foreign tax withheld (17,462) -- (59,597)
--------- ----------- ------------
Total investment income 495,829 1,285,287 11,812,877
--------- ----------- ------------
EXPENSES:
Investment management fees 246,437 283,039 2,225,091
Custodian fees 34,403 7,869 11,473
Professional services 322 2,259 17,253
Other 15,387 5,484 12,537
--------- ----------- ------------
Total expenses 296,549 298,651 2,266,354
--------- ----------- ------------
NET INVESTMENT INCOME 199,280 986,636 9,546,523
--------- ----------- ------------
Net realized and unrealized gain on investments and foreign currency:
Net realized gain on investments and foreign
currency transactions 1,223,678 3,216,734 18,779,196
Net change in unrealized appreciation on investments
and translation of assets and liabilities in foreign
currencies 5,393,063 5,130,499 44,061,640
--------- --------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY 6,616,741 8,347,233 62,840,836
--------- --------- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 6,816,021 $ 9,333,869 $ 72,387,359
========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
22 NATIONWIDE SEPERATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 95
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
- -----------------------------------------------------------------------------------------
GOVERNMENT BOND MONEY
FUND MARKET FUND
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 14,843,271 $ 21,764,058
----------- ----------
EXPENSES:
Investment management fees 1,098,311 1,978,067
Custodian fees 8,205 20,090
Professional services 10,692 21,484
Other 5,653 11,093
----------- ----------
Total expenses 1,122,861 2,030,734
----------- ----------
NET INVESTMENT INCOME 13,720,410 19,733,324
----------- ----------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investments 3,641,302 (1,046)
Net change in unrealized appreciation (depreciation)
on investments (24,949,399) --
----------- ----------
NET REALIZED AND UNREALIZED
(LOSS) ON INVESTMENTS: (21,308,097) (1,046)
----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ (7,587,687) $ 19,732,278
=========== ==========
</TABLE>
See accompanying notes to financial statements.
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 23
<PAGE> 96
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
SMALL COMPANY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD FROM OCTOBER 23, 1995
JUNE 30, 1996 (COMMENCEMENT OF OPERATIONS)
UNAUDITED THROUGH DECEMBER 31, 1995
--------- -------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 199,280 $ 28,283
Net realized gain (loss) on investments and foreign currency transactions 1,223,678 (103,052)
Net change in unrealized appreciation on investments
and translation of assets and liabilities in foreign currencies 5,393,063 1,509,184
Net increase in net assets resulting ----------- -----------
from operations 6,816,021 1,434,415
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME (114,964) (25,860)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 87,219,419 18,935,596
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 114,964 25,860
Cost of shares redeemed (28,797,873) (3,214,539)
----------- -----------
Net increase in net assets derived
from capital share transactions 58,536,510 15,746,917
----------- -----------
NET INCREASE IN NET ASSETS 65,237,567 17,155,472
NET ASSETS-- BEGINNING OF PERIOD 17,155,472 --
----------- -----------
NET ASSETS-- END OF PERIOD $ 82,393,039 $ 17,155,472
=========== ===========
Undistributed net realized gain (loss) on investments and foreign
currency transactions included in net assets at end of period $ 1,120,626 $ (103,052)
=========== ===========
Undistributed net investment income included
in net assets at end of period $ 86,739 $ 2,423
=========== ===========
Shares sold 6,891,347 1,796,171
Shares issued to shareholders from reinvestment of
dividends and distributions 8,731 2,265
Shares redeemed (2,252,685) (296,358)
----------- -----------
Net increase in number of shares 4,647,393 1,502,078
=========== ===========
See accompanying notes to financial statements.
</TABLE>
24 NATIONWIDE SEPERATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 97
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
CAPITAL APPRECIATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
----------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 986,636 $ 1,232,936
Net realized gain on investments 3,216,734 2,523,674
Net change in unrealized appreciation or
depreciation on investments 5,130,499 13,171,765
Net increase in net assets ----------- ----------
resulting from operations 9,333,869 16,928,375
----------- ----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (972,787) (1,213,046)
Net realized gain on investments -- (2,302,021)
In excess of net realized gains on investments -- (1,329)
Net decrease in net assets from distributions ----------- ----------
to shareholders (972,787) (3,516,396)
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 81,797,747 26,980,755
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 972,787 3,863,870
Cost of shares redeemed (54,909,545) (23,461,693)
Net increase in net assets derived ----------- ----------
from capital share transactions 27,860,989 7,382,932
----------- ----------
NET INCREASE IN NET ASSETS 36,222,071 20,794,911
NET ASSETS-- BEGINNING OF PERIOD 81,237,011 60,442,100
----------- ----------
NET ASSETS-- END OF PERIOD $ 117,459,082 $ 81,237,011
=========== ==========
Undistributed net realized gain on investments
included in net assets at end of period $ 3,215,405 $ --
=========== ==========
Distributions in excess of net realized gains on investments
included in net assets at end of period $ -- $ (1,329)
=========== ==========
Undistributed net investment income included
in net assets at end of period $ 34,957 $ 21,108
=========== ==========
Shares sold 5,667,602 2,172,400
Shares issued to shareholders from reinvestment of
dividends and distributions 66,466 299,746
Shares redeemed (3,795,112) (1,977,044)
----------- ----------
Net increase in number of shares 1,938,956 495,102
=========== ==========
</TABLE>
See accompanying notes to financial statements.
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 25
<PAGE> 98
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
TOTAL RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
----------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 9,546,523 $ 19,348,385
Net realized gain on investments 18,779,196 42,991,075
Net change in unrealized appreciation or depreciation
on investments 44,061,640 108,350,477
---------------- -------------------
Net increase in net assets resulting
from operations 72,387,359 170,689,937
---------------- -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (9,406,441) (19,011,213)
Net realized gain on investments - (42,991,075)
In excess of net realized gain on investments - (227,335)
---------------- -------------------
Net decrease in net assets from
distributions to shareholders (9,406,441) (62,229,623)
--------------- ------------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 100,138,302 145,723,309
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 9,406,441 79,264,509
Cost of shares redeemed (25,987,674) (53,304,608)
--------------- ----------------
Net increase in net assets derived
from capital share transactions 83,557,069 171,683,210
---------------- ----------------
NET INCREASE IN NET ASSETS 146,537,987 280,143,524
NET ASSETS-- BEGINNING OF PERIOD 814,964,472 534,820,948
--------------- ----------------
NET ASSETS-- END OF PERIOD $ 961,502,459 $ 814,964,472
================ ==================
Undistributed (distribution in excess of) net realized
gain on investments included in net assets at end of period $ 18,551,861 $ (227,335)
================ ==================
Undistributed net investment income included
in net assets at end of period $ 501,835 $ 361,753
================ ==================
Shares sold 8,254,563 13,111,420
Shares issued to shareholders from reinvestment of
dividends and distributions 766,513 7,198,362
Shares redeemed (2,148,346) (4,821,628)
---------------- ------------------
Net increase in number of shares 6,872,730 15,488,154
================ ==================
<FN>
See accompanying notes to financial statements.
</TABLE>
26 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 99
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
INCREASE (DECREASE) IN NET ASSETS: ----------------- -----------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 13,720,410 $ 26,950,345
Net realized gain on investments 3,641,302 813,537
Net change in unrealized appreciation or depreciation
on investments (24,949,399) 43,487,386
-------------- ----------------
Net increase (decrease) in net assets
resulting from operations (7,587,687) 71,251,268
--------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (13,724,462) (26,924,228)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 29,160,361 90,606,931
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 13,724,462 33,834,038
Cost of shares redeemed (37,652,702) (106,004,873)
-------------- -------------
Net increase (decrease) in net assets derived
from capital share transactions 5,232,121 18,436,096
--------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (16,080,028) 62,763,136
NET ASSETS-BEGINNING OF PERIOD 454,016,057 391,252,921
--------------- ---------------
NET ASSETS-END OF PERIOD $ 437,936,029 $ 454,016,057
=============== ===============
Undistributed net realized loss on investments
included in net assets at end of period $ (5,131,610) $ (8,772,912)
=============== ===============
Undistributed net investment income included
in net assets at end of period $ 40,606 $ 44,658
=============== ===============
Shares sold 2,635,729 8,275,783
Shares issued to shareholders from reinvestment of
dividends and distributions 1,260,990 3,126,554
Shares redeemed (3,410,487) (9,801,205)
--------------- ----------------
Net increase in number of shares 486,232 1,601,132
=============== ===============
See accompanying notes to financial statements.
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 27
<PAGE> 100
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 19,733,324 $ 39,361,888
Net realized (loss) on investments (1,046) (5,864)
----------------- --------------------
Net increase in net assets resulting
from operations 19,732,278 39,356,024
----------------- --------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (19,735,738) (39,360,095)
In excess of net investment income (2,251) -
----------------- --------------------
Net decrease in net assets from
distribution to shareholders
(19,737,989) (39,360,095)
----------------- --------------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 854,493,616 971,797,511
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 19,767,416 43,287,489
Cost of shares redeemed (684,110,652) (1,105,699,769)
----------------- --------------------
Net increase (decrease) in net assets
derived from capital share transactions 190,150,380 (90,614,769)
----------------- --------------------
NET INCREASE (DECREASE) IN NET ASSETS 190,144,669 (90,618,840)
NET ASSETS-- BEGINNING OF PERIOD 737,407,806 828,026,646
----------------- --------------------
NET ASSETS-- END OF PERIOD $ 927,552,475 $ 737,407,806
================= ====================
Undistributed net realized loss on investments
included in net assets at end of period $ (6,910) $ (5,864)
================= ====================
Distributions in excess of net investment income included
in net assets at end of period $ (2,251) $ 2,414
================= ====================
Shares sold 854,493,616 971,797,397
Shares issued to shareholders from reinvestment of
dividends and distributions 19,767,416 43,287,489
Shares redeemed (684,110,652) (1,105,699,769)
----------------- --------------------
Net increase (decrease) in number of shares 190,150,380 (90,614,883)
================= ====================
See accompanying notes to financial statements.
</TABLE>
28 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 101
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- ---------------------------------------------------------------------------------------------------------------------------
Small Company Fund
---------------------------------------------------------
Six Months Period from October 23, 1995
Ended (commencement of operations)
June 30, 1996 through December 31, 1995
------------- -------------------------
(Unaudited)
<S> <C> <C>
NET ASSET VALUE-
BEGINNING OF PERIOD $ 11.42 $ 10.00
Net investment income 0.04 0.02
Net realized gain and unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies 1.96 1.42
----- -----
Total from investment operations 2.00 1.44
----- -----
Dividends from net investment income (0.02) (0.02)
----- -----
Net increase in net asset value 1.98 1.42
----- -----
NET ASSET VALUE -
END OF PERIOD $ 13.40 $ 11.42
===== =====
Total return* 17.54% 14.38%
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $ 82,393 $ 17,155
Ratio of expenses to average net assets* 1.20% 1.25%
Ratio of expenses to average net assets** 1.20% 1.74%
Ratio of net investment income to average net assets* .81% 1.32%
Ratio of net investment income to average net assets** .81% .83%
Portfolio turnover 71.43% 9.03%
Average commission rate paid 3.1708(cent) --
<FN>
*Ratios for partial years are annualized. Total return is not annualized.
**Ratios calculated as if no fees were waived or expenses reimbursed.
</TABLE>
See accompanying notes to financial statements.
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 29
<PAGE> 102
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund
---------------------------------------------------------------------------------
Six Months Period from
Ended April 15, 1992
June 30, Years Ended December 31 Commencement
1996 1995 1994 1993 (oper.) through
Unaudited December 31, 1992
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-- $ 13.48 $ 10.92 $ 11.20 $ 10.46 $ 10.00
BEGINNING OF PERIOD
Net investment income 0.19 0.23 0.18 0.26 0.10
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments 1.14 2.96 (0.28) 0.74 0.48
----- ----- ----- ----- ----
Total from investment operations 1.33 3.19 (0.10) 1.00 0.58
----- ----- ----- ----- ----
Dividends from net investment income (0.07) (0.23) (0.18) (0.26) (0.10)
Distributions from net realized gain
from investment transactions - (0.40) - - (0.02)
----- ----- ----- ----- ----
Total distributions (0.07) (0.63) (0.18) (0.26) (0.12)
Net increase (decrease) in net asset value 1.26 2.56 (0.28) 0.74 0.46
----- ----- ----- ----- ----
NET ASSET VALUE --
END OF PERIOD $ 14.74 $ 13.48 $ 10.92 $ 11.20 $ 10.46
===== ===== ===== ===== ====
Total return* 10.25% 29.35% (0.90)% 9.61% 10.92%
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $ 117,459 $ 81,237 $ 60,442 $ 38,926 $ 18,800
Ratio of expenses to average net assets* .54% .54% .56% .59% .69%
Ratio of net investment income to
average net assets* 1.77% 1.89% 1.76% 2.82% 1.95%
Portfolio turnover 16.18% 20.28% 11.21% 16.87% 5.01%
Average commission rate paid 5.8656(cent) -- -- -- --
- --------------------------
<FN>
*Ratios for partial years are annualized. Total return is not annualized.
</TABLE>
See accompanying notes to financial statements.
30 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 103
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return Fund
---------------------------------------------------------------------------------
Six Months
Ended
June 30, Years Ended December 31,
1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE-
BEGINNING OF PERIOD $ 11.54 $ 9.70 $ 10.10 $ 9.46 $ 9.07 $ 6.74
Net investment income 0.15 0.31 0.21 0.23 0.25 0.22
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments 0.86 2.49 (0.10) 0.79 0.48 2.34
-------- -------- ------- -------- -------- --------
Total from investment operations 1.01 2.80 0.11 1.02 0.73 2.56
-------- -------- ------- -------- -------- --------
Dividends from net investment income (0.15) (0.31) (0.28) (0.24) (0.25) (0.23)
Distributions from net realized gain
from investment transactions - (0.65) (0.23) (0.14) (0.09) -
-------- -------- ------- -------- -------- --------
Total distributions (0.15) (0.96) (0.51) (0.38) (0.34) (0.23)
-------- -------- ------- -------- -------- --------
Net increase (decrease) in net asset value 0.86 1.84 (0.40) 0.64 0.39 2.33
-------- -------- ------- -------- -------- --------
NET ASSET VALUE-
END OF PERIOD $ 12.40 $ 11.54 $ 9.70 $ 10.10 $ 9.46 $ 9.07
======== ======== ======== ======== ======== ========
Total return* 8.55% 29.09% 1.07% 10.92% 8.18% 38.49%
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $961,502 $814,964 $534,821 $456,243 $334,917 $250,701
Ratio of expenses to average net assets* .51% .51% .52% .53% .53% 53%
Ratio of net investment income to
average net assets* 2.15% 2.84% 2.76% 2.51% 2.69% 2.74%
Portfolio turnover 9.61% 16.12% 12.06% 9.79% 12.48% 14.50%
Average commission rate paid 4.8863(cent) - - - - -
<FN>
- -------------------
* Ratios for partial years are annualized. Total return is not annualized.
</TABLE>
See accompanying notes to financial statements.
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 31
<PAGE> 104
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
Government Bond Fund
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $ 11.36 $ 10.20 $ 11.26 $ 10.92 $ 11.24 $ 10.40
Net investment income 0.34 0.71 0.69 0.71 0.98 0.86
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments (0.53) 1.16 (1.06) 0.32 (0.14) 0.82
----- ----- ----- ----- ----- -----
Total from investment operations (0.19) 1.87 (0.37) 1.03 0.84 1.68
----- ----- ----- ----- ----- -----
Dividends from net investment income (0.34) (0.71) (0.69) (0.66) (0.93) (0.84)
Distributions from net realized gain
from investment transactions - - - (0.03) (0.23) -
----- ----- ----- ----- ----- -----
Total distributions (0.34) (0.71) (0.69) (0.69) (1.16) (0.84)
----- ----- ----- ----- ----- -----
Net increase (decrease) in net asset value (0.53) 1.16 (1.06) 0.34 (0.32) 0.84
----- ----- ----- ----- ----- -----
NET ASSET VALUE --
END OF PERIOD $ 10.83 $ 11.36 $ 10.20 $ 11.26 $ 10.92 $ 11.24
===== ===== ===== ===== ===== =====
Total return* (1.62)% 18.74% (3.23)% 9.52% 7.87% 16.70%
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $ 437,936 $ 454,016 $ 391,253 $ 433,584 $ 301,841 $ 198,769
Ratio of expenses to average net assets* .51% .51% .51% .53% .53% .55%
Ratio of net investment income to
average net assets* 6.25% 6.45% 6.46% 5.91% 8.75% 8.07%
Portfolio turnover 21.90% 97.05% 111.40% 175.37% 73.75% 77.70%
- ----------------------------
<FN>
* Ratios for partial years are annualized. Total return is not annualized.
</TABLE>
See accompanying notes to financial statements.
32 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 105
<TABLE>
<CAPTION>
NATIONWIDE SEPARATE ACCOUNT TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND
---------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.02 0.06 0.04 0.03 0.03 0.06
Dividends from net investment income (0.02) (0.06) (0.04) (0.03) (0.03) (0.06)
----- ----- ----- ----- ----- -----
Net increase (decrease) in net asset value - - - - - -
----- ----- ----- ----- ----- -----
NET ASSET VALUE --
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ===== ===== ===== ===== =====
Total return* 2.51% 5.66% 3.88% 2.76% 3.40% 5.84%
RATIOS AND SUPPLEMENTAL DATA:
Net assets end of period (000) $ 927,552 $ 737,408 $ 828,027 $ 351,798 $ 330,011 $ 363,502
Ratio of expenses to average net assets* .51% .52% .54% .53% .53% .54%
Ratio of net investment income to
average net assets* 4.97% 5.51% 4.00% 2.72% 3.36% 5.65%
<FN>
- ----------------------------
* Ratios for partial years are annualized. Total return is not annualized.
</TABLE>
See accompaning notes to financial statements.
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 33
<PAGE> 106
NATIONWIDE SEPARATE ACCOUNT TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nationwide Separate Account Trust (Trust) is a diversified, open-end
investment company registered under the Investment Company Act of 1940,
as amended. The Trust offers shares only to life insurance company
separate accounts to fund the benefits under variable insurance or
annuity policies issued by life insurance companies. The Trust was
organized as a Massachusetts Trust effective June 30, 1981. To date,
only separate accounts of Nationwide Life Insurance Company and
Nationwide Life and Annuity Insurance Company (formerly Financial
Horizons Life Insurance Company), which are affiliated companies, have
purchased shares.
The Trust offers shares in five series: Small Company Fund, Capital
Appreciation Fund, Total Return Fund, Government Bond Fund and Money
Market Fund. The Trust was amended in 1995 to create the Small Company
Fund. On October 23, 1995, the Small Company Fund was capitalized
through the sale of capital stock to Nationwide Life Insurance Company
in the amount of $5,000,000, the Fund became effective and sales of
shares commenced.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
SECURITY VALUATION
SMALL COMPANY, CAPITAL APPRECIATION, TOTAL RETURN AND GOVERNMENT BOND
Securities are valued at the last sale price of the securities exchange
on which such securities are primarily traded. Listed securities for
which no sale was reported on the valuation date are valued at quoted
bid prices. Securities not listed on an exchange or for which there
were no transactions are valued at their most recent bid price, or
where no prices are available, at fair market value determined by the
Board of Trustees. Short-term notes and bank certificates of deposit
are valued at amortized cost, which approximates market. Investments
denominated in foreign currencies are translated to U.S. dollars at
prevailing exchange rates. Forward currency exchange contracts are also
valued at the prevailing exchange rates.
The value of a repurchase agreement generally equals the purchase price
paid by the Fund (cost) plus the interest accrued to date. The seller,
under the repurchase agreement, is required to maintain the market
value of the underlying collateral at not less than the value of the
repurchase agreement. Securities subject to repurchase agreements are
held by the Federal Reserve/Treasury book-entry system or by the Fund's
custodian or an approved sub-custodian.
MONEY MARKET
Securities are valued at amortized cost, which approximates market
value, in accordance with Rule 2a-7 of the Investment Company Act of
1940.
FOREIGN CURRENCY TRANSACTIONS (SMALL COMPANY FUND)
Fluctuation in the value of investments resulting from changes in
foreign exchange rates are included with net realized and unrealized
gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized on security
transactions and the difference between the amounts of dividends,
interest and foreign withholding taxes recorded on the Fund's books,
and the U.S. dollar equivalent of amounts actually received or paid.
Net unrealized foreign exchange gains or losses arise from changes in
the value of assets and liabilities resulting from changes in exchange
rates.
The Fund enters into forward currency exchange contracts which are
obligations to purchase or sell a foreign currency at a specified rate
on a certain date in the future. A net realized gain or loss would be
incurred if the value of the contract increases or
34 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 107
NATIONWIDE SEPARATE ACCOUNT TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSACTIONS (SMALL COMPANY FUND) CONTINUED
decreases between the date the contract is opened and the date it is
closed. Forward currency contracts are marked to market daily and this
change in value is reflected in the Statement of Assets and Liabilities
as a net receivable for foreign currency contracts purchased.
At or before the closing of a forward contract, the Small Company 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
the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or 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, the
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 difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.
FEDERAL INCOME TAXES
The Trust's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income to its shareholders. Therefore, no
federal income tax provision is required. To the extent net realized
gains are offset through the application of a capital loss carryover,
they will not be distributed to shareholders but will be retained by
the Trust. Each Fund is treated as a separate taxable entity.
As of December 31, 1995, the Government Bond and Money Market Funds had
net capital loss carryforwards in the amounts of $8,772,912 and $5,864,
respectively, The Government Bond Fund carryforward will expire within
7 years and the Money Market Fund carryforward will expire within 8
years.
The Small Company Fund intends to elect for Federal income tax purposes
to treat approximately $101,807 of net capital losses that arose during
the period ended December 31, 1995 as if such losses arose on January
1, 1996. As of December 31, 1995, the Fund had a net capital loss
carryforward in the amount of $1,245 which will expire within 8 years.
ORGANIZATION EXPENSES
Initial organization expenses of the Small Company Fund were paid by
the advisor and will be reimbursed by the Fund. Such organization costs
have been deferred and will be amortized ratably over a period of sixty
months from the commencement of operations. If any of the initial
shares are redeemed before the end of the amortization period, the
proceeds of the redemption will be reduced by the pro rata share of the
unamortized organization costs.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Dividend income
is recorded on the ex-dividend date; interest income is recorded on an
accrual basis and includes, where applicable, the pro rata amortization
of premium or discount.
EXPENSES
Expenses directly attributed to each Fund are charged to that Fund.
Expenses applicable to all funds in the Trust are allocated based on
average net assets.
DIVIDENDS TO SHAREHOLDERS
SMALL COMPANY, CAPITAL APPRECIATION, TOTAL RETURN AND GOVERNMENT BOND
Dividend income is recorded on the ex-dividend date. Dividends from net
investment income are paid quarterly.
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 35
<PAGE> 108
NATIONWIDE SEPARATE ACCOUNT TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
MONEY MARKET
Dividends from net investment income are declared daily and paid
monthly.
ALL FUNDS
Net realized gains, if any, are declared and distributed at least
annually.
Dividends and distributions to shareholders are determined in
accordance with Federal income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences
are considered either permanent or temporary in nature. In accordance
with AICPA Statement of Position 93-2, permanent differences are
reclassified within the capital accounts based on their nature for
Federal income tax purposes; temporary differences do not require
reclassification. Dividends and distributions that exceed net invested
income and net realized gains for financial reporting purposes, but not
for tax purposes, are reported as dividends in excess of net investment
income and net realized gains. To the extent distributions exceed
current and accumulated earnings and profits for Federal income tax
purposes, they are reported as distributions of paid-in capital.
2. TRANSACTIONS WITH AFFILIATES
As investment manager for the Trust, Nationwide Financial Services,
Inc. (NFS), an affiliated company, earns an annual management fee of
.5% based on the average daily net assets of the Capital Appreciation
Fund, Total Return Fund, Government Bond Fund and Money Market Fund;
this fee would not be payable in full if the effect of such payment
would increase total expense (excluding taxes other than payroll taxes
and brokerage commissions on portfolio transactions) to an amount
exceeding 1% of average daily net assets for any fiscal year. Such
limitations on total expenses did not effect management fees during the
periods covered by the financial statements.
As investment manager for the Small Company Fund, NFS earns an annual
management fee of 1.00% of average daily net assets. From such fees,
pursuant to sub-investment advisory agreements, NFS pays subadvisory
fees to The Dreyfus Corporation, Neuberger and Berman, L.P., Pictet
International Management Limited, Strong Capital Management, Inc., Van
Eck Associates Corporation and Warburg, Pincus Consellors, Inc. based
on average daily net assets of the portion of the Small Company Fund
under their management. For the six months ended June 30, 1996, NFS
collected $246,437 in fees from the Small Company Fund, and paid
$142,081 in fees to the sub-investment advisors.
A subsidiary of NFS (Nationwide Investors Services, Inc.) acts as
Transfer and Dividend Disbursing Agent for the Trust.
3. BANK LOANS
The Trust has an unsecured bank line of credit of $25,000,000.
Borrowing under this arrangement bears interest at the Federal Funds
rate plus .50%. No compensating balances are required. There were no
outstanding balances at June 30, 1996.
36 NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT
<PAGE> 109
NATIONWIDE SEPARATE ACCOUNT TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities and
forward currency exchange contracts) and U.S. government obligations
for the six months ended June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
LONG-TERM SECURITIES U.S. GOVERNMENT OBLIGATIONS
PURCHASES SALES PURCHASES SALES
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Small Company Fund $ 83,358,223 $ 29,945,458 $ 14,150,977 $ 13,583,737
Cap. Apprec. Fund 53,078,620 16,825,992 - -
Total Return Fund 184,014,633 77,512,139 146,540,688 81,211,337
Govt. Bond Fund 12,024,399 4,650,280 134,663,481 85,891,312
Money Market Fund - - 26,803,774 -
</TABLE>
Realized gains and losses have been computed on the first-in, first-out
basis. Included in net unrealized appreciation at June 30, 1996, based
on cost for Federal income tax purposes, excluding forward currency
contracts for the Small Company Fund, are the following components:
<TABLE>
<CAPTION>
NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION (DEPRECIATION) APPRECIATION
------------ -------------- ------------
<S> <C> <C> <C>
Small Company Fund $ 8,830,060 $ (2,062,384) $ 6,767,676
Capital Appreciation Fund 22,367,144 (2,208,147) 20,158,997
Total Return Fund 214,414,681 (3,897,480) 210,517,201
Government Bond Fund 7,892,481 (7,460,060) 432,421
</TABLE>
NATIONWIDE SEPARATE ACCOUNT TRUST SEMI-ANNUAL REPORT 37
<PAGE> 110
[LOGO] KPMG Peat Marwick LLP
Two Nationwide Plaza Telephone 614 249 2300 Telefax 614 249 2348
Columbus, OH 43215
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees of
Nationwide Separate Account Trust:
We have audited the accompanying statements of assets and liabilities,
including the statements of investments, of Nationwide Separate Account Trust
(comprised of the Small Company Fund, Capital Appreciation Fund, Total Return
Fund, Government Bond Fund, and Money Market Fund), as of December 31, 1995,
and the related statements of operations, statements of changes in net assets
and the financial highlights for each of the periods indicated herein. These
financial statements and the financial highlights are the responsibility of
Nationwide Separate Account Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification of securities
owned as of December 31, 1995 by confirmation with the custodian and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the aforementioned funds comprising Nationwide Separate Account Trust
as of December 31, 1995, the results of their operations, the changes in their
net assets and the financial highlights for each of the periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 23, 1996
[LOGO]
Member Firm of
Klynweld Peat Marwick Goerder
<PAGE> 111
SMALL COMPANY FUND
Statement of Investments - December 31, 1995
<TABLE>
<CAPTION>
----------------------------------------------------------- --------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
----------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK (83.3%) 4,000 Corestaff Inc.* $146,000
AGRICULTURAL PRODUCTS (0.3%) 3,000 Danka Business Systems 111,000
1,333 Delta & Pine Ld Co. $49,000 1,500 Data Broadcasting 18,563
------- 1,000 Fritz Companies Inc.* 41,500
1,000 Fujitsu Business
AIRLINE (0.2%) Systems (Japanese Yen) 26,369
1,200 Midwest Express Holding 33,300 1,800 On Assignment Inc. * 58,950
-------- 1,500 QuickResponse
Services Inc.* 27,563
AUTO & AUTO PARTS (1.0%) 21,740 Shanks & McEwan Grp 29,707
1,200 Donaldson Inc. 30,150 (British Pounds)
1,000 Exide Corp. 45,875 1,150 Solectron Corp.* 50,744
5,000 Meiwa Industry Co. (Japanese Yen) 26,417 1,950 Viking Office Prods Inc. 90,675
1,500 Motorcar Parts & Accessories* 19,688 ---------
1,500 Reynolds & Reynolds Co., Class A 58,313 710,346
-------- ---------
180,443 COMMUNICATIONS & MEDIA (4.4%)
------- 2,100 Allen Group Inc. 46,988
BANK/SAVINGS & LOAN (1.7%) 1,500 Aspect Telecomm 50,250
1,200 Banco Latino Amer. 420 Bantex (Danish Krone)* 30,315
Exportaciones SA CLE 55,800 2,000 Central European Media
1,700 Charter One Financial Inc. 52,063 Enterprises LTD* 41,000
1,100 Cullen Frost Bankers Inc. 55,000 2,250 Harte-Hanks 44,438
500 Fifth Third Bancorp. 36,625 4,200 K-III Communications Inc.* 50,925
700 First Commerce Corp 22,400 7,000 Metromedia
1,000 TCF Financial Corp. 33,125 International Group* 98,000
1,400 Webster Financial Corp. 41,300 2,000 Nitto Electric Works 28,696
-------- (Japanese Yen)
296,313 2,200 Paging Network Inc.* 53,625
------- 1,500 Picturetel Corporation* 64,688
BROKERS-DEALERS (0.3%) 5,000 Spelling Entertainment 62,500
1,800 Donaldson Lufkin & Jenrette* 56,250 3,000 Tonichi Cable Ltd 26,379
-------- (Japanese Yen)
6,000 Westell Technologies* 150,750
BUILDING MATERIALS (0.6%) -------
7,780 Bellway Plc ORD (British Pounds) 31,652 748,554
14,170 Keller Group ORD (British Pounds) 31,684 -------
COMPUTER EQUIPMENT (5.2%)
2,000 Komatsu Wall Industry Co. 42,656 2,000 Arbor Software Corp.* 94,500
(Japanese Yen) -------- 3,000 Casino Data System* 75,000
105,992 2,600 Cognex Corp.* 90,350
------- 1,500 Continuum Inc.* 59,250
1,500 D H Technology Inc.* 36,750
CHEMICALS & FERTILIZER (1.4%) 3,400 Davidson & Associates Inc.* 74,800
27,170 Amberley Group (British Pounds) 28,267 1,100 FileNet Corp.* 51,700
3,000 Kaigen (Japanese Yen) 28,444 2,500 Manugistics Group Inc.* 36,875
3,000 Lawter Intl Inc. 34,875 5,000 Network Appliance Inc.* 200,625
2,500 Lilly Industries Inc 31,875 3,000 Platinum Technology* 55,125
4,300 McWhorter Technologies Inc.* 63,425
3,000 Osaka Organic Chemical 34,900
(Japanese Yen)
2,000 Teikoku Hormone (Japanese Yen) 29,083
--------
250,869
-------
COMMERCIAL SERVICES (4.1%)
1,200 Accustaff Inc.* 52,800
900 Catalina Marketing Corp.* 56,475
</TABLE>
(Continued)
<PAGE> 112
SMALL COMPANY FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
----------------------------------------------------------- --------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
----------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPUTER EQUIPMENT (CONTINUED) 5,150 Chemring Grp Plc ORD $ 30,628
1,000 Shared Medical Systems Corp. $ 54,375 (British Pounds)
1,500 Synopsys Inc.* 57,000 4,000 Dallas Semiconductor Corp. 83,000
-------- 400 Eriks Holdings 31,193
886,350 (Netherlands Guilders)
------- 900 Glenayre Technologies Inc.* 56,025
COMPUTER SERVICE (0.7%) 2,000 Jastec (Japanese Yen) 30,053
3,400 DST Systems Inc.* 96,900 7,000 Lernout & Hauspie
500 Uunet Technologies* 31,500 Speech Products* 196,000
-------- 7,890 MMT Comptng PLC
128,400 ORD (British Pounds) 29,771
------- 1,400 Maxim Integrated
COMPUTER SOFTWARE (4.0%) Products Inc.* 53,900
1,200 Ascend Commun. Inc.* 97,350 45,520 Neotronics Technology
1,200 CBT Group PLC ADR* 63,600 ORD (British Pounds) 33,928
2,000 Clarify Inc.* 60,000 3,600 Oak Industries Inc.* 67,500
1,500 HNC Software Inc.* 71,625 5,200 Pioneer Standard
1,500 Hyperion Software Corp.* 31,875 Electronics Inc. 68,900
3,600 Madge Networks N V* 161,100 2,000 Ross Technology* 19,500
200 Mcafee Associates* 8,775 1,000 Ryoyo Electric 22,879
2,250 System Software Associates Inc. 48,938 (Japanese Yen)
2,200 Transaction System Architects 'A'* 74,250 14,600 Sanderson Electronic
2,500 Visio Corp.* 70,625 PLC (British Pounds) 31,739
-------- 2,000 Seiwa Electric Manufacturing
688,138 Co. (Japanese Yen) 25,400
-------- 910 Twentsche Kabel Holdings 31,338
CONGLOMERATES (0.4%) (Netherlands Guilders)
350 Crown Van Gelder 1,200 Uniphase Corporation* 42,900
(Netherlands Guilders) 28,059 1,100 Watkins Johnson Co. 48,125
1,000 Fujix Ltd (Japanese Yen) 9,355 --------
3,000 Morito Co. (Japanese Yen) 31,701 983,233
-------- --------
69,115
-------- ENGINEERING & CONSTRUCTION (0.3%)
CONSUMER GOODS & SERVICES (2.3%) 2,000 Jacobs Engineering
5,500 Cairn Energy USA Inc.* 77,000 Group Inc.* 50,000
1,000 Chofu Seisakusho (Japanese Yen) 26,854 --------
1,900 Devry Inc.* 51,300
7,000 Mentor Corp. 161,000 ENVIRONMENTAL SERVICES (0.3%)
1,000 Sangetsu Co. (Japanese Yen) 25,206 1,500 Sanifill Inc.* 50,063
1,500 Stewart Enterprises Inc., Class A 55,500 --------
--------
396,860 FINANCIAL SERVICES (3.1%)
-------- 5,000 Duff & Phelps Credit 71,875
CONTAINERS (0.5%) 3,500 Enhance Financial
2,000 Alltrista Corp.* 36,000 Services Group 93,188
1,800 Libbey Inc. 40,500 1,000 Gartner Group Inc.* 47,875
-------- 3,500 Investors Financial Services 72,625
76,500 15,000 Reliance Group
-------- Holdings Inc. 129,375
ELECTRICAL EQUIPMENT (0.8%)
4,600 Continental Circuits Corp.* 74,750
2,550 Holophane Corp.* 55,463
--------
130,213
-------
ELECTRONICS (5.7%)
270 Batenburg Beheer (Netherlands 32,004
(Netherlands Guilders)
1,900 Burr-Brown Corp.* 48,450
</TABLE>
(Continued)
<PAGE> 113
SMALL COMPANY FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
----------------------------------------------------------- --------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
----------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES (CONTINUED) 3,000 Nissei Industries $31,992
900 T. Rowe Price Associates Inc. $44,325 (Japanese Yen)
1,300 United Companies Financial Corp. 34,288 1,400 Oakwood Homes Corp. 53,725
800 Vesta Insurance Group Inc. 43,600 3,000 Tanabe Industries 29,374
-------- (Japanese Yen)
537,151 1,600 Texas Industries Inc. 84,800
-------- -----------
FOOD & BEVERAGE (1.3%) 255,835
3,000 B-R 31 Ice Cream (Japanese Yen) 31,410 -----------
1,000 Bush Boake Allen Inc.* 27,375 INDUSTRIAL MISC. (2.7%)
3,500 Canandaigua Wine Inc.* 114,188 2,600 Adac Labs 31,525
2,000 Hokkaido Coca-Cola Bottling 24,236 4,400 BMC Industries Inc. 102,300
(Japanese Yen) 2,400 Brady WH Co. 64,800
6,000 Soken Co. Ltd (Japanese Yen) 30,189 1,300 Harmon Industries Inc. 20,475
-------- 3,000 Material Sciences* 44,625
227,398 1,000 Pentair Inc. 49,750
------- 1,900 SCI Systems Inc.* 58,900
HEALTHCARE (7.4%) 3,900 Varlen Corp. 83,850
2,200 Alpharma Inc. Class A 57,475 -----------
1,000 American Oncology 456,225
Resources Inc.* 48,625 -----------
5,000 Ballard Medical Products 89,375 LEISURE SERVICE (1.6%)
500 Biochem Pharama Inc.* 20,063 6,000 Bally Entertainment Corp.* 84,000
3,000 Biofermin Pharmaceuticals 500 HFS Inc.* 40,875
(Japanese Yen) 33,737 80,650 Kunick (British Pounds) 29,743
1,200 Biovail Corp. International* 92,700 3,000 Regal Cinemas Inc.* 89,250
2,000 Corvita Corporation* 20,750 3,000 Shingakukai Co. Ltd 25,826
510 Ecco Travail Temporaire (Japanese Yen) ----------
(French Francs) 29,670 269,694
2,000 EmCare Holdings* 48,000 ----------
800 Genzyme Corp.* 49,900 LODGING (1.7%)
3,000 Gilead Sciences Inc.* 96,000 2,400 Doubletree Corp.* 63,000
1,200 Healthsouth Corp.* 34,950 2,000 Marcus Corp. 54,750
2,000 INCYTE Pharmaceuticals Inc.* 50,000 6,200 Prime Hospitality Corp.* 62,000
3,200 Kinetic Concepts Inc. 38,400 2,400 Renaissance Hotel Group * 61,200
6,100 Molecular Devices Corporation* 64,050 2,000 Studio Plus Hotels * 51,500
5,300 Neuromedical Systems* 106,475 ----------
3,000 Norland Medical Systems Inc.* 69,750 292,450
1,500 Ostex International Inc.* 28,875 ----------
2,500 Parexel International Corp.* 83,125
500 Phycor Inc.* 25,281 MACHINERY & CAPITAL GOODS (4.8%)
1,000 Physician Sales & Service Inc.* 28,500 3,000 Alamo Group Inc. 54,000
1,000 Physio Control Holding Corp.* 17,875 11,510 Ashtead Group ORD 30,384
4,000 Quest Medical Inc.* 41,500 (British Pounds)
3,000 Total Renal Care* 88,500 6,090 Carclo Engineering Group
----------- ORD (British Pounds) 29,504
1,263,576 3,000 Danto Corp. (Japanese Yen) 37,227
---------- 3,000 Denkyosha Co. 27,484
HOUSING (1.5%) (Japanese Yen)
2,000 Alinco (Japanese Yen) 22,685 400 Dionex Corp.* 22,700
200 Dyckerhoff & Widmann (German 410 Fives-Lille (Compagnie DE) 30,853
(German Marks) 33,259 (French Francs)
</TABLE>
(Continued)
<PAGE> 114
SMALL COMPANY FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
----------------------------------------------------------- --------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
----------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
MACHINERY & CAPITAL GOODS (CONTINUED) 6,600 Smith International $155,100
2,500 Graco Inc. $76,250 3,300 Tejas Power Corp.* 30,113
1,000 IDEX Corp. 40,750 3,700 Texas Meridian Resources 50,413
1,400 Kaydon Corp. 42,525 ----------
3,000 Koito Industries (Japanese Yen) 36,063 674,376
2,500 Lincoln Electric Co., Class A 60,000 ---------
2,000 Nihon Decoluxe (Japanese Yen) 28,696 PRODUCER DURABLES (1.2%)
3,000 Nikko Co. (Japanese Yen) 28,938 5,000 Huntco Inc. 76,875
400 Reesink (Netherlands Guilders) 30,944 5,000 Rohr Inc.* 71,875
1,000 Ricoh Elemex (Japanese Yen) 14,445 5,000 Vista 2000 Inc.* 49,375
4,000 Uehara Sei Shoji (Japanese Yen) 31,837 ----------
800 Watts Industries Inc. 18,600 198,125
4,700 Wolverine Tube Co.* 176,250 ---------
---------
817,450 PUBLISHING (1.7%)
--------- 700 Central Newspapers Inc. 21,963
1,000 Houghton Mifflin Co. 43,000
MANUFACTURING-SHOES & APPAREL (1.3%) 1,500 McClatchy Newspaper,
5,200 Donnkenny Inc.* 94,250 Class A 34,313
2,400 Gucci Group* 93,300 1,900 Pulitzer Publishg Co. 90,725
800 Nautica Enterprises* 35,000 800 Scholastic Corp.* 62,200
---------- 1,000 Waverly Inc. 45,750
222,550 ----------
--------- 297,951
MATERIALS & PROCESSING (1.9%) ---------
2,000 Cambrex Corp. 82,750 REAL ESTATE (0.4%)
7,000 International Specialty Products* 76,125 3,400 NHP Inc.* 62,900
2,500 Mineral Technologies Inc. 91,250 ----------
7,800 Stratosphere* 77,025
---------- RESTAURANTS (1.1%)
327,150 2,800 Boston Chicken Inc.* 89,950
--------- 1,000 Outback Steakhouse Inc.* 35,875
METAL PRODUCT & FABRICATION (0.3%) 6,100 Schlotzsky's Inc.* 62,525
1,500 NN Ball & Roller Inc. 26,250 ----------
2,000 Osaka Steel (Japanese Yen) 30,635 188,350
---------- ---------
56,885
---------- RETAILING & DISTRIBUTORS (0.6%)
MISCELLANEOUS (0.5%) 3,000 Monro Muffler Brake Inc.* 41,625
7,000 Willis Corroon Group 81,375 2,600 Richfood Holdngs Inc. 69,550
---------- ----------
NONFERROUS METALS (0.7%) 111,175
2,000 Allied Products Corp. 48,000 ---------
1,400 Alumax, Inc.* 42,875 RETAIL STORES (3.6%)
2,000 Commonwealth Alum Corp. 31,000 2,600 Borders Group Inc.* 48,100
---------- 3,000 Circle K Corporation* 76,125
121,875 2,000 Corporate Express* 60,250
--------- 700 Fastenal Company 29,575
OIL & GAS/ENERGY (3.9%) 260 Guilbert SA (French Francs) 30,571
3,600 Barrett Resources Corp.* 105,750 2,000 Henry Schein Inc.* 59,000
2,000 Brown (Tom) Inc.* 29,250 1,500 Just For Feet Inc.* 53,625
1,000 Camco International Inc. 28,000 750 Men's Warehouse Inc.* 19,313
1,100 Input/Output Inc.* 63,525 1,000 Micro Warehouse Inc.* 43,250
6,200 Nabors Industries Inc.* 68,975 4,300 Neostar Retail Group Inc.* 31,713
6,000 Offshore Logistics Inc.* 75,750 1,200 Petsmart Inc.* 37,200
2,700 Petroleum Geo Services ADR* 67,500 2,500 Talbots Inc. 71,875
1,100 Tiffany & Co. 55,413
------------
616,010
-----------
</TABLE>
(Continued)
<PAGE> 115
SMALL COMPANY FUND
Statement of Investments - December 31, 1995
<TABLE>
<CAPTION>
----------------------------------------------------------- -------------------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) PRINCIPAL SECURITY (NOTE 1)
----------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TECHNOLOGY (4.9%) $487,000 State Street Bank
8,300 Auspex Systems Inc.* $151,475 5.40%, 01/02/96, collateralized
2,500 Cheyenne Software Inc.* 65,313 by $487,000 U.S. Treasury Note
5,000 P-COM Inc.* 100,000 6.00%, due 8/31/97, market
1,700 Pixar* 49,088 value - $500,428 $ 487,000
1,500 Safeguard Scientifics Inc.* 74,250 ------------
3,000 Sierra On-Line Inc.* 86,250 Total repurchase
2,000 Sync Research Inc.* 90,500 agreements 2,858,000
2,500 Thiokol Corp. 84,688 (cost $2,858,000) ------------
3,000 Visioneer* 66,750
5,000 Wyman Gordon Co.* 68,750 SHORT-TERM DEBT (3.2%)
-------------
837,064 552,000 Florida Power Corp. 551,911
------------- 5.80%, due 01/02/96 -----------
TELEPHONE (0.4%) (cost $551,911)
2,000 Cinncinnati Bell Inc. 69,500 U.S. GOVERNMENT
------------- OBLIGATIONS (3.3%)
568,000 U.S. Treasury Bills 564,217
TEXTILE/APPAREL (1.6%) 5.33% through 4.84%, -------------
420 Bazar DE LHotel DE Ville 31,974 due 1/11/96 through
(French Francs) 3/7/96 (cost $564,217)
2,000 Charle Co. (Japanese Yen) 29,277
390 Devanlay SA (French Francs) 32,123 Total investments $18,259,754
6,320 Hicking Pentecost PLC ORD 30,913 (cost $16,750,963) =============
(British Pounds)
4,000 Isamu Paint Co. Ltd 28,075
(Japanese Yen)
3,000 Sotoh (Japanese Yen) 29,665
1,600 St John Knits Inc. 85,000
-------------
267,027
------------
TOBACCO & GROCERY (0.3%)
1,000 First Brands Corp. 47,625
-------------
TRANSPORTATION (0.6%)
2,000 Finnlines (Finnish Marks) 32,704
5,000 Isewan Terminal Services 31,507
(Japanese Yen)
4,000 Tokyo Kisen (Japanese Yen) 31,759
-------------
95,970
-------------
Total common stock 14,285,626
(cost $12,776,835) -------------
PRINCIPAL
- ---------
REPURCHASE AGREEMENTS (16.7%)
$2,371,000 Fifth Third Bank
5.35%, 01/02/96, collaterallized by
$2,387,000 FNARM Pool #3300040 and
#3300046, 6.397%, due 11/01/25, and
6.844%, due 11/01/25
market value - $2,419,098 $2,371,000
</TABLE>
(Continued)
<PAGE> 116
SMALL COMPANY FUND
Statement of Investments - December 31, 1995, Continued
FORWARD CURRENCY PURCHASE CONTRACTS
<TABLE>
<CAPTION>
Net
U.S. Dollar Unrealized
Cost Value Appreciation
---- ----- ------------
<S> <C> <C> <C>
Netherlands Guilders, delivery
date 1/2/96 $153,870 $154,263 $393
</TABLE>
* Denotes a non-income producing security.
Securities denominated in foreign currencies are shown at their U.S.
dollar cost and value. Cost for Federal income tax purposes:
$16,763,912 Portfolio holding percentages represent market value as a
percentage of net assets. See accompanying notes to financial
statements.
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENTS BY CURRENCY % OF PORTFOLIO
<S> <C>
United States Dollars 90.3%
Japanese Yen 5.6%
British Pounds 2.0%
French Francs 0.8%
Netherlands Guilders 0.7%
German Marks 0.2%
Finnish Marks 0.2%
Danish Krone 0.2%
</TABLE>
<PAGE> 117
CAPITAL APPRECIATION FUND
Statement of Investments - December 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ------------------------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------- ------------------------------------------------------------------
COMMON STOCKS (91.0%)
AUTO & AUTO PARTS (4.4%) FOOD & BEVERAGES (11.6%)
<S> <C> <C> <C> <C> <C>
36,100 Chrysler Corp. $1,999,037 14,500 Anheuser-Busch Companies, Inc. $969,688
55,400 Ford Motor Company 1,606,600 75,000 Morningstar Group Inc. 600,000
----------- 51,500 PepsiCo, Inc. 2,877,562
3,605,637 4,800 Philip Morris Companies, Inc. 434,400
----------- 28,300 Quaker Oats Company 976,350
BROADCASTING (1.1%) 75,333 Ralcorp Holdings Inc.* 1,826,825
3,600 Capital Cities/ABC, Inc. 444,150 27,500 Ralston-Ralston Purina Group 1,715,313
4,125 Tel Com-Liberty Media, Group A 110,859 ----------
16,500 Tele-Communications Inc., 9,400,138
Group A* 327,938 ----------
--------
882,947 FOREST PRODUCTS (0.7%)
-------- 11,000 Bowater Inc. 390,500
3,100 Champion International Corp. 130,200
BUILDING (4.4%) 1,100 Georgia-Pacific Corp. 75,488
57,700 Masco Corp. 1,810,337 ------------
14,600 USG Corp.* 438,000 596,188
22,800 Vulcan Materials Co. 1,313,850 -----------
----------- HOTELS - MOTELS (0.4%)
3,562,187
----------- 21,700 Host Marriott Corp. 317,905
CHEMICALS (12.5%) ----------
28,900 Georgia Gulf Corp. 888,675 HOUSEHOLD PRODUCTS (4.9%)
52,500 IMC Global, Inc. 2,145,938 19,300 Avon Products, Inc. 1,454,738
51,800 Morton International Inc. 1,858,325 42,100 Dial Corp. (The) 1,247,212
59,700 OM Group, Inc. 1,977,562 7,000 Gillette Company (The) 364,875
58,310 Raychem Corp. 3,316,381 29,500 Helene Curtis Industries, Inc. 932,937
----------- -----------
10,186,881 3,999,762
----------- ----------
COMPUTER EQUIPMENT (3.0%) LEISURE PRODUCTS (3.2%)
107,200 Brunswick Corp. 2,572,800
26,200 International Business ----------
Machines Corp. 2,403,850 MACHINERY (1.6%)
----------- 33,800 Johnstown America Industries, Inc.* 169,000
DRUGS (11.5%) 12,200 PACCAR, Inc. 513,925
53,700 Allergan Inc. 1,745,250 20,200 Trinity Industries, Inc. 636,300
6,400 American Home Products Corp. 620,800 -----------
59,900 Schering-Plough Corp. 3,279,525 1,319,225
38,400 Warner-Lambert Co. 3,729,600 ----------
----------- NONFERROUS METALS (0.7%)
9,375,175
----------- 18,850 Alumax Inc.* 577,281
ELECTRONICS (0.6%) -----------
13,200 AMP, Inc. 506,550
--------
OIL & GAS (5.6%)
31,200 Texaco Inc. 2,449,200
ENTERTAINMENT (2.3%) 71,800 Unocal Corp. 2,091,175
32,000 Disney, (Walt) Co. 1,888,000 ----------
----------- 4,540,375
----------
PRINTING & PUBLISHING (5.8%)
FINANCIAL (10.9%) 51,200 American Greetings Corp.,
15,000 Barnett Banks, Inc. 885,000 Class A 1,414,400
24,000 Charter One Financial Inc. 735,000 22,800 Dun & Bradstreet Corp. 1,476,300
13,000 Chubb Corp. 1,257,750 3,800 Gannett Company, Inc. 233,225
6,100 CoreStates Financial Corp. 231,038 30,500 Gibson Greetings, Inc.* 488,000
5,835 Fund American Enterprises* 434,707 4,900 Tribune Co. 299,513
88,900 Horace Mann Educators Corp. 2,778,125 2,800 Washington Post Company
31,300 Mellon Bank Corp. 1,682,375 (The), Class B 789,600
24,334 U S Bancorp 818,231 -----------
-------- 4,701,038
8,822,226 ----------
-----------
</TABLE>
(Continued)
<PAGE> 118
CAPITAL APPRECIATION FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ------------------------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS (2.7%) REPURCHASE AGREEMENT (0.5%)
10,000 Airtouch Communications Inc. $282,500 $403,000 Merrill Lynch & Co., Inc.,
73,200 MCI Communications Corp. 1,912,350 5.35%, due 01/02/96, Collateralized
----------- by $528,558 FNMA Pool #221091, 7.00%,
2,194,850 due 07/01/08, market value - $411,181
----------- (cost $403,000) $ 403,000
TOYS (3.1%) -----------
81,388 Mattel, Inc. 2,502,681 Total investments $82,349,782
----------- (cost $67,321,284) ===========
Total common stocks 73,955,696
(cost $58,073,043) ----------
PRINCIPAL
---------
CONVERTIBLE BONDS (0.6%)
$1,494,000 Consorcio G. Grupo Dina, 8.00%, 526,635
2004 --------
(cost $1,380,790)
COMMERCIAL PAPER (9.2%)
514,000 Heinz (H.J.) Company
5.75%, due 01/26/96 511,948
1,967,000 Koch Industries, Inc.
5.62%, due 01/19/96 1,961,473
320,000 Monsanto Co.
5.72%, due 01/16/96 319,237
997,000 PHH Corp.
5.76%, due 01/09/96 995,724
2,705,000 Pitney Bowes Credit Corp.
5.57%, due 01/25/96 2,694,955
352,000 Sysco Corp.
5.55%, due 02/01/96 350,318
631,000 Transamercia Finance Group Inc.
5.81%, due 01/03/96 630,796
-----------
Total commercial paper 7,464,451
(cost $7,464,451) -----------
</TABLE>
* Denotes a non-income producing security.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
<PAGE> 119
TOTAL RETURN FUND
Statement of Investments - December 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------- --------------------------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
- -------------------------------------------------------------- --------------------------------------------------------------------
COMMON STOCKS (87.1%)
AEROSPACE/DEFENSE (1.3%) DRUGS (3.3%)
<S> <C> <C> <C> <C> <C>
140,000 The Boeing Company $10,972,500 90,000 Bristol-Meyers Squibb Co. $7,728,750
----------- 80,000 Schering-Plough Corp. 4,380,000
150,000 Warner-Lambert Co. 14,568,750
AUTOMOBILES (4.7%) ----------
26,677,500
230,000 General Motors Corp. 12,161,250 ----------
266,400 Magna International Inc. 11,521,800 ELECTRONICS (3.7%)
350,800 Genuine Parts Co. 14,382,800 127,300 AMP, Inc. 4,885,138
---------- 380,000 Intel Corp. 21,565,000
38,065,850 139,800 Richardson Electronic Ltd. 1,502,850
---------- 177,000 Woodhead Industries, Inc. 2,522,250
BUSINESS SERVICES (0.8%) ----------
157,500 (The) Olsten Corp. 6,221,250 30,475,238
---------- ----------
FINANCIAL (12.1%)
500,000 Allstate Corp. 20,562,500
CHEMICALS (4.3%) 130,000 Bankers Trust NY Corp. 8,645,000
110,000 Air Products & Chemicals Inc. 5,802,500 578,812 Bear Stearns Companies, Inc. 11,503,889
400,500 Crompton & Knowles Corp. 5,306,625 700,000 Equitable Companies, Inc. 16,800,000
150,000 Dupont (E.I.) DeNemours & Co. 10,481,250 200,000 First Chicago NBD 7,900,000
100,000 Eastman Chemical Co. 6,262,500 350,000 Merrill Lynch & Co., Inc. 17,850,000
268,400 Lawter International, Inc. 3,120,150 140,000 Morgan J.P. & Co., Inc. 11,235,000
150,000 Lubrizol Corp. 4,181,250 50,000 Morgan Stanley Group Inc. 4,031,250
--------- ----------
35,154,275 98,527,639
---------- ----------
COMPUTER EQUIPMENT (3.8%) FOOD & BEVERAGES (4.4%)
100,000 Hewlett-Packard Co. 8,375,000 2,000,000 Grand Metropolitan Plc 14,408,000
250,000 International Business Machines 22,937,500 176,700 Grand Metropolitan ADR 5,080,125
---------- 283,500 Heinz (H.J.) Co. 9,390,938
31,312,500 100,100 International Flavor
---------- & Fragrance Inc. 4,804,800
COMPUTER SOFTWARE & SERVICES (0.9%) 54,100 Universal Foods Corp. 2,170,763
93,500 Automatic Data Processing, Inc 6,942,375 ----------
43,100 SCS/COMPUTE Inc.* 288,231 35,854,626
---------- ----------
7,230,606 FOOD - GRAIN & AGRICULTURE (1.9%)
---------- 849,509 Archer-Daniels Midland Co. 15,291,162
CONGLOMERATE (9.2%) ----------
200,000 EG&G, Inc. 4,850,000
311,000 Eastman Kodak Co. 20,837,000 HEALTHCARE SERVICES (2.7%)
1,500,000 Hanson Plc 22,875,000 434,000 Columbia/HCA Healthcare Corp. 22,025,500
305,300 Honeywell Inc. 14,845,213 ----------
200,000 Rockwell International Corp. 10,575,000
45,000 U.S. Industries Inc. 826,875
---------- MACHINERY & CAPITAL GOODS (2.0%)
74,809,088
---------- 155,000 Cooper Industries, Inc. 5,696,250
CONSUMER GOODS (0.9%) 56,000 Duriron Inc. 1,302,000
153,900 Premark International Inc. 7,791,188
----------
</TABLE>
(Continued)
<PAGE> 120
TOTAL RETURN FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------- --------------------------------------------------------------------
VALUE VALUE
SHARES SECURITY (NOTE 1) SHARES SECURITY (NOTE 1)
- -------------------------------------------------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MACHINERY & CAPITAL GOODS (CONTINUED) 901,800 Sprint Corporation $35,959,272
-----------
60,000 Emerson Electric Co. $4,905,000 80,335,197
40,000 Ingersoll-Rand Company 1,405,000 -----------
50,000 Nordson Corporation 2,812,500 TRANSPORTATION (1.5%)
----------- 193,000 Union Pacific Corp. 12,738,000
16,120,750 -----------
----------- Total common stocks 709,914,557
OIL & GAS (13.7%) (cost $543,458,996) -----------
PRINCIPAL
180,000 Amoco Corporation 12,937,500 ---------
130,000 Exxon Corporation 10,416,250 REPURCHASE AGREEMENT (0.3%)
308,900 Mobil Corp. 34,596,800 $ 2,490,000 Merrill Lynch & Co., Inc.,
110,000 Royal Dutch Petroleum Co. 15,523,750 5.35%, due 01/02/96, Collateralized by
81,300 Sonat, Inc. 2,896,313 $809,090 FNRM CL207W RT92-207,
225,000 Texaco, Inc. 17,662,500 8.00%, due 11/25/22 and $25,591,569
400,000 The Williams Companies, Inc. 17,550,000 FNMA Series 132 Stripped, 9.00%, due
----------- 4/25/22 - market value -
111,583,113 $2,540,547 (cost $2,490,000) 2,490,000
----------- -----------
PAPER & FOREST PRODUCTS (0.5%)
40,000 Georgia-Pacific Corp. 2,745,000 U.S. GOVERNMENT AGENCY
62,400 Glatfelter (P.H.) Company 1,068,600 SHORT-TERM OBLIGATIONS (9.9%)
-----------
3,813,600 24,610,000 Federal Home Loan Mortage Corp.
----------- Discount Notes, 5.56% through 5.35%,
POLLUTION CONTROL (1.3%) due 1/29/96 through 5/10/96 24,507,947
350,000 WMX Technologies, Inc. 10,456,250
----------- 57,220,000 Federal National Mortgage Association
Discount Notes, 5.55% through 5.14%,
PRINTING & PUBLISHING (3.4%) due 1/24/96 through 6/20/96 56,489,896
275,000 Dun & Bradstreet Corp. 17,806,250
217,600 Reader's Digest Assoc.,Inc., Total U.S. government agency short-term
Class B 10,281,600 obligations (cost $80,997,843) 80,997,843
----------- -----------
28,087,850
----------- U.S. TREASURY BILLS (2.1%)
REAL ESTATE (0.1%)
58,000 Sec Cap Pac Trust 1,145,500 17,035,000 5.63% through 5.20%,
----------- due 2/8/96 through 5/16/96
(cost $16,760,799) 16,760,799
RESTAURANTS (0.1%) ----------
185,000 Pancho's Mexican Buffet, Inc. 531,875 Total investments $810,163,199
----------- (cost $643,707,638) ============
RETAIL (0.6%)
149,000 Supervalu Inc. 4,693,500
----------- * Denotes a non-income producing security.
TELECOMMUNICATIONS (9.9%) Cost also represents cost for federal income tax purposes.
564,300 AT&T Corp. 36,538,425 Portfolio holding percentages represents market value as a
300,000 MCI Communications Corp. 7,837,500 percentage of net assets.
See accompanying notes to financial statements.
</TABLE>
<PAGE> 121
GOVERNMENT BOND FUND
Statement of Investments - December 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES (34.1%)
Federal Home Loan Mortgage Corp., REMIC
<S> <C> <C>
$13,000,000 Series 1344-D, 6.00%, due 8/15/07 $12,521,197
20,000,000 Series 1415-N, 6.75%, due 11/15/07 20,282,380
9,454,271 Series 31-E, 7.55%, due 5/15/20 9,775,612
10,000,000 Series 94-E, 8.95%, due 11/15/20 10,223,690
19,117,132 Series 1143-Z, 7.50%, due 10/15/21 19,527,749
3,861,576 Series 190-D, 9.20%, due 10/15/21 4,044,380
Federal National Mortgage Association Debentures, REMIC
6,500,000 Series 68-E, 8.35%, due 10/25/03 6,614,849
9,761,911 Series 94-100-M, 5.50%, due 09/25/09 9,671,213
5,000,000 Series 34-E, 9.85%, due 08/25/14 5,239,745
2,619,508 Series 88-25-B, 9.25%, due 10/25/18 2,766,407
14,000,000 Series 16-D, 9.00%, due 03/25/20 14,853,146
8,000,253 Series 67-Z, 9.00%, due 06/25/20 8,434,499
4,851,469 Series 73-A, 8.00%, due 07/25/21 5,013,212
8,127,628 Series 81-Z, 8.50%, due 04/25/22 8,861,545
17,000,000 Series 203-PJ, 6.50%, due10/25/23 17,180,183
-------------
Total mortgage backed securities 155,009,807
(cost $147,587,504) -------------
U.S. GOVERNMENT AGENCY LONG-TERM OBLIGATIONS (51.5%)
Federal Home Loan Banks
10,000,000 7.75%, due 4/25/96 10,072,210
20,435,000 5.78%, due 2/16/01 20,577,248
12,000,000 6.36%, due 3/21/01 12,390,132
15,800,000 7.44%, due 8/10/01 17,141,404
Federal Home Loan Mortgage Corporation
20,000,000 6.31%, due 2/23/04 19,860,120
8,710,000 7.97%, due 7/07/04 8,957,207
Federal National Mortgage Association
16,000,000 7.05%, due 9/05/00 16,155,824
22,000,000 8.25%, due 10/12/04 23,725,636
Private Export Funding Corporation
34,000,000 6.86%, due 4/30/04 35,203,430
</TABLE>
(Continued)
<PAGE> 122
GOVERNMENT BOND FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY LONG-TERM OBLIGATIONS (CONTINUED)
<S> <C> <C>
Resolution Funding Corporation, STRIPS
$54,000,000 0.00%, due 4/15/06 $29,685,905
25,000,000 0.00%, due 4/15/08 12,055,725
58,000,000 0.00%, due 7/15/13 19,523,902
40,000,000 0.00%, due 7/15/20 8,425,960
---------------
Total U.S. government agency long-term obligations 233,774,703
(cost $215,815,186) --------------
REPURCHASE AGREEMENTS (13.1%)
59,674,000 Merrill Lynch & Co., Inc.
5.50%, due 01/02/96, Collateralized by
$59,895,000 U.S. Treasury Note, 5.625%, due 10/31/97 -
market value $60,905,728 59,674,000
(cost $59,674,000) -------------
Total investments (cost $423,076,690) $448,458,510
============
</TABLE>
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
<PAGE> 123
MONEY MARKET FUND
Statement of Investments - December 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------- ------------------------------------------------------------
VALUE VALUE
PRINCIPAL SECURITY (NOTE 1) PRINCIPAL SECURITY (NOTE 1)
- --------------------------------------------------- ------------------------------------------------------------
CANADIAN GOVERNMENT OBLIGATIONS (8.7%)
British Columbia, Province of National City Credit Corp.
<S> <C> <C> <C> <C> <C>
$5,000,000 5.69%, due 01/04/96 $4,997,629 $8,210,000 5.55%, due 02/14/96 $8,154,309
2,000,000 5.60%, due 02/05/96 1,989,111 6,160,000 5.68%, due 02/21/96 6,110,433
5,000,000 5.62%, due 02/12/96 4,967,217 9,590,000 5.50%, due 02/22/96 9,513,813
5,000,000 5.56%, due 02/12/96 4,967,566 ------------
5,000,000 5.60%, due 02/26/96 4,956,445 58,104,893
Canadian Wheat Board -----------
BROKER-DEALERS (10.0%)
3,000,000 5.60%, due 02/07/96 2,982,734 Bear Stearns Companies, Inc.
4,000,000 5.64%, due 02/13/96 3,973,054
6,000,000 5.62%, due 02/13/96 5,959,723 6,000,000 5.74%, due 01/31/96 5,971,300
5,000,000 5.63%, due 02/15/96 4,964,812 6,000,000 5.72%, due 02/02/96 5,969,493
5,000,000 5.63%, due 02/21/96 4,960,121 4,000,000 5.70%, due 02/09/96 3,975,300
Export Development 2,000,000 5.64%, due 02/29/96 1,981,513
9,850,000 5.74%, due 01/03/96 9,846,859 3,000,000 5.65%, due 03/01/96 2,971,750
9,815,000 5.72%, due 01/05/96 9,808,762 Dean Witter Discover & Co.
---------- 7,000,000 5.68%, due 01/18/96 6,981,224
Total Canadian 5,000,000 5.72%, due 01/24/96 4,981,728
obligations (cost $64,374,033) 64,374,033 4,000,000 5.72%, due 01/26/96 3,984,111
----------- 1,820,000 5.70%, due 01/26/96 1,812,796
1,000,000 5.68%, due 01/26/96 996,056
COMMERCIAL PAPER (90.0%) 4,000,000 5.68%, due 01/31/96 3,981,067
AGRICULTURE/FINANCE (2.7%) 3,000,000 5.70%, due 02/01/96 2,985,275
Deere, (John) Capital Merrill Lynch & Co., Inc.
1,000,000 5.65%, due 02/05/96 994,507 10,000,000 5.62%, due 02/23/96 9,917,261
10,000,000 5.62%, due 03/08/96 9,895,406 Smith Barney, Inc.
5,000,000 5.53%, due 04/10/96 4,923,195 5,000,000 5.75%, due 01/10/96 4,992,812
4,000,000 5.54%, due 04/19/96 3,932,905 7,000,000 5.73%, due 01/12/96 6,987,744
---------- 5,000,000 5.70%, due 01/24/96 4,981,792
19,746,013 ------------
----------- 73,471,222
AUTO/FINANCE (2.0%) -----------
CHEMICALS (4.2%)
Ford Motor Credit Co. Great Lakes Chemical Corp.
966,000 5.70%, due 01/04/96 965,541 4,000,000 5.75%, due 01/30/96 3,981,472
2,000,000 5.70%, due 01/19/96 1,994,300 9,000,000 5.50%, due 02/16/96 8,936,750
12,000,000 5.64%, due 02/23/96 11,900,360
----------- Monsanto Co.
14,860,201
----------- 9,000,000 5.75%, due 01/22/96 8,969,813
BANKS (7.9%) 9,000,000 5.72%, due 01/23/96 8,968,540
Banc One Corp. ------------
30,856,575
7,000,000 5.65%, due 02/07/96 6,959,351 -----------
CoreStates Capital Corp. CONSUMER PRODUCTS (3.5%)
4,005,000 5.67%, due 01/17/96 3,994,907 Gillette Co.
First Union Corp. 4,387,000 5.80%, due 01/05/96 4,384,173
10,000,000 5.71%, due 01/29/96 9,955,589 9,500,000 5.70%, due 01/05/96 9,493,983
13,500,000 5.71%, due 02/09/96 13,416,491 3,000,000 5.68%, due 02/02/96 2,984,853
</TABLE>
(Continued)
<PAGE> 124
MONEY MARKET FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
- --------------------------------------------------- ------------------------------------------------------------
VALUE VALUE
PRINCIPAL SECURITY (NOTE 1) PRINCIPAL SECURITY (NOTE 1)
- --------------------------------------------------- ------------------------------------------------------------
Gillette Co. (continued) DRUGS & COSMETICS (3.0%)
<S> <C> <C> <C> <C> <C>
$9,000,000 5.60%, due 02/16/96 $8,935,600 Abbott Laboratories
----------
25,798,609 $6,000,000 5.70%, due 01/04/96 $5,997,150
---------- 7,000,000 5.63%, due 01/08/96 6,992,337
CONSUMER SALES FINANCE (7.7%) 9,000,000 5.63%, due 01/22/96 8,970,443
American Express Credit Corp. -----------
21,959,930
8,000,000 5.63%, due 02/12/96 7,947,453 FINANCE (0.8%) -----------
Associates Corp. of North America Nestle Capital Corp.
6,000,000 5.62%, due 02/07/96 5,965,344 6,000,000 5.70%, due 01/11/96 5,990,500
Avco Financial Services, Inc. -----------
3,770,000 5.75%, due 01/17/96 3,760,366 FINANCIAL SERVICES/UTILITIES (3.5%)
7,000,000 5.73%, due 01/25/96 6,973,260 National Rural Utilities Cooperative
6,360,000 5.77%, due 01/31/96 6,329,419 10,000,000 5.60%, due 02/06/96 9,944,000
5,000,000 5.66%, due 02/12/96 4,966,983 5,000,000 5.65%, due 02/13/96 4,966,257
Commercial Credit Co. 2,990,000 5.62%, due 02/20/96 2,966,661
9,000,000 5.79%, due 01/23/96 8,968,155 8,000,000 5.65%, due 02/26/96 7,929,689
Norwest Financial, Inc. -----------
25,806,607
9,000,000 5.79%, due 01/18/96 8,975,393 -----------
FOOD & BEVERAGES (8.5%)
3,000,000 5.69%, due 02/28/96 2,972,498
---------- CPC International Inc.
56,858,871
---------- 2,500,000 5.70%, due 01/24/96 2,490,896
CORPORATE CREDIT UNIONS (3.2%) 7,200,000 5.60%, due 03/11/96 7,121,600
U.S. Central Credit Union
Campbell Soup Co.
7,075,000 5.72%, due 01/08/96 7,067,131 9,000,000 5.77%, due 01/03/96 8,997,115
6,000,000 5.77%, due 01/18/96 5,983,652 973,000 5.75%, due 01/10/96 971,601
10,392,000 5.68%, due 01/19/96 10,362,487 1,000,000 5.67%, due 01/10/96 998,583
----------
23,413,270 Heinz "HJ" Company
---------- 5,000,000 5.70%, due 01/16/96 4,988,125
DIVERSIFIED FINANCE (6.4%) 9,000,000 5.70%, due 01/24/96 8,967,225
General Electric Capital Corp. 4,000,000 5.72%, due 01/26/96 3,984,111
5,000,000 5.57%, due 02/21/96 4,960,546 6,000,000 5.75%, due 01/29/96 5,973,167
2,500,000 5.62%, due 02/23/96 2,479,315 Sysco Corp.
5,000,000 5.52%, due 03/18/96 4,940,967 3,268,000 5.72%, due 01/09/96 3,263,846
3,000,000 5.55%, due 04/12/96 2,952,825 10,000,000 5.55%, due 02/09/96 9,939,875
4,000,000 5.57%, due 04/16/96 3,934,398 5,000,000 5.63%, due 02/15/96 4,964,812
2,000,000 5.52%, due 04/24/96 1,965,040 -----------
3,000,000 5.58%, due 05/01/96 2,943,735 62,660,956
-----------
Transamerica Finance Corp.
INSURANCE (6.9%)
American General Corp.
7,306,000 5.76%, due 01/02/96 7,304,831 6,642,000 5.58%, due 01/11/96 6,631,705
5,000,000 5.77%, due 01/10/96 4,992,788 13,145,000 5.55%, due 01/17/96 13,112,576
5,000,000 5.69%, due 01/29/96 4,977,872 Marsh & McLennan Co.
4,815,000 5.71%, due 02/05/96 4,788,270
1,300,000 5.56%, due 02/16/96 1,290,764 400,000 5.95%, due 01/04/96 399,802
----------
47,531,351
----------
</TABLE>
(Continued)
<PAGE> 125
MONEY MARKET FUND
Statement of Investments - December 31, 1995, Continued
<TABLE>
<CAPTION>
- ---------------------------------------------------- ---------------------------------------------------------
VALUE VALUE
PRINCIPAL SECURITY (NOTE 1) PRINCIPAL SECURITY (NOTE 1)
- ---------------------------------------------------- ---------------------------------------------------------
INSURANCE (continued) PHARMACEUTICALS/HEALTHCARE (2.6%)
MetLife Funding Inc. Schering Corp.
<S> <C> <C> <C> <C> <C>
$4,895,000 5.72%, due 01/11/96 $4,887,222 $10,000,000 5.69%, due 01/16/96 $9,976,292
5,933,000 5.57%, due 02/02/96 5,903,625 4,000,000 5.63%, due 02/06/96 3,977,480
Old Republic 5,000,000 5.65%, due 03/27/96 4,932,514
3,000,000 5.63%, due 01/09/96 2,996,247 ------------
1,000,000 5.62%, due 01/09/96 998,751 18,886,286
5,000,000 5.68%, due 02/01/96 4,975,545 ------------
3,000,000 5.63%, due 03/05/96 2,969,973 PREMIUM FINANCE (2.8%)
8,000,000 5.50%, due 04/11/96 7,876,555 A.I. Credit Corp.
----------- 4,294,000 5.55%, due 01/08/96 4,289,366
50,752,001 5.67%, due 01/12/96 16,526,318
----------- ------------
LEASE FINANCING (3.3%) 20,815,684
PHH Corp. ------------
5,000,000 5.74%, due 01/19/96 4,985,650 RAILROADS (3.4%)
5,000,000 5.67%, due 01/25/96 4,981,100 Norfolk & Southern
6,840,000 5.73%, due 01/30/96 6,808,428 8,000,000 5.65%, due 01/16/96 7,981,167
5,000,000 5.55%, due 02/15/96 4,965,312 7,150,000 5.70%, due 01/25/96 7,122,830
3,478,000 5.55%, due 02/23/96 3,449,582 10,000,000 5.65%, due 01/26/96 9,960,762
----------- ------------
25,190,072 25,064,759
----------- ------------
MANUFACTURING (2.5%) Total commercial paper 663,895,784
Illinois Tool Works ------------
8,000,000 5.72%, due 01/04/96 7,996,187 (cost $663,895,784)
10,640,000 5.72%, due 01/09/96 10,626,475
-----------
18,622,662 CORPORATE NOTE (0.7%)
----------- Morgan Guaranty Trust
OFFICE EQUIPMENT (0.7%) 5,000,000 6.07%, due 10/03/96 5,000,000
5,000,000 Pitney Bowes Credit Corp. 4,965,778 ---------------
------------ (cost $5,000,000)
5.60%, due 02/14/96
OIL & GAS (0.8%) U.S. GOVERNMENT AGENCY
Koch Industries, Inc. SHORT-TERM OBLIGATIONS
5,985,000 5.63%, due 01/18/96 5,969,088 FNMA Medium-term
------------ 5,000,000 5.71%, due 06/10/96 4,999,273
--------------
(cost $4,999,273)
OIL & GAS: EQUIPMENT (2.0%)
Chevron Transport Corp.
Total investments $738,269,090
5,636,000 5.72% due 01/08/96 5,629,732 =============
9,000,000 5.73% due 01/30/96 8,958,457 (cost $738,269,090)
------------
14,588,189
-----------
PAPER AND FOREST PRODUCTS (1.6%)
Sonoco Products Co.
8,000,000 5.70%, due 01/10/96 7,988,600
4,000,000 5.70%, due 01/11/96 3,993,667
------------ Cost also represents cost for federal income tax
11,982,267 purposes.
------------ Portfolio holding percentages represent market
value as a percentage of net assets.
See accompanying notes to financial statements.
</TABLE>
<PAGE> 126
NATIONWIDE SEPARATE ACCOUNT TRUST
Statements of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
Capital
Small Company Appreciation Total Return
Assets Fund Fund Fund
------ ------------- ------------ -------------
<S> <C> <C> <C>
Investments in securities, at value
(cost $16,750,963, $67,321,284, and $18,259,754 82,349,782 810,163,199
$643,707,638, respectively)
Cash - 2,702 -
Accrued interest and dividends receivable 8,407 142,109 1,605,501
Receivable for investment securities sold 140,360 225 3,571,881
Receivable from advisor (note 2) 10,495 - -
Net receivable for foreign currency contracts purchased (note 1) 393 - -
Deferred organization expenses (note 2) 8,775 - -
Other assets - - 1,083
------------- ------------ -------------
Total assets 18,428,184 82,494,818 815,341,664
------------- ------------ -------------
Liabilities
-----------
Payable for investment securities purchased 1,230,782 1,218,673 -
Payable for fund shares redeemed 2,231 - 16,102
Accrued management fees (note 2) 15,262 35,516 341,691
Other accrued expenses 24,437 3,618 19,399
------------- ------------ -------------
Total liabilities 1,272,712 1,257,807 377,192
------------- ------------ -------------
NET ASSETS 17,155,472 81,237,011 814,964,472
------------- ------------ -------------
Represented by:
Capital 15,746,917 66,188,734 648,374,493
Net unrealized appreciation on investments and trans-
lation of assets and liabilities in foreign currencies 1,509,184 15,028,498 166,455,561
Undistributed net realized loss from investments and
foreign currency transactions (103,052) - -
Distributions in excess of net realized gains from investments - (1,329) (227,335)
Undistributed net investment income 2,423 21,108 361,753
------------- ------------ -------------
NET ASSETS $17,155,472 81,237,011 814,964,472
------------- ------------ -------------
Shares outstanding (unlimited number of 1,502,078 6,028,094 70,638,277
shares authorized) ------------- ------------ -------------
Net asset, offering and redemption price per share $11.42 $13.48 $11.54
----- ----- ------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 127
NATIONWIDE SEPARATE ACCOUNT TRUST
Statements of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
Government Bond Money Market
Assets Fund Fund
------ ---------------- -------------
<S> <C> <C>
Investments in securities, at value
(cost $363,402,690 and $738,269,090, $388,784,510 738,269,090
respectively)
Repurchase agreement (cost $59,674,000) 59,674,000 -
Accrued interest and dividends receivable 4,261,011 92,529
Receivable for investment securities sold 25,646,041 -
Other assets 474 386
---------------- -------------
Total assets 478,366,036 738,362,005
---------------- -------------
Liabilities
-----------
Payable for investment securities purchased 24,132,396 -
Payable for fund shares redeemed 9,244 577,547
Accrued management fees (note 2) 186,523 331,100
Distribution payable - 29,427
Other accrued expenses 21,816 16,125
---------------- -------------
Total liabilities 24,349,979 954,199
---------------- -------------
NET ASSETS 454,016,057 737,407,806
---------------- -------------
Represented by:
Capital 437,362,491 737,411,256
Net unrealized appreciation on investments 25,381,820 -
Undistributed net realized loss from investments (8,772,912) (5,864)
Undistributed net investment income 44,658 2,414
---------------- -------------
NET ASSETS $454,016,057 737,407,806
---------------- -------------
Shares outstanding (unlimited number of 39,968,359 737,411,142
shares authorized) ---------------- -------------
Net asset, offering and redemption price per share $11.36 $1.00
----- ----
</TABLE>
See accompanying notes to financial statements.
<PAGE> 128
NATIONWIDE SEPARATE ACCOUNT TRUST
Statements of Operations
<TABLE>
<CAPTION>
Period from
October 23, 1995
(commencement of
operations) through
December 31, 1995
(note 1) Year Ended December 31, 1995
------------------ -----------------------------
Capital
Small Company Appreciation Total Return
Fund Fund Fund
------------------ ---------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 45,862 341,053 5,818,208
Dividends 9,528 1,243,728 17,023,101
Less foreign tax withheld (235) - -
------------------ ---------- ------------
Total income 55,155 1,584,781 22,841,309
------------------ ---------- ------------
Expenses (note 2):
Investment management fees 21,498 326,158 3,406,571
Custodian fees 10,004 13,210 22,300
Professional services 104 3,102 35,088
Trustees fees and expenses 2 130 1,377
Share registration fees 1,724 - -
Other 4,035 9,245 27,588
------------------ ---------- ------------
Total expenses 37,367 351,845 3,492,924
Less waived fees and reimbursed expenses (10,495) - -
------------------ ---------- ------------
Net expenses 26,872 351,845 3,492,924
------------------ ---------- ------------
Net investment income 28,283 1,232,936 19,348,385
------------------ ---------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY (note 4):
Net realized gain (loss) on investments
and foreign currency transactions (103,052) 2,523,674 42,991,075
--------------- ---------- ------------
Net change in unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies 1,509,184 13,171,765 108,350,477
------------------ ---------- ------------
Net realized and unrealized gain
on investments and
foreign currency 1,406,132 15,695,439 151,341,552
------------------ ---------- ------------
Net increase in net assets
from operations $1,434,415 16,928,375 170,689,937
------------------ ---------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 129
NATIONWIDE SEPARATE ACCOUNT TRUST
Statements of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Government Bond Money
Fund Market
-------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $29,097,304 43,049,609
-------------- -------------
Expenses (note 2):
Investment management fees 2,088,523 3,574,486
Custodian fees 16,500 37,156
Professional services 19,158 38,148
Trustees fees and expenses 815 1,403
Share registration fees - 9,977
Other 21,963 26,551
-------------- -------------
Total expenses 2,146,959 3,687,721
-------------- -------------
Net investment income 26,950,345 39,361,888
-------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (note 4):
Net realized gain (loss) on investments 813,537 (5,864)
Net change in unrealized appreciation
on investments 43,487,386 -
-------------- -------------
Net realized and unrealized gain
(loss) on investments 44,300,923 (5,864)
-------------- -------------
Net increase in net assets
from operations $71,251,268 39,356,024
-------------- -------------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 130
NATIONWIDE SEPARATE ACCOUNT TRUST
Small Company Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period from October 23, 1995
(commencement of opererations)
through
December 31, 1995
-----------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 28,283
Net realized loss on investments and foreign currency transactions (103,052)
Net change in unrealized appreciation on investments
and translation of assets and liabilities in foreign currencies 1,509,184
-----------
Net increase in net assets resulting
from operations 1,434,415
-----------
Dividends to shareholders from net
investment income (25,860)
-----------
Capital share transactions:
Net proceeds from sale of shares 18,935,596
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 25,860
Cost of shares redeemed (3,214,539)
-----------
Net increase in net assets derived
from capital share transactions 15,746,917
-----------
NET INCREASE IN NET ASSETS 17,155,472
NET ASSETS - BEGINNING OF PERIOD (note 1) --
-----------
NET ASSETS - END OF PERIOD $17,155,472
-----------
Undistributed net realized loss on investments and foreign
currency transactions included in net assets at end of period ($103,052)
-----------
Undistributed net investment income included
in net assets at end of period $2,423
-----------
Shares sold 1,796,171
Shares issued to shareholders from reinvestment of
dividends and distributions 2,265
Shares redeemed (296,358)
-----------
Net increase in number of shares 1,502,078
-----------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 131
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,232,936 837,482
Net realized gain on investments 2,523,674 346,937
Net change in unrealized appreciation or 13,171,765 (1,498,651)
depreciation on investments ------------ -----------
Net increase (decrease) in net assets
resulting from operations 16,928,375 (314,232)
------------ -----------
Dividends to shareholders from:
Net investment income (1,213,046) (849,394)
Net realized gain on investments (2,302,021) --
In excess of net realized gains on investments (1,329) --
------------ -----------
Net decrease in net assets from distributions
to shareholders (3,516,396) (849,394)
------------ -----------
Capital share transactions:
Net proceeds from sale of shares 26,980,755 30,484,829
Net asset value of shares issued to shareholders
from reinvestment of dividends and distributions 3,863,870 501,921
Cost of shares redeemed (23,461,693) (8,306,890)
------------ -----------
Net increase in net assets derived
from capital share transactions 7,382,932 22,679,860
------------ -----------
NET INCREASE IN NET ASSETS 20,794,911 21,516,234
NET ASSETS - BEGINNING OF PERIOD 60,442,100 38,925,866
------------ -----------
NET ASSETS - END OF PERIOD $ 81,237,011 60,442,100
------------ -----------
Undistributed net realized gain (loss) on investments
included in net assets at end of period $ -- (221,653)
------------ -----------
Distributions in excess of net realized gains on investments
included in net assets at end of period $ (1,329) --
------------ -----------
Undistributed net investment income included
in net assets at end of period $ 21,108 1,218
------------ -----------
Shares sold 2,172,400 2,762,464
Shares issued to shareholders from reinvestment of
dividends and distributions 299,746 46,200
Shares redeemed (1,977,044) (752,522)
------------ -----------
Net increase in number of shares 495,102 2,056,142
------------ -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 132
NATIONWIDE SEPARATE ACCOUNT TRUST
Total Return Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 19,348,385 14,106,978
Net realized gain on investments 42,991,075 12,868,879
Net change in unrealized appreciation or depreciation 108,350,477 (22,354,876)
on investments ------------ -----------
Net increase in net assets resulting 170,689,937 4,620,981
from operations ------------ -----------
Dividends to shareholders from:
Net investment income (19,011,213) (14,258,556)
Net realized gain on investments (42,991,075) (12,868,879)
In excess of net realized gain on investments (227,335) --
------------ -----------
Net decrease in net assets from
distributions to shareholders (62,229,623) (27,127,435)
------------ -----------
Capital share transactions:
Net proceeds from sale of shares 145,723,309 118,067,999
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 79,264,509 10,092,549
Cost of shares redeemed (53,304,608) (27,076,015)
------------ -----------
Net increase in net assets derived
from capital share transactions 171,683,210 101,084,533
------------ -----------
NET INCREASE IN NET ASSETS 280,143,524 78,578,079
NET ASSETS - BEGINNING OF PERIOD 534,820,948 456,242,869
------------ -----------
NET ASSETS - END OF PERIOD $814,964,472 534,820,948
------------ -----------
Undistributed (distribution in excess of) net realized gain
on investments included in net assets at end of period $ (227,335) --
------------ -----------
Undistributed net investment income included
in net assets at end of period $ 361,753 24,581
------------ -----------
Shares sold 13,111,420 11,644,751
Shares issued to shareholders from reinvestment of
dividends and distributions 7,198,362 1,006,173
Shares redeemed (4,821,628) (2,679,189)
------------ -----------
Net increase in number of shares 15,488,154 9,971,735
------------ -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 133
NATIONWIDE SEPARATE ACCOUNT TRUST
Government Bond Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 26,950,345 25,873,023
Net realized gain on investments 813,537 (9,586,449)
Net change in unrealized appreciation or depreciation
on investments 43,487,386 (30,390,066)
------------- -----------
Net increase (decrease) in net assets
resulting from operations 71,251,268 (14,103,492)
------------- -----------
Dividends to shareholders from net investment income (26,924,228) (25,947,244)
------------- -----------
Capital share transactions:
Net proceeds from sale of shares 90,606,931 65,517,795
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 33,834,038 19,037,434
Cost of shares redeemed (106,004,873) (86,835,833)
------------- -----------
Net increase (decrease) in net assets derived
from capital share transactions 18,436,096 (2,280,604)
------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS 62,763,136 (42,331,340)
NET ASSETS - BEGINNING OF PERIOD 391,252,921 433,584,261
------------- -----------
NET ASSETS - END OF PERIOD $ 454,016,057 391,252,921
------------- -----------
Undistributed net realized loss on investments
included in net assets at end of period $ (8,772,912) (9,586,449)
------------- -----------
Undistributed net investment income included
in net assets at end of period $ 44,658 18,541
------------- -----------
Shares sold 8,275,783 6,207,952
Shares issued to shareholders from reinvestment of
dividends and distributions 3,126,554 1,808,620
Shares redeemed (9,801,205) (8,140,889)
------------- -----------
Net increase (decrease) in number of shares 1,601,132 (124,317)
------------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 134
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 39,361,888 26,149,226
Net realized gain (loss) on investments (5,864) 1,195
--------------- ----------
Net increase in net assets resulting
from operations 39,356,024 26,150,421
--------------- ----------
Dividends to shareholders from:
Net investment income (39,360,095) (26,148,730)
Net realized gain on investments -- (548)
--------------- ----------
Net decrease in net assets from
distribution to shareholders (39,360,095) (26,149,278)
--------------- ----------
Capital share transactions:
Net proceeds from sale of shares 971,797,511 1,245,852,351
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 43,287,489 22,191,860
Cost of shares redeemed (1,105,699,769) (791,816,873)
--------------- ----------
Net increase (decrease) in net assets
derived from capital share transactions (90,614,769) 476,227,338
--------------- ----------
NET INCREASE (DECREASE) IN NET ASSETS (90,618,840) 476,228,481
NET ASSETS - BEGINNING OF PERIOD 828,026,646 351,798,165
--------------- ----------
NET ASSETS - END OF PERIOD $ 737,407,806 828,026,646
--------------- ----------
Undistributed net realized loss on investments
included in net assets at end of period $ (5,864) --
--------------- ----------
Undistributed net investment income included
in net assets at end of period $ 2,414 621
--------------- ----------
Shares sold 971,797,397 1,245,852,351
Shares issued to shareholders from reinvestment of
dividends and distributions 43,287,489 22,191,860
Shares redeemed (1,105,699,769) (791,816,873)
--------------- ----------
Net increase (decrease) in number of shares (90,614,883) 476,227,338
--------------- ----------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 135
NATIONWIDE SEPARATE ACCOUNT TRUST
Small Company Fund
Financial Highlights
Selected data for each share of capital stock
outstanding throughout the period
<TABLE>
<CAPTION>
Period from October 23, 1995
(commencement of operations)
through
December, 31, 1995
------------------
<S> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD (note 1) $10.00
Net investment income 0.02
Net realized gain and unrealized appreciation
on investments and translation
of assets and liabilities in foreign currencies 1.42
------
Total from investment operations 1.44
------
Dividends from net investment income (0.02)
------
Net increase in net asset value 1.42
------
NET ASSET VALUE -
END OF PERIOD $11.42
------
Total Return* 14.38%
Ratio of expenses to average net assets* 1.25%
Ratio of expenses to average net assets** 1.74%
Ratio of net investment income to
average net assets* 1.32%
Ratio of net investment income to
average net assets** .83%
Portfolio turnover 9.03%
Net Assets, end of period (000) $17,155
</TABLE>
*Ratios for partial years are annualized. Total return is not annualized.
**Ratios calculated as if no fees were waived or expenses reimbursed.
See accompanying notes to financial statements.
<PAGE> 136
NATIONWIDE SEPARATE ACCOUNT TRUST
Capital Appreciation Fund
Financial Highlights
Selected data for each share of capital stock
outstanding throughout each period
<TABLE>
<CAPTION>
Period from
April 15, 1992
Years Ended (commencement
December 31, operations) through
1995 1994 1993 December 31, 1992
---- ---- ---- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $10.92 11.20 10.46 10.00
Net investment income 0.23 0.18 0.26 0.10
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments 2.96 (0.28) 0.74 0.48
------ ----- ----- -----
Total from investment operations 3.19 (0.10) 1.00 0.58
------ ----- ----- -----
Dividends from net investment income (0.23) (0.18) (0.26) (0.10)
Distributions from net realized gain
from investment transactions (0.40) - - (0.02)
------ ----- ----- -----
Total distributions (0.63) (0.18) (0.26) (0.12)
------ ----- ----- -----
Net increase (decrease) in net asset value 2.56 (0.28) 0.74 0.46
------ ----- ----- -----
NET ASSET VALUE -
END OF PERIOD $13.48 10.92 11.20 10.46
------ ----- ----- -----
Total Return* 29.35% (0.90)% 9.61% 10.92%
Ratio of expenses to average net assets* .54% .56% .59% .69%
Ratio of net investment income to
average net assets* 1.89% 1.76% 2.82% 1.95%
Portfolio turnover 20.28% 11.21% 16.87% 5.01%
Net Assets, end of period (000) $81,237 60,442 38,926 18,800
</TABLE>
*Ratios for partial years are annualized. Total return is not annualized.
See accompanying notes to financial statements.
<PAGE> 137
NATIONWIDE SEPARATE ACCOUNT TRUST
Total Return Fund
Financial Highlights
Selected data for each share of capital stock
outstanding throughout each period
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $ 9.70 10.10 9.46 9.07 6.74
Net investment income 0.31 0.21 0.23 0.25 0.22
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments 2.49 (0.10) 0.79 0.48 2.34
-------- ----- ------ ----- -----
Total from investment operations 2.80 0.11 1.02 0.73 2.56
-------- ----- ------ ----- -----
Dividends from net investment income (0.31) (0.28) (0.24) (0.25) (0.23)
Distributions from net realized gain
from investment transactions (0.65) (0.23) (0.14) (0.09) -
-------- ----- ------ ----- -----
Total distributions (0.96) (0.51) (0.38) (0.34) (0.23)
-------- ----- ------ ----- -----
Net increase (decrease) in net asset value 1.84 (0.40) 0.64 0.39 2.33
-------- ----- ------ ----- -----
NET ASSET VALUE -
END OF PERIOD $ 11.54 9.70 10.10 9.46 9.07
-------- ----- ------ ----- -----
Total Return 29.09% 1.07% 10.92% 8.18% 38.49%
Ratio of expenses to average net assets .51% .52% .53% .53% .53%
Ratio of net investment income to
average net assets 2.84% 2.76% 2.51% 2.69% 2.74%
Portfolio turnover 16.12% 12.06% 9.79% 12.48% 14.50%
Net Assets, end of period (000) $814,964 534,821 456,243 334,917 250,701
</TABLE>
See accompanying notes to financial statements.
<PAGE> 138
NATIONWIDE SEPARATE ACCOUNT TRUST
Government Bond Fund
Financial Highlights
Selected data for each share of capital stock
outstanding throughout each period
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $ 10.20 11.26 10.92 11.24 10.40
Net investment income 0.71 0.69 0.71 0.98 0.86
Net realized gain (loss) and unrealized
appreciation (depreciation) on
investments 1.16 (1.06) 0.32 (0.14) 0.82
-------- ----- ----- ----- -----
Total from investment operations 1.87 (0.37) 1.03 0.84 1.68
-------- ----- ----- ----- -----
Dividends from net investment income (0.71) (0.69) (0.66) (0.93) (0.84)
Distributions from net realized gain
from investment transactions - - (0.03) (0.23) -
-------- ----- ----- ----- -----
Total distributions (0.71) (0.69) (0.69) (1.16) (0.84)
-------- ----- ----- ----- -----
Net increase (decrease) in net asset value 1.16 (1.06) 0.34 (0.32) 0.84
-------- ----- ----- ----- -----
NET ASSET VALUE -
END OF PERIOD $ 11.36 10.20 11.26 10.92 11.24
-------- ----- ----- ----- -----
Total Return 18.74% (3.23)% 9.52% 7.87% 16.70%
Ratio of expenses to average net assets .51% .51% .53% .53% .55%
Ratio of net investment income to
average net assets 6.45% 6.46% 5.91% 8.75% 8.07%
Portfolio turnover 97.05% 111.40% 175.37% 73.75% 77.70%
Net Assets, end of period (000) $454,016 391,253 433,584 301,841 198,769
</TABLE>
See accompanying notes to financial statements.
<PAGE> 139
NATIONWIDE SEPARATE ACCOUNT TRUST
Money Market Fund
Financial Highlights
Selected data for each share of capital stock
outstanding throughout each period
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $ 1.00 1.00 1.00 1.00 1.00
Net investment income 0.06 0.04 0.03 0.03 0.06
Dividends from net investment income (0.06) (0.04) (0.03) (0.03) (0.06)
-------- ----- ----- ----- -----
Net increase (decrease) in net asset value - - - - -
-------- ----- ----- ----- -----
NET ASSET VALUE -
END OF PERIOD $ 1.00 1.00 1.00 1.00 1.00
-------- ----- ----- ----- -----
Total Return 5.66% 3.88% 2.76% 3.40% 5.84%
Ratio of expenses to average net assets .52% .54% .53% .53% .54%
Ratio of net investment income to
average net assets 5.51% 4.00% 2.72% 3.36% 5.65%
Net Assets, end of period (000) $737,408 828,027 351,798 330,011 363,502
</TABLE>
See accompanying notes to financial statements.
<PAGE> 140
NATIONWIDE SEPARATE ACCOUNT TRUST
Notes to Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
------------------------------------------
Nationwide Separate Account Trust (Trust) is a diversified, open-end
investment company registered under the Investment Company Act of 1940,
as amended. The Trust offers shares only to life insurance company
separate accounts to fund the benefits under variable insurance or
annuity policies issued by life insurance companies. The Trust was
organized as a Massachusetts Trust effective June 30, 1981. To date,
only separate accounts of Nationwide Life Insurance Company and
Nationwide Life and Annuity Insurance Company (formerly Financial
Horizons Life Insurance Company), which are affiliated companies, have
purchased shares.
The Trust offers shares in five series: Small Company Fund, Capital
Appreciation Fund, Total Return Fund, Government Bond Fund and Money
Market Fund. The Trust was amended in 1995 to create the Small Company
Fund. On October 23, 1995, the Small Company Fund was capitalized
through the sale of capital stock to Nationwide Life Insurance Company in
the amount of $5,000,000, the Fund became effective and sales of shares
commenced.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The following summarizes the significant accounting policies:
Security Valuation
------------------
a) Small Company, Capital Appreciation, Total Return and Government Bond
---------------------------------------------------------------------
Securities are valued at the last sales price on the securities
exchange on which such securities are primarily traded. Listed
securities for which no sale was reported on the valuation date are
valued at quoted bid prices. Securities not listed on an exchange or
for which there were no transactions are valued at their most recent
bid price, or where no prices are available, at fair market value
determined by the Board of Trustees. Short-term notes and bank
certificates of deposit are valued at amortized cost, which
approximates market. Investments denominated in foreign currencies
are translated to U.S. dollars at prevailing exchange rates. Forward
currency exchange contracts are also valued at the prevailing
exchange rates.
The value of a repurchase agreement generally equals the purchase
price paid by the Fund (cost) plus the interest accrued to date. The
seller, under the repurchase agreement, is required to maintain the
market value of the underlying collateral at not less than the value
of the repurchase agreement. Securities subject to repurchase
agreements are held by the Federal Reserve/Treasury book-entry
system or by the Fund's custodian.
<PAGE> 141
NATIONWIDE SEPARATE ACCOUNT TRUST
Notes to Financial Statements, Continued
b) Money Market
------------
Securities are valued at amortized cost, which approximates market
value, in accordance with Rule 2a-7 of the Investment Company Act of
1940.
Foreign Currency Transactions (Small Company Fund)
-------------------------------------------------
Fluctuation in the value of investments resulting from changes in
foreign exchange rates are included with net realized and unrealized
gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized on security
transactions and the difference between the amounts of dividends,
interest and foreign withholding taxes recorded on the Fund's books,
and the U.S. dollar equivalent of amounts actually received or paid.
Net unrealized foreign exchange gains or losses arise from changes in
the value of assets and liabilities resulting from changes in
exchange rates.
The Fund enters into forward currency exchange contracts which are
obligations to purchase or sell a foreign currency at a specified
rate on a certain date in the future. A net realized gain or loss
would be incurred if the value of the contract increases or decreases
between the date the contract is opened and the date it is closed.
Forward currency contracts are marked to market daily and this change
in value is reflected in the Statement of Assets and Liabilities as a
net receivable for foreign currency contracts purchased.
At or before the closing of a forward contract, the Small Company
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 the Fund retains the portfolio security and engages in
an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or 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, the 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 difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Federal Income Taxes
--------------------
The Trust's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies
and to distribute all its taxable income to its shareholders.
Therefore, no federal income tax provision is required. To the
extent net realized gains are offset through the application of a
capital loss carryover, they will
(Continued)
<PAGE> 142
NATIONWIDE SEPARATE ACCOUNT TRUST
Notes to Financial Statements, Continued
Federal Income Taxes (continued)
- -------------------------------
not be distributed to shareholders but will be retained by the Trust. Each
Fund is treated as a separate taxable entity.
As of December 31, 1995, the Government Bond and Money Market Funds had net
capital loss carry forwards in the amounts of $8,772,911 and $5,864,
respectively, The Government Bond Fund carry forward will expire within 7
years and the Money Market Fund carry forward will expire within 8 years.
The Small Company Fund intends to elect for Federal income tax purposes to
treat approximately $101,807 of net capital losses that arose during the period
ended December 31, 1995 as if such losses arose on January 1, 1996. As of
December 31, 1995, the Fund had a net capital loss carryforward in the amount
of $1,245 which will expire within 8 years.
Organization Expenses
- ---------------------
Initial organization expenses of the Small Company Fund were paid by the
advisor and will be reimbursed by the Fund. Such organization costs have been
deferred and will be amortized ratably over a period of sixty months from the
commencement of operations. If any of the initial shares are redeemed before
the end of the amortization period, the proceeds of the redemption will be
reduced by the pro rata share of the unamortized organization costs.
Security Transactions and Investment Income
- -------------------------------------------
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date; interest income is recorded on an accrual
basis and includes, where applicable, the pro rata or constant yield
amortization of premium or discount.
Expenses
- --------
Expenses directly attributed to each Fund are charged to that Fund. Expenses
applicable to all funds in the Trust are allocated based on average net assets.
Dividends to Shareholders
- -------------------------
a) Small Company, Capital Appreciation, Total Return and Government Bond
---------------------------------------------------------------------
Dividend income is recorded on the ex-dividend date. Dividends from net
investment income are paid quarterly.
b) Money Market
------------
Dividends from net investment income are declared daily and paid monthly.
(Continued)
<PAGE> 143
NATIONWIDE SEPARATE ACCOUNT TRUST
Notes to Financial Statements, Continued
Dividends to Shareholders (continued)
------------------------------------
c) All Funds
---------
Net realized gains, if any, are declared and distributed at
least annually.
Dividends and distributions to shareholders are determined in
accordance with Federal income tax regulations which may differ from
generally accepted accounting principles. These "book/tax"
differences are considered either permanent or temporary in nature.
In accordance with AICPA Statement of Position 93-2, permanent
differences are reclassified within the capital accounts based on
their nature for Federal income tax purposes; temporary differences
do not require reclassification. Dividends and distributions that
exceed net invested income and net realized gains for financial
reporting purposes, but not for tax purposes, are reported as
dividends in excess of net investment income and net realized gains.
To the extent distributions exceed current and accumulated earnings
and profits for Federal income tax purposes, they are reported as
distributions of paid-in capital.
2. Transactions with Affiliates
----------------------------
As investment manager for the Trust, Nationwide Financial Services,
Inc. (NFS), an affiliated company, is allowed an annual management
fee of .5% based on the average daily net assets of the Capital
Appreciation Fund, Total Return Fund, Government Bond Fund and Money
Market Fund; this fee would not be payable in full if the effect of
such payment would increase total expense (excluding taxes other than
payroll taxes and brokerage commissions on portfolio transactions) to
an amount exceeding 1% of average daily net assets for any fiscal
year. Such limitations on total expenses did not effect management
fees during the periods covered by the financial statements.
As investment manager for the Small Company Fund, NFS receives an
annual management fee of 1.00% of average daily net assets. From
such fees pursuant to sub-investment advisory agreements, NFS pays
subadvisory fees to The Dreyfus Corporation, Neuberger and Berman,
L.P., Pictet International Management Limited, Strong Capital
Management, Inc., Van Eck Associates Corporation and Warburg, Pincus
Consellors, Inc. based on average daily net assets of the portion of
the Small Company Fund under their management. During the period
from October 23, 1995 (date of commencement of operations) through
December 31, 1995, NFS paid $11,394 in fees to the sub-investment
advisors and reimbursed the Fund $10,495 in order to hold total Small
Company Fund expenses to 1.25% of average daily net assets.
A subsidiary of NFS (Nationwide Investors Services, Inc.) acts as
Transfer and Dividend Disbursing Agent for the Trust.
3. Bank Loans
----------
The Trust has an unsecured bank line of credit of $25,000,000.
Borrowing under this arrangement bears interest at the Federal Funds
rate plus .50%. No compensating balances are required. There were
no outstanding balances at December 31, 1995.
(Continued)
<PAGE> 144
NATIONWIDE SEPARATE ACCOUNT TRUST
Notes to Financial Statements, Continued
4. Investment Transactions
-----------------------
Purchases and sales of securities (excluding short-term securities and
forward currency exchange contracts) and U.S. government obligations
for the period ended December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Long-term securities U.S. government obligations
Purchases Sales Purchases Sales
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Small Company Fund $ 13,665,049 $ 758,224 $ 2,610,519 $ 2,052,256
Cap. Apprec. Fund 22,271,349 12,483,690 - 4,095,808
Total Return Fund 195,685,954 93,538,896 332,396,780 334,603,161
Govt. Bond Fund 21,241,539 7,290,025 368,929,141 429,391,580
Money Market Fund - - 5,358,620 52,365,000
</TABLE>
Realized gains and losses have been computed on the first-in,
first-out basis. Included in net unrealized appreciation at December
31, 1995, based on cost for Federal income tax purposes, excluding
forward currency contracts for the Small Company Fund, are the
following components:
<TABLE>
<CAPTION>
Net
Unrealized Unrealized unrealized
gains losses appreciation
----- ------ ------------
<S> <C> <C> <C>
Small Company Fund $ 1,734,988 $ (238,753) $ 1,496,235
Capital Appreciation Fund 17,157,675 (2,129,177) 15,028,498
Total Return Fund 171,997,809 (5,542,248) 166,455,561
Government Bond Fund 25,698,045 (316,225) 25,381,820
</TABLE>
<PAGE> 145
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
(a) Financial Statements:
Nationwide Separate Account Trust
--Total Return Fund
--Capital Appreciation Fund
--Government Bond Fund
--Money Market Fund
--Small Company Fund
(1) Financial statements and schedules included in the Prospectuses for the
Funds (except the Income Fund) (Part A):
Financial Highlights
(2) Financial statements and schedules included in Part B:
Those schedules required by Item 23 to be included in Part B have been
incorporated therein by reference to the Prospectuses (Part A).
(i) Audited Financials:
Independent Auditors' Report
Statements of Investments as of December 31, 1995.
Statements of Assets and Liabilities as of December 31, 1995.
Statements of Operations for the year ended December 31, 1995.
Statements of Changes in Net Assets for each of the years ended
December 31, 1995 and 1994.
Financial Highlights
Notes to Financial Statements
(ii) Unaudited Interim Financials:
Statements of Investments as of June 30, 1996.
Statements of Assets and Liabilities as of June 30, 1996
Statements of Operations for the six months ended June 30,
1996.
Statements of Changes in Net Assets for the six months ended
June 30, 1996 and the year ended December 31, 1996.
Financial Highlights
Notes to Financial Statements
C-1
<PAGE> 146
(b) Exhibits
(1) Amended Declaration of Trust-previously filed with
Post-Effective amended and herein incorporated by reference.
(2) Amended Bylaws (Code of Regulations)-previously filed with
Registration Statement and Post-Effective Amendments, and
herein incorporated by reference.
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement for the Funds (except
the Small Company and Income Funds)-previously filed with
Registration Statement and Post-Effective Amendments, and
herein incorporated by reference.
(b) Investment Advisory Agreement for the Small Company Fund.
(c) Subadvisory Agreements for the Small Company Fund.
(1) Subadvisory Agreement with the Dreyfus Corporation.
(2) Subadvisory Agreement with Neuberger & Berman L.P.
(3) Subadvisory Agreement with Strong Capital Management,
Inc.
(4) Subadvisory Agreement with Van Eck Associates
Corporation and Pictet International Management
Limited.
(5) Subadvisory Agreement with Warburg, Pincus
Counsellors, Inc.
(d) Investment Advisory Agreement for Income Fund
(e) Subadvisory Agreements for the Income Fund
(1) Subadvisory Agreement with NCM Capital Management
Group, Inc.
(2) Subadvisory Agreement with Smith Graham & Co. Asset
Managers, L.P.
(6) Not Applicable
(7) Not applicable.
(8) Custody Agreement-previously filed with Registration Statement
and Post-Effective Amendments, and herein incorporated by
reference.
(9) Not applicable.
(10) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and non-assessable was
filed with the Securities and Exchange Commission on February
29, 1996, pursuant to Rule 24f-2, and herein incorporated by
reference.
(11) Auditors' Consent
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Performance Quotation Computation Schedule-previously filed
with a Post-Effective Amendment, and herein incorporated by
reference.
(17) Financial Data Schedules
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 HOLDERS OF SECURITIES
Number of Record Holders
Title of Class as of September 30 , 1996
-------------------------------------------------------------------
Total Return Fund 2
Government Bond Fund 2
Money Market Fund 2
Capital Appreciation Fund 2
Small Company Fund 2
C-2
<PAGE> 147
ITEM 27. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of
Registrant are set forth in Article X, Section 2 of the Declaration
of Trust. See Item 24(b)1 above.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Nationwide Financial Services, Inc. (NFS), the investment
adviser of the Trust, also serves as investment adviser to the
Nationwide Investing Foundation, Nationwide Investing Foundation
II, Nationwide Separate Account Trust and Financial Horizons
Investment 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 DC Variable Account, Nationwide VA
Separate Account-A, NACo Variable Account, Nationwide VLI
Separate Account-2, Nationwide VLI Separate Account-3,
Nationwide VL Separate Account-A, 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 President, Chief Operating Officer and Director
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
President and Director
Nationwide Financial Services, Inc.
Nationwide Investors Services, Inc.
Vice Chairman and Director
Nationwide Financial Institution Distributors Agency, Inc.
NEA Valuebuilder Investor Services, Inc.
Public Employees Benefit Services Corporation
Colonial County Mutual Insurance Company
Lone Star General Agency, 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
Gates, McDonald and Company
Nationwide HMO, Inc.
Nationwide Management Systems, Inc.
Landmark Financial Services of New York, Inc.
Nationwide Agency, Inc.
Nationwide Indemnity Corporation
Nationwide Property Management, Inc.
Public Employees Benefit Services Corporation of New Mexico
PEBSCO of Massachusetts Insurance Agency, Inc.
Public Employees Benefit Services Corporation of Arkansas
Public Employees Benefit Services Corporation of Alabama
Chairman of the Board and Director
West Coast Life Insurance Company
Colonial Insurance Company of California
Nationwide Investment Services Corporation
President and Trustee
Nationwide Insurance Golf Charities, Inc.
</TABLE>
C-3
<PAGE> 148
<TABLE>
<S> <C>
Gordon E. McCutchan Executive Vice President-Law and Corporate Services
and Secretary
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
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Colonial County Mutual Insurance Company
Colonial Insurance Company of California
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
Lone Star General Agency, Inc.
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Investment Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Wausau Service Corporation
Wausau Business Insurance Company
Wausau General Insurance Company
West Coast Life Insurance Company
Nationwide Insurance Enterprise Foundation
National Premium and Benefit Administration Company
Employers Insurance of Wausau A Mutual Company
Wausau Underwriters 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 Service Corporation
Wausau International Underwriters
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.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Nationwide Development Company
Executive Vice President-Law and Corporate Services
and Director
Nationwide Financial Services, Inc.
Nationwide Investor Services, Inc.
Nationwide Property Management Inc.
</TABLE>
C-4
<PAGE> 149
<TABLE>
<S> <C>
Executive Vice President-Law and Corporate Services,
Secretary and Director
California Cash Management Company
National Casualty Company
Nationwide Cash Management Company
Nationwide Indemnity Company
Nationwide Community Urban Redevelopment Corporation
Vice Chairman and Director
Neckura Insurance Company
Neckura Life Insurance Company
Neckura Holding Company
Secretary
The Beak and Wire Corporation
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.
NEA Valuebuilder Investor Services of Alabama, 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.
Vice Chairman, Secretary and Director
Gates, McDonald & Company
Chairman of the Board. Secretary and Director
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York, Inc.
Secretary and Director
Nationwide Agency, Inc.
Nationwide HMO, Inc.
Nationwide Management Systems, Inc.
Director and Chairman of the Board
Peoples Travel Services, Inc.
Director
Leben Direkt Insurance Company
MRM Investments, Inc.
NWE Inc.
Clerk
NEA Valuebuilder Services Insurance Agency, Inc.
Trustee
Ohio Tuition Trust Authority
Franklin University
D. Richard 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
</TABLE>
C-5
<PAGE> 150
<TABLE>
<S> <C>
Nationwide Life and Annuity Insurance Company
Colonial Insurance Company of California
Scottsdale Insurance Company
Scottsdale Indemnity Company
West Coast Life Insurance Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Development Company
Farmland Mutual Insurance Company
Nationwide Investment Services Corporation
Nationwide Agribusiness Insurance Company
National Casualty Company
California Cash Management Company
Nationwide Cash Management Company
Employers Insurance of Wausau A Mutual Company
Wausau Service Corporation
Wausau General Insurance Company
Wausau Business Insurance Company
Wausau Underwriters Insurance Company
Chairman, Chairman and Chief Executive Officer-
Nationwide Insurance Enterprise and Director
American Marine Underwriters, Inc.
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
Public Employees Benefit Services Corporation
Gates, McDonald and Company
Nationwide Financial Services, Inc.
Nationwide Investors Services, Inc.
Employers Life Insurance Company of Wausau
Wausau International Underwriters
Wausau Preferred Health Insurance Company
Nationwide Financial Institution Distributors Agency, Inc.
Chairman and Director
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Services of Arizona, Inc.
Chairman and Chief Executive Officer and Director
Nationwide Indemnity Company
Chairman and Trustee
Financial Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Separate Account Trust
Chairman of the Board
Nationwide Insurance Golf Charities, Inc.
Chairman of the Board and Director
</TABLE>
C-6
<PAGE> 151
<TABLE>
<S> <C>
Lone Star General Agency, Inc.
Nationwide Community Urban Redevelopment Corporation
Colonial County Mutual Insurance Company
Nationwide Property Management, Inc.
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
Robert A. Oakley Executive 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 Insuranc Company of Wausau
National Casualty Company
National Premium and Benefit Administration Company
The Beak and Wire Corporation
Colonial Insurance Company of California
Employers Insurance of Wausau A Mutual Company
Farmland Mutual Insurance Company
NEA Valuebuilder Investor Services of Arizona, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Development Company
Nationwide Investor Services, Inc.
Nationwide Insurance Enterprise Foundation
NEA Valuebuilder Investor Services, Inc.
Colonial County Mutual Insurance Company
Nationwide Investment Services Corporation
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
</TABLE>
C-7
<PAGE> 152
<TABLE>
<S> <C>
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
West Coast Life Insurance Company
Executive Vice President-Chief Financial Officer and Director
California Cash Management Company
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment Corporation
Nationwide Indemnity Company
Nationwide Financial Services, Inc.
Nationwide Property Management Inc.
MRM Investments, Inc.
Executive Vice President
Companies Agency Insurance Services of California
Wausau International Underwriters
Director
Peoples Travel Services, Inc.
Wausau Insurance Company (U.K.) Limited
NWE, Inc.
Director and Vice Chairman
Leben Direkt Insurance Company
Neckura General Insurance Company
Auto Direkt Insurance Company
Chairman and Director
Neckura Insurance Company
Neckura Life Insurance Company
Neckura Holding Company
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 Country Mutual Insurance Company
Colonial Insurance Company of California
Employers Insurance of Wausau A Mutual Company
Employers Life Insurance Company of Wausau
Farmland Mutual Insurance Company
Gates, McDonald & Company
Lone Star General Agency, Inc.
National Casualty Company
Nationwide Investment Services Corporation
Public Employees Benefit Services Corporation
Pension Associates of Wausau
Nationwide Agribusiness Insurance Company
Nationwide Corporation
Nationwide Insurance Enterprise Foundation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
</TABLE>
C-8
<PAGE> 153
<TABLE>
<S> <C>
Wausau Service Corporation
Wausau Underwriters Insurance Company
West Coast Life Insurance Company
Vice Chairman and Director
Nationwide Communications, Inc.
Executive Vice President-Chief Investment Officer
and Director
Nationwide Financial Services, Inc.
Nationwide Indemnity Company
Director and President
Nationwide Property Management, Inc.
Nationwide Development Company
Nationwide Community Urban Redevelopment Corporation
MRM Investments, Inc.
NWE, Inc.
California Cash Management Company
Nationwide Cash Management Company
Director and Vice Chairman
The Palmer-Donavin Manufacturing Company
Trustee
Franklin County Board of Mental Retardation and
Development Disabilities
Capital University
The I-670 Corridor Development Corporation
James F. Laird, Jr. Vice President and General Manager
Nationwide Financial Services, Inc.
Vice President , General Manager and Director
Nationwide Investors Services, Inc.
Treasurer
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Assistant Treasurer
Financial Horizons Investment Trust.
Harry A. Schermer Vice President-Equity 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
Nationwide Indemnity Company
Vice President-Investments
Nationwide Financial Services, Inc.
Vice President
Nationwide Insurance Enterprise Foundation
Assistant Treasurer
Financial Horizons Investment Trust
Nationwide Separate Account Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
</TABLE>
C-9
<PAGE> 154
<TABLE>
<S> <C>
W. Sidney Druen Senior Vice President and General Counsel and
Assistant Secretary
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 Financial 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
Nationwide Agribusiness Insurance Company
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.
Landmark Financial Services of New York, Inc.
National Casualty Company
Nationwide Cash Management Company
Nationwide Communications Inc.
Nationwide 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 Development Company
Nationwide Insurance Enterprise Foundation
</TABLE>
C-10
<PAGE> 155
<TABLE>
<S> <C>
Nationwide Indemnity Company
NEA Valuebuilder Investor Services, Inc.
Wausau International Underwriters
NEA Valuebuilder Investor Services of Arizona, Inc.
NEA Valuebuilder Services Insurance Agency, Inc.
NEA Valuebuilder Investor Services of Alabama, Inc.
NEA Valuebuilder Investor Services of Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma, Inc.
NEA Valuebuilder Investor Services of Montana, Inc.
NEA Valuebuilder Investor Services of Nevada, Inc.
NEA Valuebuilder Investor Services of Wyoming, Inc.
MRM Investments Services, Inc.
NWE, Inc.
Nationwide Property Management, Inc.
PEBSCO of Massachusetts Insurance Agency, Inc.
Nationwide Investment Services Corporation
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
West Coast Life Insurance Company
Senior Vice President and General Counsel and Director
Nationwide Community Urban Redevelopment Corporation
General Counsel
Nationwide Insurance Golf Charities, Inc.
William G. Goslee Treasurer
Nationwide Financial Services, Inc.
Nationwide Investors Services, Inc.
Assistant Treasurer
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust
Rae Mercer Pollina Secretary
Nationwide Financial Services, Inc.
Nationwide Investors Services, Inc.
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment 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
</TABLE>
C-11
<PAGE> 156
<TABLE>
<S> <C>
Nationwide Indemnity Company
Vice President
Nationwide Financial Services, Inc.
Director
Nationwide Investors Services, Inc.
Leben Direkt Insurance Company
Neckura Holding Company
Assistant Secretary
West Coast Life Insurance 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
</TABLE>
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
Farmland Life Insurance Company
Nationwide Agribusiness Insurance Company
1963 Bell Avenue
Des Moines, Iowa 50315-1000
Colonial Insurance Company of California
2390 East Orangewood Avenue
P.O. Box 4347
Anaheim, California 92803-1347
Employers Insurance of Wausau A Mutual Company
2000 Westwood Drive
Wausau, Wisconsin 54401-7881
Scottsdale Insurance Company
8877 Nord Gainey Center Drive
P.O. Box 4110
Scottsdale, Arizona 85261-4110
West Coast Life Insurance Company
343 Sansome Street
San Francisco, California 94104-1303
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
C-12
<PAGE> 157
Auto Direkt Insurance Company
Columbus Service, GMBH
Neckura General Insurance Company
Neckura Holding Company
Neckura Insurance Company
Neckura Life
SVM Sales GMBH, Neckura Group
John E. Fisher Str. 1
61440 Oberursel/Ts.
Germany
Nationwide Development Company
One Nationwide Plaza
Columbus, Ohio 43215
Public Employees Benefit Services Corporation
Two Nationwide Plaza
Columbus, Ohio 43215
(b) Information for the Subadvisers of the Small Company Fund
(1) The Dreyfus Corporation
The Dreyfus Corporation ("Dreyfus") and subsidiary companies comprise a
financial service organization whose business consists primarily of
providing investment management services as the investment adviser,
manager and distributor for sponsored investment companies registered
under the Investment Company Act of 1940 and as an investment adviser to
institutional and individual accounts. Dreyfus also serves as
sub-investment adviser to and/or administrator of other investment
companies. Dreyfus Service Corporation, a wholly-owned subsidiary of
Dreyfus, serves primarily as a registered broker-dealer of shares of
investment companies sponsored by Dreyfus and of other investment
companies sponsored by Dreyfus and of other investment companies for which
Dreyfus acts as investment adviser, sub-investment adviser or
administrator. Dreyfus Management, Inc., another wholly-owned subsidiary,
provides investment management services to various pension plans,
institutions and individuals.
DIRECTORS AND OFFICERS OF DREYFUS
<TABLE>
<CAPTION>
NAME AND POSITION WITH DREYFUS OTHER BUSINESS
<S> <C>
Mandell L. Berman Real Estate Consultant and Private Investor:
Director 29100 Northwestern Highway, Suite 370
Southfield, Michigan 48034
Past Chairman of the Board of Trustees of Skillman Foundation.
Member of The Board of Vintners Intl.
Frank V. Cahouet Chairman of the Board, President and Chief Executive Officer:
Director Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Director
Avery Dennison Corporation
150 North Orange Grove Boulevard
</TABLE>
C-13
<PAGE> 158
<TABLE>
<S> <C>
Pasadena, California 91103
Saint-Gobain Corporation
750 East Swedesford Road
Valley Forge, Pennsylvania 19482
Teledyne, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067
Alvin E. Friedman Senior Advisor to Dillon, Reed & Co. Inc.
Director 535 Madison Avenue
New York, New York 10022
Director and Member of the Executive Committee of Avnet, Inc.**
Lawrence M. Greene Director:
Director Dreyfus America Fund
Julian M. Smerling None
Director
Howard Stein Chairman of the Board:
Chairman of the Board Dreyfus Acquisition Corporation*
and Chief Executive Officer The Dreyfus Consumer Credit Corporation*
Dreyfus Management, Inc.*
Dreyfus Service Corporation*
Chairman of the Board and Chief Executive Officer:
Major Trading Corporation*
Director:
Avnet, Inc.**
Dreyfus America Fund++++
The Dreyfus Fund
International Limited+++++
World Balanced Fund+++
Dreyfus Partnership Management Inc.*
Dreyfus Personal Management, Inc.*
Dreyfus Precious Metals, Inc.*
Dreyfus Service Organization, Inc.*
Seven Six Seven Agency, Inc.*
Trustee:
Corporate Property Investors
New York, New York
W. Keith Smith Chairman and Chief Executive Officer:
Vice Chairman The Boston Company
of the Board One Boston Place
Boston, Massachusetts 02108
Vice Chairman of the Board:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405
</TABLE>
C-14
<PAGE> 159
<TABLE>
<S> <C>
Christopher M. Condron Vice Chairman:
President, Chief Operating Mellon Bank Corporation
Officer and Director One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Deputy Director:
Mellon Trust
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Chief Executive Officer:
The Boston Company Asset Management, Inc.
One Boston Place
Boston, Massachusetts 02108
President:
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
Stephen E. Canter Director:
Vice Chairman and Chief The Dreyfus Trust Company++
Investment Officer, and Formerly Chairman and Chief Executive Officer:
a Director Kleinwort Benson Investment Management Americas Inc.*
Lawrence S. Kash Chairman, President and Chief Executive Officer:
Vice Chairman-Distribution The Boston Company Advisors, Inc.
And a Director 53 State Street
Exchange Place
Boston, Massachusetts 02109
Executive Vice President and Director:
Dreyfus Service Organization, Inc.*
Director:
The Dreyfus Consumer Credit Corporation*
The Dreyfus Trust Company++
Dreyfus Service Corporation*
President:
The Boston Company
One Boston Place
Boston, Massachusetts 02108
Laurel Capital Advisors
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Boston Group Holdings, Inc.
Executive Vice President:
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Boston Safe Deposit & Trust
One Boston Place
Boston, Massachusetts 02108
</TABLE>
C-15
<PAGE> 160
<TABLE>
<S> <C>
Philip L. Toia Chairman of the Board and Trust Investment Officer:
Vice Chairman-Operations The Dreyfus Trust Company++
and Administration Chairman of the Board and Chief Executive Officer:
Major Trading Corporation*
Chairman and Director:
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, RI 02903
Director:
Dreyfus Precious Metals, Inc.*
Dreyfus Service Corporation*
Seven Six Seven Agency, Inc.*
President and Director:
Dreyfus Acquisition Corporation*
The Dreyfus Consumer Credit Corporation*
Dreyfus-Lincoln, Inc.*
Dreyfus Management, Inc.*
Dreyfus Personal Management, Inc.*
Dreyfus Partnership Management, Inc.+
Dreyfus Service Organization*
The Truepenny Corporation*
Formerly, Senior Vice President:
The Chase Manhattan Bank, N.A. and
The Chase Manhattan Capital Markets Corporation
One Chase Manhattan Plaza
New York, New York 10081
William T. Sandalls, Jr. Director:
Senior Vice President and Dreyfus Partnership Management, Inc.*
Chief Financial Officer Seven Six Seven Agency, Inc.*
President and Director:
Lion Management, Inc.*
Executive Vice President and Director:
Dreyfus Service Organization, Inc.*
Vice President, Chief Financial Officer and Director:
Dreyfus Acquisition Corporation*
Vice President and Director:
The Dreyfus Consumer Credit Corporation*
The Truepenny Corporation*
Treasurer, Financial Officer and Director:
The Dreyfus Trust Company ++
Treasurer and Director:
Dreyfus Management, Inc.*
Dreyfus Personal Management, Inc.*
Dreyfus Service Corporation*
Major Trading Corporation*
Formerly, President and Director:
Sandalls & Co., Inc.
</TABLE>
C-16
<PAGE> 161
<TABLE>
<S> <C>
Barbara E. Casey President:
Vice President-Dreyfus Dreyfus Retirement Services Division;
Retirement Services Executive Vice President:
Boston Safe Deposit & Trust Co.
One Boston Place
Boston, Massachusetts 02108
Dreyfus Service Corporation*
Diane M. Coffey None
Vice President-Corporate
Communications
Elie M. Genadry President:
Vice President-Institutional Institutional Services Division of Dreyfus Service Corporation*
Sales Broker-Dealer Division of Dreyfus Service Corporation*
Group Retirement Plans Division of Dreyfus Service Corporation
Executive Vice President:
Dreyfus Service Corporation*
Dreyfus Service Organization, Inc.*
Vice President:
The Dreyfus Trust Company++
Jeffrey N. Nachman President and Director:
Vice President-Mutual Fund Dreyfus Transfer, Inc.
Accounting One American Express Plaza
Providence, RI 02903
William F. Glavin, Jr. Senior Vice President:
Vice President-Corporate The Boston Company Advisors, Inc.
Development 53 State Street
Exchange Place
Boston, Massachusetts 02109
Executive Vice President:
Dreyfus Service Corporation*
Mark N. Jacobs Vice President, Secretary and Director:
Vice President-General Lion Management, Inc.*
Counsel, and Secretary Secretary:
The Dreyfus Consumer Credit Corporation*
Dreyfus Management, Inc.*
Assistant Secretary:
Dreyfus Service Organization, Inc.*
Major Trading Corporation*
The Truepenny Corporation*
Andrew S. Wasser Vice President:
Vice President-Information Mellon Bank Corporation
Services One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
</TABLE>
C-17
<PAGE> 162
Maurice Bendrihem Treasurer:
----------
Controller Dreyfus Partnership Management,
Inc.*
Dreyfus Service Organization, Inc.*
Seven Six Seven Agency, Inc.*
The Truepenny Corporation*
Controller:
----------
Dreyfus Acquisition Corporation*
The Dreyfus Trust Company++
The Dreyfus Consumer Credit
Corporation*
Assistant Treasurer:
-------------------
Dreyfus Precious Metals*
Formerly, Vice President-Financial
----------------------------------
Planning, Administration and Tax:
---------------------------------
Showtime/The Movie Channel, Inc.
1633 Broadway
New York, New York 10019
Elvira Oslapas Assistant Secretary:
-------------------
Assistant Secretary Dreyfus Service Corporation*
Dreyfus Management, Inc.*
Dreyfus Acquisition Corporation,
Inc.*
The Truepenny Corporation
* The address of the business so indicated is 200 Park Avenue, New York,
New York 10166
** The address of the business so indicated is 80 Cutter Mill Road, Great
Neck, New York 11021 + The address of the business so indicated is
Atrium Building, 80 route 4 East, Paramus, New Jersey 07652
++ The address of the business so indicated is 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144
+++ The address of the business so indicated is One Rockefeller Plaza, New
York, New York 10020
++++ The address of the business so indicated is 2 Boulevard Royal,
Luxembourg
+++++ The address of the business so indicated is Nassau, Bahama Islands
(2) Neuberger & Berman L.P.
Neuberger & Berman, L.P. ("Neuberger & Berman") acts as
subadviser to the Small Company Fund of the Registrant and
investment adviser or subadviser to a number of other
registered investment companies. The list required by this
Item 28 of officers and directors of Neuberger & Berman,
together with information as to their other business,
profession, vocation or employment of a substantial nature
during the past two years, is incorporated by reference to
Schedules A and D of Form ADV filed by Neuberger & Berman (SEC
File No. 801-3908).
(3) Strong Capital Management, Inc.
Strong Capital Management, Inc. ("Strong"), which began
conducting business in 1974, provides continuous investment
supervision for individuals and institutional accounts, such
as pension funds and profit-sharing plans. Strong also acts as
investment adviser for each of the mutual funds within the
Strong Family of Funds, as well as acting as
dividend-disbursing agent and transfer agent for the Strong
Family of Funds.
C-18
<PAGE> 163
<TABLE>
<CAPTION>
Officers and Directors of Strong Other Business
<S> <C>
Richard S. Strong Chairman and Director:
---------------------
Chairman, Director and Strong Holdings, Inc.
Chief Investment Officer Strong Funds Distributors, Inc.
Heritage Reserve Development Corporation
Strong Family of Funds
John Dragisic President and Director:
----------------------
President and Director Strong Holdings, Inc.
Strong Family of Funds
President and Chief Executive Officer:
-------------------------------------
(From 1987 to July 1994)
Grunau Company
Milwaukee, Wisconsin
Lawrence A. Totsky Vice President of Strong (from December
Senior Vice President 1992 to September 1994)
Vice President:
--------------
Strong Family of Funds
President:
---------
Strong Funds Distributors, Inc.
Vice President:
--------------
Strong Holdings, Inc.
Thomas P. Lemke Resident Counsel for Funds Management at J.P.
Senior Vice President, Secretary ----------------
and General Counsel Morgan & Co., Inc. (from April 1992 to September
1994
Vice President:
---------------
Strong Family of Funds
Ronald A. Neville Vice President and Chief Financial Officer:
Senior Vice President and ------------------------------------------
Chief Financial Officer Strong Funds Distributors, Inc.
Vice President:
---------------
Strong Holdings, Inc.
Senior Vice President and Chief Financial Officer
-------------------------------------------------
at Twentieth Century Companies, Inc. (From 1988
until December 1994)
Treasurer:
---------
Strong Family of Funds
Ann E. Oglanian Vice President and Secretary:
----------------------------
Associate Counsel Strong Family of Funds
Thomas M. Zoeller Treasurer:
---------
Treasurer Strong Funds Distributors, Inc.
</TABLE>
(4)Van Eck Associates
Van Eck Associates Corporation ("VEAC") acts as investment adviser to a
number of investment companies including Van Eck Worldwide Insurance
Trust. Listed below are the officers and directors of VEAC and their
positions with some of the VEAC affiliates.
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<PAGE> 164
<TABLE>
<CAPTION>
Name Position with Van Eck Position with Van Eck
---- Worldwide Insurance Trust Associates Corporation
------------------------- ----------------------
<S> <C> <C>
John C. Van Eck Chairman of the Board and President Chairman of the Board
Rodger A. Lawson Trustee President, Chief Executive
Officer and Director
Fred M. Van Eck Trustee Director
Sigrid S. Van Eck ---- Director, Vice President &
Assistant Treasurer
Derek S. Van Eck Executive Vice President Director, Executive President
Director, - Global Investments
Jan F. Van Eck --- Director
Henry J. Bingham Executive Vice President Executive Managing Director
Lucille Palermo --- Associate Director, Mining
Research
William A. Trebilcock --- Director, Mining Research
Madis Semner Executive Vice President Director, Global Fixed Income
Kevin Reid Vice President Director, Real Estate Research
Charles Cameron Vice President Director, Trading
Michael G. Dootley Vice President Sr. Vice President, Treasurer,
Controller and Chief Financial
Officer
Paul DiPerna Vice President Associate Manager, Trading
Bruce J. Smith Vice President and Treasurer Senior Managing Director,
Portfolio Accounting
Stephen Ilnitzki Vice President Chief Operating Officer
Thaddeus Leszczynski Vice President and Secretary Vice President, General
Counsel and Secretary
</TABLE>
(5)Pictet International Management Limited
The information concerning Pictet International Management Limited
("PIML") and its officers and directors is incorporated by reference to
the information contained under "Management of the Fund" in the Small
Company Fund's prospectus and to Schedules A and D of Form ADV filed by
PIML (SEC File No. 801-15143).
C-20
<PAGE> 165
(6)Warburg, Pincus Counsellors, Inc.
Warburg, Pincus Counsellors, Inc. ("Warburg") acts as subadviser to the
Small Company Fund and investment adviser to a number of other registered
investment companies. Warburg renders investment advice to a wide variety
of individual and institutional investors. The list required by this Item
28 of officers and directors of Warburg, together with information as to
their other business, profession, vocation or employment of a substantial
nature during the past two years, is incorporated by reference to
Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).
(c) Information for the Subadvisers of the Income Fund
(1) NCM Capital Management Group, Inc.
NCM Capital Management Group, Inc. ("NCM") is a registered
investment adviser which provides investment advisory services
to individuals and institutional clients. NCM also serves as
subadviser to other investment companies registered under the
Investment Company of 1940; these investment companies are
unaffiliated with NCM except as a result of these subadvisory
relationships.
MACEO K. SLOAN*
Chairman, President & CEO and Director
PCS Development Corporation-Wireless Communications
Chairman
Sloan Communications-Wireless Communications
Chairman & CEO
TIAA/CREF-Insurance
Director
Mechanics & Farmers Bank-Banking
Director
New Africa Advisers-Investment Management
Chairman
Sloan Financial Group-Holding Company
Chairman, President & CEO
Calvert New Africa Fund-Investment Management
Director/Portfolio Manager
JUSTIN F. BECKETT*
Executive Vice President and Director
PCS Development Corporation-Wireless Communications
Director
New Africa Advisers-Investment Management
President & CEO/Director
C-21
<PAGE> 166
Sloan Communications-Wireless Communications
President
Sloan Financial Group-Holding Company
Executive Vice President/Director
Calvert New Africa Fund-Investment Management
Portfolio Manager
CLIFFORD D. MPARE*
Director of Investments
New Africa Advisers-Investment Management
Director/Chief Investment Officer
Calvert New Africa Fund-Investment Management
Portfolio Manager
EDITH H. NOEL*
Corporate Secretary/Treasurer
Sloan Financial Group-Holding Company
Corporate Secretary/Treasurer
PETER JON ANDERSON**
Director
American Express Financial Corporation
Director and Senior Vice President
IDS Advisory Group Inc.
Director, Chairman and CIO
American Express Financial Advisers
Senior Vice President
IDS International, Inc.
Director, Chairman and Executive Vice President
American Express Securities Service
Vice President
MORRIS GOODWIN, JR.**
Director
American Express Financial Advisors Inc.
Vice President and Corporate Treasurer
American Express Financial Corporation
Vice President and Corporate Treasurer
C-22
<PAGE> 167
IDS Advisory Group Inc.
Vice President and Treasurer
IDS International, Inc.
Vice President and Treasurer
American Express Securities Service
Vice President and Treasurer
*The principal business address for Messers Sloan, Beckett and Moore
and Ms. Noel is 103 West Main Street, Durham, NC.
**The principal business address for Messers. Anderson and Goodwin is
IDS Tower 10, Minneapolis, MN.
(2) Smith Graham & Co. Asset Managers, L.P.
Smith Graham & Co. Asset Managers, L.P. ("Smith Graham") is a
registered investment adviser which provides investment advisory
services to individuals, corporations, pension and profit sharing
plans, as well as banks, thrift institutions, trust, estates and/or
charitable organizations. Smith Graham also serves as subadviser to the
American Odyssey Short-Term Bond Fund, an investment company registered
under the Investment Company of 1940; this investment company is
unaffiliated with Smith Graham except as a result of these subadvisory
relationships.
The following is a list of the individuals who are the principal
officers and management committee for Smith Graham and their principal
occupations for the last two years:
<TABLE>
<S> <C>
Gerald B. Smith Chairman and Chief Executive Officer of Smith Graham
Ladell Graham President and Chief Investment Officer of Smith Graham
Jamie G. House Executive Vice President and Chief Financial Officer of Smith Graham
Gilbert A. Carcia Executive Vice President and Director of Marketing of Smith Graham
from January 1996 to present
President of Cisneros Asset Management Company until December
1995
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
James F. Laird, Jr.
Nationwide Financial Services, Inc.
One Nationwide Plaza
Columbus, OH 43216
ITEM 31. MANAGEMENT SERVICES
Not applicable.
C-23
<PAGE> 168
ITEM 32. UNDERTAKINGS
(a) 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 post-effective amendment to the
Registrant's Registration Statement adding the Income Fund.
C-24
<PAGE> 169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 22 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 21st day of October 1996.
NATIONWIDE SEPARATE ACCOUNT TRUST
By: /s/ JAMES F. LAIRD, JR.
-----------------------------------
James F. Laird, Jr., Treasurer
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THIS POST-EFFECTIVE
AMENDMENT NO. 22 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 21ST DAY OF OCTOBER, 1996.
Signature & Title
- -----------------
Principal Executive Officer
D. RICHARD MCFERSON*
- -----------------------------------------
D. Richard McFerson, Trustee and Chairman
Principal Accounting and Financial Officer
JAMES F. LAIRD, JR.
- -----------------------------------------
James F. Laird, Jr., Treasurer
JOHN C. BRYANT*
- -----------------------------------------
John C. Bryant, Trustee
ROBERT M. DUNCAN*
- -----------------------------------------
Robert M. Duncan, Trustee
THOMAS J. KERR, IV*
- -----------------------------------------
Thomas J. Kerr, IV, Trustee
* By: JAMES F. LAIRD, JR.,
-----------------------------------------
James F. Laird, Jr., Attorney-In-Fact
<PAGE> 170
EXHIBIT INDEX
Exhibit
- -------
<TABLE>
<S> <C>
5(d) Investment Advisory Agreement for Income Fund
5(e)(1) Subadvisory Agreement with NCM Capital Management Group, Inc.
5(e)(2) Subadvisory Agreement with Smith Graham & Co. Asset Managers, L.P.
11 Auditors' Consent
17 Financial Data Schedules
</TABLE>
<PAGE> 1
Exhibit 5(d)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of January,
1997 between NATIONWIDE SEPARATE ACCOUNT TRUST (the "Trust"), a Massachusetts
business trust, and NATIONWIDE ADVISORY SERVICES, INC. (the "Adviser"), an Ohio
corporation registered under the Investment Advisers Act of 1940 (the "Advisers
Act").
W I T N E S S E T H :
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940 (the "1940 Act");
WHEREAS, the Trust desires to retain the Adviser to furnish certain
investment advisory and administrative services, as described herein, to a newly
created portfolio of the Trust, the Nationwide Income Fund (the "Fund"); and
WHEREAS, the Adviser represents that it is willing and possesses legal
authority to render such services subject to the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, the Trust and Adviser do mutually agree and promise as
follows:
1. Appointment as Adviser. The Trust hereby appoints the Adviser to act
as investment adviser to the Fund subject to the terms and conditions set forth
in this Agreement. The Adviser hereby accepts such appointment and agrees to
furnish the services hereinafter described for the compensation provided for in
this Agreement.
2. Duties of Adviser.
(a) Investment Management Services. (1) Subject to the
supervision of the Trust's Board of Trustees, the Adviser will provide,
or arrange for the provision of, a continuous investment program for
the Fund, including investment research and management with respect to
all securities and investments and cash equivalents in the Fund. The
Adviser will determine, or arrange for others to determine, from time
to time what securities and other investments will be purchased,
retained or sold by the Fund and will implement, or arrange for others
to implement, such determinations through the placement, in the name of
the Fund, of orders for the execution of portfolio transactions with or
through such brokers or dealers as may be selected. The Adviser will
provide, or arrange for the provision of, the services under this
Agreement in accordance with the stated investment policies and
restrictions of the Fund as set forth in the Fund's current prospectus
and statement of additional information as currently in effect and as
supplemented or amended from time to time (collectively referred
<PAGE> 2
to hereinafter as the "Prospectus") and subject to the directions of
the Trust's Board of Trustees.
(2) Subject to the provisions of this Agreement and the 1940
Act, the Adviser intends to, and is authorized to, appoint one or more
qualified subadvisers (each a "Subadviser") to provide the Fund with
certain services required by this Agreement. Each Subadviser shall have
full investment discretion and shall make all determinations with
respect to the investment of the Fund's assets assigned to that
Subadviser and the purchase and sale of portfolio securities with
respect to those assets and shall take such steps as may be necessary
to implement its decisions. The Adviser shall not be responsible or
liable for the investment merits of any decision by a Subadviser to
purchase, hold, or sell a security for the Fund.
(3) Subject to the supervision and direction of the Trustees,
the Adviser shall (i) have overall supervisory responsibility for the
general management and investment of the Fund's assets; (ii) determine
the allocation of assets among the Subadvisers; and (iii) have full
investment discretion to make all determinations with respect to the
investment of Fund assets not assigned to a Subadviser.
(4) The Adviser shall research and evaluate each Subadviser,
including (i) performing initial due diligence on prospective
Subadviser and monitoring each Subadviser's ongoing performance; (ii)
communicating performance expectations and evaluations to the
Subadvisers; and (iii) recommending to the Trust's Board of Trustees
whether a Subadviser's contract should be renewed, modified or
terminated. The Adviser shall also recommend changes or additions to
the Subadvisers and shall compensate the Subadvisers.
(5) The Adviser shall provide to the Trust's Board of Trustees
such periodic reports concerning the Fund's business and investments as
the Board of Trustees shall reasonably request.
(b) Compliance with Applicable Laws and Governing Documents.
In the performance of its duties and obligations under this Agreement,
the Adviser shall act in conformity with the Trust's Declaration of
Trust and By-Laws and the Prospectus and with the instructions and
directions received from the Trustees of the Trust and will conform to
and comply with the requirements of the 1940 Act, the Internal Revenue
Code of 1986, as amended (the "Code") (including the requirements for
qualification as a regulated investment company) and all other
applicable federal and state laws and regulations.
The Adviser acknowledges and agrees that subject to the
supervision and directions of the Trust's Board of Trustees, it shall
be solely responsible for compliance with all disclosure requirements
under all applicable federal and state laws and regulations relating to
the Trust or the Fund, including, without limitation, the 1940 Act, and
the rules and regulations thereunder, except that each Subadviser shall
have liability in connection with material information furnished by the
Subadviser to the Fund or to the Adviser.
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(c) Consistent Standards. It is recognized that the Adviser
will perform various investment management and administrative services
for entities other than the Trust and the Fund; in connection with
providing such services, the Adviser agrees to exercise the same skill
and care in performing its services under this Agreement as the Adviser
exercises in performing similar services with respect to the other
fiduciary accounts for which the Adviser has investment
responsibilities.
(d) Brokerage. The Adviser is authorized, subject to the
supervision of the Trust's Board of Trustees, to establish and maintain
accounts on behalf of the Fund with, and place orders for the purchase
and sale of assets not allocated to a Subadviser, with or through, such
persons, brokers or dealers ("brokers") as Adviser may elect and
negotiate commissions to be paid on such transactions. The Adviser
shall place all orders for the purchase and sale of such portfolio
investments for the Fund's account with brokers selected by the
Adviser. In the selection of such brokers and the placing of such
orders, the Adviser shall seek to obtain for the Fund the most
favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and
research services, as provided below. In using its reasonable efforts
to obtain for the Fund the most favorable price and execution
available, the Adviser, bearing in mind the Fund's best interests at
all times, shall consider all factors it deems relevant, including
price, the size of the transaction, the nature of the market for the
security, the amount of the commission, if any, the timing of the
transaction, market prices and trends, the reputation, experience and
financial stability of the broker involved, and the quality of service
rendered by the broker in other transactions. Subject to such policies
as the Trustees may determine, the Adviser shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement
or otherwise solely by reason of its having caused the Fund to pay a
broker that provides brokerage and research services to the Adviser an
amount of commission for effecting a Fund investment transaction that
is in excess of the amount of commission that another broker would have
charged for effecting that transaction.
It is recognized that the services provided by such brokers
may be useful to the Adviser in connection with the Adviser's services
to other clients. On occasions when the Adviser deems the purchase or
sale of a security to be in the best interests of the Fund as well as
other clients of the Adviser, the Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation
to, aggregate the securities to be sold or purchased in order to obtain
the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of securities so sold or
purchased, as well as the expenses incurred in the transaction, will be
made by the Adviser in the manner the Adviser considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and
to such other clients.
(e) Securities Transactions. The Adviser will not purchase
securities or other instruments from or sell securities or other
instruments to the Fund; provided, however, the Adviser may purchase
securities or other instruments from or sell securities or other
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instruments to the Fund if such transaction is permissible under
applicable laws and regulations, including, without limitation, the
1940 Act and the Advisers Act and the rules and regulations promulgated
thereunder.
The Adviser agrees to observe and comply with Rule 17j-1 under
the 1940 Act and the Trust's Code of Ethics, as the same may be amended
from time to time.
(f) Books and Records. Pursuant to the 1940 Act and the rules
and regulations promulgated thereunder, the Adviser shall maintain
separate books and detailed records of all matters pertaining to the
Fund and the Trust (the "Fund's Books and Records"), including, without
limitation, a daily ledger of such assets and liabilities relating
thereto and brokerage and other records of all securities transactions.
The Adviser shall also require that its Access Persons (as defined in
subsection (e) of Rule 17j-1 under the 1940 Act) provide the Adviser
with monthly reports of their personal securities transactions. The
Fund's Books and Records shall be available to the Trust at any time
upon request and shall be available for telecopying without delay to
the Trust during any day that the Fund is open for business.
3. Expenses. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund. The Adviser shall, at its sole expense, employ or
associate itself with such persons as it believes to be particularly fitted to
assist it in the execution of its duties under this Agreement. The Adviser shall
also reimburse the Trust for the compensation and expenses of the Trustees of
Trust who are "interested persons" (as defined in the 1940 Act) of the Adviser.
It is understood that the Trust will pay all of its own expenses
including, without limitation, (1) all charges and expenses of any custodian or
depository appointed by the Trust for the safekeeping of its cash, securities
and other assets, (2) the charges and expenses of independent certified public
accountants and of general ledger accounting and internal reporting services for
the Trust, (3) the charges and expenses of any transfer agents and registrars
appointed by the Trust, (4) the charges and expenses of dividend and capital
gain distributions, (5) the compensation and expenses of Trustees of the Trust
who are not "interested persons" of the Adviser, (6) brokerage commissions and
issue and transfer taxes chargeable to the Trust in connection with securities
transactions to which the Trust is a party, (7) all taxes and fees payable by
the Trust to Federal, State or other governmental agencies, (8) the cost of
stock certificates representing shares of the Trust, (9) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and distributing
prospectuses and reports to shareholders, (10) charges and expenses of legal
counsel for the Trust in connection with legal matters relating to the Trust,
including without limitation, legal services rendered in connection with the
Trust's existence, financial structure and relations with its shareholders, and
expenses which the Trust has herein assumed, (11) insurance and bonding
premiums, (12) association membership dues, (13) bookkeeping and the calculation
of the net asset value of shares of the Trust's funds, and (14) expenses
relating to the issuance, registration and qualification of the Trust's shares.
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<PAGE> 5
4. Compensation. For the services provided and the expenses assumed
with respect to the Fund pursuant to this Agreement, the Adviser will be
entitled to a fee, computed daily and payable monthly, calculated at the annual
rate of 1.00% of the Fund's average daily net assets.
The method of determining net assets of the Fund for purposes hereof
shall be the same as the method of determining net assets for purposes of
establishing the offering and redemption price of the Shares as described in the
Fund's Prospectus. If this Agreement shall be effective for only a portion of a
month, the aforesaid fee shall be prorated for the portion of such month during
which this Agreement is in effect.
Notwithstanding any other provision of this Agreement, the Adviser may
from time to time agree not to impose all or a portion of its fee otherwise
payable hereunder (in advance of the time such fee or portion thereof would
otherwise accrue). Any such fee reduction may be discontinued or modified by the
Adviser at any time.
5. Representations and Warranties of Adviser. The Adviser represents
and warrants to the Trust as follows:
(a) The Adviser is registered as an investment adviser under
the Advisers Act;
(b) The Adviser is a corporation duly organized and validly
existing under the laws of the State of Ohio with the power to own and
possess its assets and carry on its business as it is now being
conducted;
(c) The execution, delivery and performance by the Adviser of
this Agreement are within the Adviser's powers and have been duly
authorized by all necessary action on the part of its shareholders, and
no action by or in respect of, or filing with, any governmental body,
agency or official is required on the part of the Adviser for the
execution, delivery and performance by the Adviser of this Agreement,
and the execution, delivery and performance by the Adviser of this
Agreement do not contravene or constitute a default under (i) any
provision of applicable law, rule or regulation, (ii) the Adviser's
governing instruments, or (iii) any agreement, judgment, injunction,
order, decree or other instrument binding upon the Adviser;
(d) The Form ADV of the Adviser previously provided to the
Trust is a true and complete copy of the form filed with the SEC and
the information contained therein is accurate and complete in all
material respects and does not omit to state any material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
6. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Adviser pursuant to
Section 5 shall survive for the
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<PAGE> 6
duration of this Agreement and the parties hereto shall promptly notify each
other in writing upon becoming aware that any of the foregoing representations
and warranties are no longer true.
7. Liability and Indemnification.
(a) Liability. In the absence of wilful misfeasance, bad faith
or gross negligence on the part of the Adviser or a reckless disregard
of its duties hereunder, the Adviser shall not be subject to any
liability to the Fund or the Trust, for any act or omission in the case
of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of Fund assets;
provided, however, that nothing herein shall relieve the Adviser from
any of its obligations under applicable law, including, without
limitation, the federal and state securities laws. In addition, in no
case shall the Adviser be liable for actions taken or not taken by it
in accordance with specified information, instructions or requests
given or made to the Adviser by an officer or Trustee of the Trust.
(b) Indemnification. The Adviser shall indemnify the Trust and
its officers and trustees, for any liability and expenses, including
attorneys fees, which may be sustained as a result of the Adviser's
wilful misfeasance, bad faith, gross negligence, reckless disregard of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws.
8. Duration and Termination.
(a) Duration. Unless sooner terminated, this Agreement shall
continue until October 20, 1997 and thereafter shall continue
automatically for successive annual periods, provided such continuance
is specifically approved at least annually by the Trust's Board of
Trustees or vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (b) more than
50% of the outstanding shares of the Fund; provided that in either
event its continuance also is approved by a majority of the Trust's
Trustees who are not "interested persons" (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
(b) Termination. Notwithstanding whatever may be provided
herein to the contrary, this Agreement may be terminated at any time,
without payment of any penalty by vote of a majority of the Trust's
Board of Trustees, or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, in each case, upon sixty
(60) days' written notice to the other party.
This Agreement shall not be assigned (as such term is defined in the
1940 Act) and shall terminate automatically in the event of its assignment.
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9. Services Not Exclusive. The services furnished by the Adviser
hereunder are not to be deemed exclusive, and the Adviser shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. It is understood that the action taken by the Adviser
under this Agreement may differ from the advice given or the timing or nature of
action taken with respect to other clients of the Adviser, and that a
transaction in a specific security may not be accomplished for all clients of
the Adviser at the same time or at the same price.
10. Amendment. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment shall be approved by the
Trust's Board of Trustees or by a vote of a majority of the outstanding voting
securities of the Fund (as required by the 1940 Act).
11. Confidentiality. Subject to the duties of the Adviser and the Fund
to comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Fund and the actions of the Adviser and the
Fund in respect thereof.
12. Notice. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be in writing, delivered, or
mailed postpaid to the other party, or transmitted by facsimile with
acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
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<PAGE> 8
(a) If to the Adviser:
Nationwide Advisory Services, Inc.
One Nationwide Plaza, 25-T
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
(b) If to the Fund:
Nationwide Separate Account Trust
One Nationwide Plaza, 25-T
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
13. Jurisdiction. This Agreement shall be governed by and construed to
be in accordance with substantive laws of the Commonwealth of Massachusetts
without reference to choice of law principles thereof and in accordance with the
1940 Act. In the case of any conflict, the 1940 Act shall control.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, all of which shall
together constitute one and the same instrument.
15. Certain Definitions. For the purposes of this Agreement,
"interested person," "affiliated person," "assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to such
exemptions as may be granted by the SEC.
16. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
17. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision or applicable law, the remainder of the
Agreement shall not be affected adversely and shall remain in full force and
effect.
18. Nationwide Separate Account Trust and its Trustees. The terms
"Nationwide Separate Account Trust" and the "Trustees of Nationwide Separate
Account Trust" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated as of June 30, 1981, as has been or may be amended
from time to time, and to which reference is hereby made and a copy of which is
on file at the office of the Secretary of State of The Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of the Trust entered into
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<PAGE> 9
in the name or on behalf thereof by any of Nationwide Separate Account Trust's
Trustees, representatives, or agents are not made individually, but only in
their capacities with respect to Nationwide Separate Account Trust. Such
obligations are not binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the assets of the Trust.
All persons dealing with any series of Shares of the Trust must look solely to
the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
ADVISER
NATIONWIDE ADVISORY SERVICES, INC.
By:__________________________________
Name:
Title:
TRUST
NATIONWIDE SEPARATE ACCOUNT TRUST
By:__________________________________
Name:
Title:
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<PAGE> 1
Exhibit 5(e)(1)
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of January,
1997 among NATIONWIDE SEPARATE ACCOUNT TRUST, a Massachusetts business trust
(the "Trust"), on behalf of the Nationwide Income Fund (the "Fund"), NATIONWIDE
ADVISORY SERVICES, INC. (the "Adviser"), an Ohio corporation registered under
the Investment Advisers Act of 1940 (the "Advisers Act"), and NCM CAPITAL
MANAGEMENT GROUP, INC. (the "Subadviser"), a North Carolina corporation also
registered under the Advisers Act.
W I T N E S S E T H :
WHEREAS, the Trust, a Massachusetts business trust (the "Trust"), is
registered with the Securities and Exchange Commission (the "SEC") as an
open-end management investment company under the Investment Company Act of 1940
(the "1940 Act");
WHEREAS, the Adviser has, pursuant to an Advisory Agreement with the
Trust dated as of January ___, 1997 (the "Advisory Agreement"), been retained to
act as investment adviser for the Fund, one of the Trust's portfolios;
WHEREAS, the Advisory Agreement permits the Adviser to delegate certain
of its duties under the Advisory Agreement to other investment advisers, subject
to the requirements of the 1940 Act; and
WHEREAS, the Adviser desires to retain Subadviser to assist it in the
provision of a continuous investment program for that portion of the Fund's
assets which the Adviser will assign to the Subadviser (the "Subadviser
Assets"), and Subadviser is willing to render such services subject to the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, the parties do mutually agree and promise as follows:
1. Appointment as Subadviser. The Adviser hereby retains the Subadviser
to act as investment adviser for and to manage the Subadviser Assets subject to
the supervision of the Adviser and the Board of Trustees of the Trust and
subject to the terms of this Agreement; and the Subadviser hereby accepts such
employment. In such capacity, the Subadviser shall be responsible for the
investment management of the Subadviser Assets. It is recognized that the
Subadviser now acts, and that from time to time hereafter may act, as investment
adviser to one or more other investment companies and to fiduciary or other
managed accounts and that the Adviser and the Trust have no objection to such
activities.
2. Duties of Subadviser.
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(a) Investments. The Subadviser is hereby authorized and
directed and hereby agrees, subject to the stated investment policies
and restrictions of the Fund as set forth in the Fund's current
prospectus and statement of additional information as currently in
effect and as supplemented or amended from time to time (collectively
referred to hereinafter as the "Prospectus") and subject to the
directions of the Adviser and the Fund's Board of Trustees, to
purchase, hold and sell investments for the Subadviser Assets ("Fund
Investments") and to monitor on a continuous basis the performance of
such Fund Investments. In providing these services, the Subadviser will
conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Fund's assets. The Adviser
agrees to provide to the Subadviser with such assistance as may be
reasonably requested by the Subadviser in connection with its
activities under this Agreement, including, without limitation,
information concerning the Fund, its funds available, or to become
available, for investment and generally as to the conditions of the
Fund's affairs.
(b) Compliance with Applicable Laws and Governing Documents.
In the performance of its duties and obligations under this Agreement,
the Subadviser shall act in conformity with the Trust's Declaration of
Trust and By-Laws and the Prospectus and with the instructions and
directions received in writing from the Adviser or the Trustees of the
Trust and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986, as amended (the "Code")
(including the requirements for qualification as a regulated investment
company) and all other applicable federal and state laws and
regulations. Notwithstanding the foregoing, the Adviser shall remain
responsible for ensuring the Fund's overall compliance with the 1940
Act, the Code and all other applicable federal and state laws and
regulations and the Subadviser is only obligated to comply with this
subsection (b) with respect to the Subadviser Assets.
The Adviser will provide the Subadviser with reasonable
advance notice of any change in the Fund's investment objectives,
policies and restrictions as stated in the Prospectus, and the
Subadviser shall, in the performance of its duties and obligations
under this Agreement, manage the Fund Investments consistent with such
changes, provided the Subadviser has received prompt notice of the
effectiveness of such changes from the Trust or the Adviser. For
purposes of this subsection, receipt of a modified Prospectus by the
Subadviser shall constitute notice of the effectiveness of such
changes. The Adviser acknowledges and agrees that the Prospectus will
at all times be in compliance with all disclosure requirements under
all applicable federal and state laws and regulations relating to the
Trust or the Fund, including, without limitation, the 1940 Act, and the
rules and regulations thereunder, and that the Subadviser shall have no
liability in connection therewith, except as to the accuracy of
material information furnished by the Subadviser to the Fund or to the
Adviser specifically for inclusion in the Prospectus. The Subadviser
hereby agrees to provide to the Adviser in a timely manner such
information relating to the Subadviser and its relationship to, and
actions for, the Fund as may be required to be contained in the
Prospectus.
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(c) Voting of Proxies. The Subadviser shall have the power to
vote, either in person or by proxy, all securities in which the
Subadviser Assets may be invested from time to time, and shall not be
required to seek or take instructions from, the Adviser or the Fund or
take any action with respect thereto. If both the Subadviser and
another entity managing assets of the Fund have invested in the same
security, the Subadviser and such other entity will each have the power
to vote its pro rata share of the security.
(d) Agent. Subject to any other written instructions of the
Adviser or the Trust, the Subadviser is hereby appointed the Adviser's
and the Trust's agent and attorney-in-fact for the limited purposes of
executing account documentation, agreements, contracts and other
documents as the Subadviser shall be requested by brokers, dealers,
counterparties and other persons in connection with its management of
the assets of the Fund. The Subadviser agrees to provide the Adviser
and the Trust with copies of any such agreements executed on behalf of
the Adviser or the Trust.
(e) Brokerage. The Subadviser is authorized, subject to the
supervision of the Adviser and the Trust's Board of Trustees, to
establish and maintain accounts on behalf of the Fund with, and place
orders for the purchase and sale of the Fund Investments with or
through, such persons, brokers or dealers ("brokers") as Subadviser may
elect and negotiate commissions to be paid on such transactions. The
Subadviser, however, is not required to obtain the consent of the
Adviser or the Trust's Board of Trustees prior to establishing any such
brokerage account. The Subadviser shall place all orders for the
purchase and sale of portfolio investments for the Fund's account with
brokers selected by the Subadviser. In the selection of such brokers
and the placing of such orders, the Subadviser shall seek to obtain for
the Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services, as provided below. In using its
reasonable efforts to obtain for the Fund the most favorable price and
execution available, the Subadviser, bearing in mind the Fund's best
interests at all times, shall consider all factors it deems relevant,
including price, the size of the transaction, the breadth and nature of
the market for the security, the difficulty of the execution, the
amount of the commission, if any, the timing of the transaction, market
prices and trends, the reputation, experience and financial stability
of the broker involved, and the quality of service rendered by the
broker in other transactions. Subject to such policies as the Trustees
may determine, or as may be mutually agreed to by the Adviser and the
Subadviser, the Subadviser shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker that
provides brokerage and research services to the Subadviser an amount of
commission for effecting a Fund investment transaction that is in
excess of the amount of commission that another broker would have
charged for effecting that transaction.
It is recognized that the services provided by such brokers
may be useful to the Subadviser in connection with the Subadviser's
services to other clients. On occasions when the Subadviser deems the
purchase or sale of a security to be in the best interests of the Fund
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<PAGE> 4
as well as other clients of the Subadviser, the Subadviser, to the
extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of securities so sold or purchased, as well as the expenses
incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and consistent
with its fiduciary obligations to the Fund and to such other clients.
It is recognized that in some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the
position obtainable for, or disposed of by, the Fund.
(f) Securities Transactions. The Subadviser and any affiliated
person of the Subadviser will not purchase securities or other
instruments from or sell securities or other instruments to the Fund;
provided, however, the Subadviser may purchase securities or other
instruments from or sell securities or other instruments to the Fund if
such transaction is permissible under applicable laws and regulations,
including, without limitation, the 1940 Act and the Advisers Act and
the rules and regulations promulgated thereunder.
The Subadviser, including its Access Persons (as defined in
subsection (e) of Rule 17j- 1 under the 1940 Act), agrees to observe
and comply with Rule 17j-1 and its Code of Ethics (which shall comply
in all material respects with Rule 17j-1), as the same may be amended
from time to time. On a quarterly basis, the Subadviser will either (i)
certify to the Adviser that the Subadviser and its Access Persons have
complied with the Subadviser's Code of Ethics with respect to the
Subadviser Assets or (ii) identify any violations which have occurred
with respect to the Subadviser Assets.
(g) Books and Records. Pursuant to the 1940 Act and the rules
and regulations promulgated thereunder, the Subadviser shall maintain
separate books and detailed records of all matters pertaining to the
Subadviser Assets (the "Fund's Books and Records"), including, without
limitation, a daily ledger of such assets and liabilities relating
thereto and brokerage and other records of all securities transactions.
The Fund's Books and Records (relating to the Subadviser Assets) shall
be available to the Adviser at any time upon reasonable request during
normal business hours and shall be available for telecopying without
delay to the Adviser during any day that the Fund is open for business.
(h) Information Concerning Fund Investments and Subadviser.
From time to time as the Adviser or the Fund may request, the
Subadviser will furnish the requesting party reports on portfolio
transactions and reports on Fund Investments held in the portfolio, all
in such detail as the Adviser or the Fund may reasonably request. The
Subadviser will also inform the Adviser in a timely manner of material
changes in portfolio managers responsible for Subadviser Assets or of
material changes in the control of the Subadviser. The Subadviser will
make available its officers and employees to meet with the Trust's
Board of Trustees on due notice to review the Fund Investments.
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The Subadviser will also provide such information or perform
such additional acts as are customarily performed by a subadviser and
may be required for the Fund or the Adviser to comply with their
respective obligations under applicable laws, including, without
limitation, the Code, the 1940 Act, the Advisers Act, the Securities
Act of 1933, as amended (the "Securities Act") and any state securities
laws, and any rule or regulation thereunder.
(i) Custody Arrangements. The Subadviser shall on each
business day provide the Adviser and the Trust's custodian such
information as the Adviser and the Trust's custodian may reasonably
request relating to all transactions concerning the Fund Investments.
3. Independent Contractor. In the performance of its duties hereunder,
the Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Fund or the Adviser in any way or
otherwise be deemed an agent of the Fund or the Adviser.
4. Expenses. During the term of this Agreement, Subadviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased for the
Fund. The Subadviser shall, at its sole expense, employ or associate itself with
such persons as it believes to be particularly fitted to assist it in the
execution of its duties under this Agreement. The Subadviser shall not be
responsible for the Trust's, the Fund's or Adviser's expenses. The Trust or the
Adviser, as the case may be, shall reimburse the Subadviser for any expenses of
the Fund or the Adviser as may be reasonably incurred by such Subadviser on
behalf of the Fund or the Adviser. The Subadviser shall keep and supply to the
Trust and the Adviser reasonable records of all such expenses.
5. Compensation. For the services provided and the expenses assumed
with respect to the Fund pursuant to this Agreement, the Subadviser will be
entitled to a fee, computed daily and payable no later than the seventh (7th)
business day following the end of each month, from the Adviser or the Trust,
calculated at the annual rate of .25% of the Subadviser Assets' average daily
net assets for the first $100 million of Subadviser Assets and 0.15% of the
Subadviser Assets' average daily net assets on Subadviser Assets in excess of
$100 million. This fee for the Subadviser is subject to annual minimum fee of
$15,000.
The method of determining net assets of the Fund for purposes hereof
shall be the same as the method of determining net assets for purposes of
establishing the offering and redemption price of the Shares as described in the
Fund's Prospectus. If this Agreement shall be effective for only a portion of a
month, the aforesaid fee shall be prorated for the portion of such month during
which this Agreement is in effect.
Notwithstanding any other provision of this Agreement, the Subadviser
may from time to time agree not to impose all or a portion of its fee otherwise
payable hereunder (in advance of the time
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<PAGE> 6
such fee or portion thereof would otherwise accrue). Any such fee reduction may
be discontinued or modified by the Subadviser at any time.
6. Representations and Warranties of Subadviser. The Subadviser
represents and warrants to the Adviser and the Fund as follows:
(a) The Subadviser is registered as an investment adviser
under the Advisers Act;
(b) The Subadviser has filed a notice of exemption pursuant to
Rule 4.14 under the Commodity Exchange Act (the "CEA") with the
Commodity Futures Trading Commission (the "CFTC") and the National
Futures Association, or is not required to file such exemption;
(c) The Subadviser is a corporation duly organized and validly
existing under the laws of the State of North Carolina with the power
to own and possess its assets and carry on its business as it is now
being conducted;
(d) The execution, delivery and performance by the Subadviser
of this Agreement are within the Subadviser's powers and have been duly
authorized by all necessary action on the part of its shareholders, and
no action by or in respect of, or filing with, any governmental body,
agency or official is required on the part of the Subadviser for the
execution, delivery and performance by the Subadviser of this
Agreement, and the execution, delivery and performance by the
Subadviser of this Agreement do not contravene or constitute a default
under (i) any provision of applicable law, rule or regulation, (ii) the
Subadviser's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the
Subadviser;
(e) The Form ADV of the Subadviser previously provided to the
Adviser is a true and complete copy of the form filed with the SEC and
the information contained therein is accurate and complete in all
material respects and does not omit to state any material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
7. Representations and Warranties of Adviser. The Adviser represents
and warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under
the Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to
Rule 4.14 under the CEA with the CFTC and the National Futures
Association or is not required to file such exemption;
6
<PAGE> 7
(c) The Adviser is a corporation duly organized and validly
existing under the laws of the State of Ohio with the power to own and
possess its assets and carry on its business as it is now being
conducted;
(d) The execution, delivery and performance by the Adviser of
this Agreement are within the Adviser's powers and have been duly
authorized by all necessary action on the part of its shareholders, and
no action by or in respect of, or filing with, any governmental body,
agency or official is required on the part of the Adviser for the
execution, delivery and performance by the Adviser of this Agreement,
and the execution, delivery and performance by the Adviser of this
Agreement do not contravene or constitute a default under (i) any
provision of applicable law, rule or regulation, (ii) the Adviser's
governing instruments, or (iii) any agreement, judgment, injunction,
order, decree or other instrument binding upon the Adviser;
(e) The Form ADV of the Adviser previously provided to the
Subadviser is a true and complete copy of the form filed with the SEC
and the information contained therein is accurate and complete in all
material respects and does not omit to state any material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading;
(f) The Adviser acknowledges that it received a copy of the
Subadviser's Form ADV prior to the execution of this Agreement; and
(g) The Adviser and the Trust have duly entered into the
Advisory Agreement pursuant to which the Trust authorized the Adviser
to enter into this Agreement.
8. Representations and Warranties of the Trust. The Trust represents
and warrants to the Adviser and the Subadviser as follows:
(a) The Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with the
power to own and possess its assets and carry on its business as it is
now being conducted;
(b) The Trust is registered as an investment company under the
1940 Act and the Fund's shares are registered under the Securities Act;
and
(c) The execution, delivery and performance by the Trust of
this Agreement are within the Trust's powers and have been duly
authorized by all necessary action on the part of the Trust and its
Board of Trustees, and no action by or in respect of, or filing with,
any governmental body, agency or official is required on the part of
the Trust for the execution, delivery and performance by the Adviser of
this Agreement, and the execution, delivery and performance by the
Trust of this Agreement do not contravene or constitute a default under
(i) any provision of applicable law, rule or regulation, (ii) the
Trust's governing instruments,
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<PAGE> 8
or (iii) any agreement, judgment, injunction, order, decree or other
instrument binding upon the Trust.
9. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Subadviser and the
Adviser pursuant to Sections 6, 7 and 8, respectively, shall survive for the
duration of this Agreement and the parties hereto shall promptly notify each
other in writing upon becoming aware that any of the foregoing representations
and warranties are no longer true.
10. Liability and Indemnification.
(a) Liability. Except to the extent that the Subadviser is
liable to the Trust or any other party as a direct result of the action
or inaction of the Subadviser and in the absence of wilful misfeasance,
bad faith or gross negligence on the part of the Subadviser or a
reckless disregard of its duties hereunder, the Subadviser, each of its
affiliates and all respective partners, officers, directors and
employees ("Affiliates") and each person, if any, who within the
meaning of the Securities Act controls the Subadviser ("Controlling
Persons") shall not be subject to any expenses or liability to the
Adviser, the Trust or the Fund or any of the Fund's shareholders. In
the absence of wilful misfeasance, bad faith or gross negligence on the
part of the Adviser or a reckless disregard of its duties hereunder,
the Adviser, any of its Affiliates and each of the Adviser's
Controlling Persons, if any, shall not be subject to any liability to
the Subadviser, for any act or omission in the case of, or connected
with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of Fund Investments;
provided, however, that nothing herein shall relieve the Adviser and
the Subadviser from any of their obligations under applicable law,
including, without limitation, the federal and state securities laws
and the CEA.
(b) Indemnification. The Subadviser shall indemnify the
Adviser and the Trust, and their respective Affiliates and Controlling
Persons for any liability and expenses, including attorneys' fees,
which may be sustained as a result of the Subadviser's wilful
misfeasance, bad faith, gross negligence, reckless disregard of its
duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The
Adviser shall indemnify the Subadviser, its Affiliates and its
Controlling Persons, for any liability and expenses, including
attorneys fees, which may be sustained as a result of the Adviser's
wilful misfeasance, bad faith, gross negligence, reckless disregard of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA.
11. Duration and Termination.
(a) Duration. Unless sooner terminated, this Agreement shall
continue until January __, 1999 and thereafter shall continue
automatically for successive annual periods, provided such continuance
is specifically approved at least annually by the Trust's Board of
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<PAGE> 9
Trustees or vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (b) more than
50% of the outstanding shares of the Fund; provided that in either
event its continuance also is approved by a majority of the Trust's
Trustees who are not "interested persons" (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
(b) Termination. Notwithstanding whatever may be provided
herein to the contrary, this Agreement may be terminated at any time,
without payment of any penalty:
(i) By vote of a majority of the Trust's Board of
Trustees, or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, in each case, upon
sixty (60) days' written notice to the Subadviser;
(ii) By any party hereto immediately upon written
notice to the other parties in the event of a breach of any
provision of this Agreement by either of the other parties; or
(iii) By the Subadviser upon 120 days written notice
to the Adviser and the Trust.
This Agreement shall not be assigned (as such term is defined in the
1940 Act) and shall terminate automatically in the event of its
assignment or upon the termination of the Advisory Agreement.
12. Duties of the Adviser. The Adviser shall continue to have
responsibility for all services to be provided to the Fund pursuant to the
Advisory Agreement and shall oversee and review the Subadviser's performance of
its duties under this Agreement. Nothing contained in this Agreement shall
obligate the Adviser to provide any funding or other support for the purpose of
directly or indirectly promoting investments in the Fund.
13. Reference to Subadviser. Neither the Adviser nor any affiliate or
agent of it shall make reference to or use the name of Subadviser or any of its
affiliates, or any of their clients, except references concerning the identity
of and services provided by Subadviser to the Fund, which references shall not
differ in substance from those included in the Fund's Prospectus and this
Agreement, in any advertising or promotional materials without the prior
approval of Subadviser, which approval shall not be unreasonably withheld or
delayed. The Adviser hereby agrees to make all reasonable efforts to cause the
Fund and any affiliate thereof to satisfy the foregoing obligation.
14. Amendment. This Agreement may be amended by mutual consent of the
parties, provided that the terms of any material amendment shall be approved by:
a) the Trust's Board of Trustees or by a vote of a majority of the outstanding
voting securities of the Fund (as required by the 1940 Act) and b) the vote of a
majority of those Trustees of the Trust who are not "interested
9
<PAGE> 10
persons" of any party to this Agreement cast in person at a meeting called for
the purpose of voting on such approval, if such approval is required by
applicable law.
15. Confidentiality. Subject to the duties of the Adviser, the Fund and
the Subadviser to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction, the parties hereto shall
treat as confidential all information pertaining to the Fund and the actions of
the Subadviser, the Adviser and the Fund in respect thereof.
16. Notice. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be in writing, delivered, or
mailed postpaid to the other parties, or transmitted by facsimile with
acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
NCM Capital Management Group, Inc.
____________________________________
____________________________________
Attention: _________________________
Facsimile: _________________________
(b) If to the Adviser:
Nationwide Advisory Services, Inc.
One Nationwide Plaza, 25-T
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
(c) If to the Trust:
Nationwide Separate Account Trust
One Nationwide Plaza, 25-T
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
16. Jurisdiction. This Agreement shall be governed by and construed to
be consistent with the Advisory Agreement and in accordance with substantive
laws of the Commonwealth of Massachusetts without reference to choice of law
principles thereof and in accordance with the 1940 Act. In the case of any
conflict, the 1940 Act shall control.
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<PAGE> 11
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, all of which shall
together constitute one and the same instrument.
18. Certain Definitions. For the purposes of this Agreement,
"interested person," "affiliated person," "assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to such
exemptions as may be granted by the SEC.
19. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
20. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision or applicable law, the remainder of the
Agreement shall not be affected adversely and shall remain in full force and
effect.
21. Nationwide Separate Account Trust and its Trustees. The terms
"Nationwide Separate Account Trust" and the "Trustees of Nationwide Separate
Account Trust" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated as of June 30, 1981, as has been or may be amended
from time to time, and to which reference is hereby made and a copy of which is
on file at the office of the Secretary of State of The Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of the Trust entered into
in the name or on behalf thereof by any of Nationwide Separate Account Trust's
Trustees, representatives, or agents are not made individually, but only in
their capacities with respect to Nationwide Separate Account Trust. Such
obligations are not binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the assets of the Trust.
All persons dealing with any series of Shares of the Trust must look solely to
the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
TRUST
NATIONWIDE SEPARATE ACCOUNT TRUST
By:__________________________________
Name:
Title:
ADVISER
NATIONWIDE ADVISORY SERVICES, INC.
By:__________________________________
Name:
Title:
SUBADVISER
NCM CAPITAL MANAGEMENT GROUP, INC.
By:__________________________________
Name:
Title:
12
<PAGE> 1
Exhibit 5(e)(2)
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of January,
1997 among NATIONWIDE SEPARATE ACCOUNT TRUST, a Massachusetts business trust
(the "Trust"), on behalf of the Nationwide Income Fund (the "Fund"), NATIONWIDE
ADVISORY SERVICES, INC. (the "Adviser"), an Ohio corporation registered under
the Investment Advisers Act of 1940 (the "Advisers Act"), and SMITH, GRAHAM &
CO. ASSET MANAGERS, L.P. (the "Subadviser"), a limited partnership also
registered under the Advisers Act.
W I T N E S S E T H :
WHEREAS, the Trust, a Massachusetts business trust (the "Trust"), is
registered with the Securities and Exchange Commission (the "SEC") as an
open-end management investment company under the Investment Company Act of 1940
(the "1940 Act");
WHEREAS, the Adviser has, pursuant to an Advisory Agreement with the
Trust dated as of January ___, 1997 (the "Advisory Agreement"), been retained to
act as investment adviser for the Fund, one of the Trust's portfolios;
WHEREAS, the Advisory Agreement permits the Adviser to delegate certain
of its duties under the Advisory Agreement to other investment advisers, subject
to the requirements of the 1940 Act; and
WHEREAS, the Adviser desires to retain Subadviser to assist it in the
provision of a continuous investment program for that portion of the Fund's
assets which the Adviser will assign to the Subadviser (the "Subadviser
Assets"), and Subadviser is willing to render such services subject to the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, the parties do mutually agree and promise as follows:
1. Appointment as Subadviser. The Adviser hereby retains the Subadviser
to act as investment adviser for and to manage the Subadviser Assets subject to
the supervision of the Adviser and the Board of Trustees of the Trust and
subject to the terms of this Agreement; and the Subadviser hereby accepts such
employment. In such capacity, the Subadviser shall be responsible for the
investment management of the Subadviser Assets. It is recognized that the
Subadviser now acts, and that from time to time hereafter may act, as investment
adviser to one or more other investment companies and to fiduciary or other
managed accounts and that the Adviser and the Trust have no objection to such
activities.
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<PAGE> 2
2. Duties of Subadviser.
(a) Investments. The Subadviser is hereby authorized and
directed and hereby agrees, subject to the stated investment policies
and restrictions of the Fund as set forth in the Fund's current
prospectus and statement of additional information as currently in
effect and as supplemented or amended from time to time (collectively
referred to hereinafter as the "Prospectus") and subject to the
directions of the Adviser and the Fund's Board of Trustees, to
purchase, hold and sell investments for the Subadviser Assets ("Fund
Investments") and to monitor on a continuous basis the performance of
such Fund Investments. In providing these services, the Subadviser will
conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Fund's assets. The Adviser
agrees to provide to the Subadviser with such assistance as may be
reasonably requested by the Subadviser in connection with its
activities under this Agreement, including, without limitation,
information concerning the Fund, its funds available, or to become
available, for investment and generally as to the conditions of the
Fund's affairs.
(b) Compliance with Applicable Laws and Governing Documents.
In the performance of its duties and obligations under this Agreement,
the Subadviser shall act in conformity with the Trust's Declaration of
Trust and By-Laws and the Prospectus and with the instructions and
directions received in writing from the Adviser or the Trustees of the
Trust and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986, as amended (the "Code") and all
other applicable federal and state laws and regulations.
Notwithstanding the foregoing, the Adviser shall remain responsible for
ensuring the Fund's overall compliance with the 1940 Act, the Code and
all other applicable federal and state laws and regulations and the
Subadviser is only obligated to comply with this subsection (b) with
respect to the Subadviser Assets.
The Adviser will provide the Subadviser with reasonable
advance notice of any change in the Fund's investment objectives,
policies and restrictions as stated in the Prospectus, and the
Subadviser shall, in the performance of its duties and obligations
under this Agreement, manage the Fund Investments consistent with such
changes, provided the Subadviser has received prompt notice of the
effectiveness of such changes from the Trust or the Adviser. In
addition to such notice, the Adviser shall provide to the Subadviser a
copy of a modified prospectus reflecting such changes. The Adviser
acknowledges and agrees that the Prospectus will at all times be in
compliance with all disclosure requirements under all applicable
federal and state laws and regulations relating to the Trust or the
Fund, including, without limitation, the 1940 Act, and the rules and
regulations thereunder, and that the Subadviser shall have no liability
in connection therewith, except as to the accuracy of material
information furnished by the Subadviser to the Fund or to the Adviser
specifically for inclusion in the Prospectus. The Subadviser hereby
agrees to provide to the Adviser in a timely manner such information
relating to the Subadviser and its relationship to, and actions for,
the Fund as may be required to be contained in the Prospectus.
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<PAGE> 3
(c) Voting of Proxies. The Subadviser shall have the power to
vote, either in person or by proxy, all securities in which the
Subadviser Assets may be invested from time to time, and shall not be
required to seek or take instructions from, the Adviser or the Fund or
take any action with respect thereto. If both the Subadviser and
another entity managing assets of the Fund have invested in the same
security, the Subadviser and such other entity will each have the power
to vote its pro rata share of the security.
(d) Agent. Subject to any other written instructions of the
Adviser or the Trust, the Subadviser is hereby appointed the Adviser's
and the Trust's agent and attorney-in-fact for the limited purposes of
executing account documentation, agreements, contracts and other
documents as the Subadviser shall be requested by brokers, dealers,
counterparties and other persons in connection with its management of
the assets of the Fund. The Subadviser agrees to provide the Adviser
and the Trust with copies of any such agreements executed on behalf of
the Adviser or the Trust.
(e) Brokerage. The Subadviser is authorized, subject to the
supervision of the Adviser and the Trust's Board of Trustees, to
establish and maintain accounts on behalf of the Fund with, and place
orders for the purchase and sale of the Fund Investments with or
through, such persons, brokers or dealers ("brokers") as Subadviser may
elect and negotiate commissions to be paid on such transactions. The
Subadviser, however, is not required to obtain the consent of the
Adviser or the Trust's Board of Trustees prior to establishing any such
brokerage account. The Subadviser shall place all orders for the
purchase and sale of portfolio investments for the Fund's account with
brokers selected by the Subadviser. In the selection of such brokers
and the placing of such orders, the Subadviser shall seek to obtain for
the Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services, as provided below. In using its
reasonable efforts to obtain for the Fund the most favorable price and
execution available, the Subadviser, bearing in mind the Fund's best
interests at all times, shall consider all factors it deems relevant,
including price, the size of the transaction, the breadth and nature of
the market for the security, the difficulty of the execution, the
amount of the commission, if any, the timing of the transaction, market
prices and trends, the reputation, experience and financial stability
of the broker involved, and the quality of service rendered by the
broker in other transactions. Subject to such policies as the Trustees
may determine, or as may be mutually agreed to by the Adviser and the
Subadviser, the Subadviser shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker that
provides brokerage and research services to the Subadviser an amount of
commission for effecting a Fund investment transaction that is in
excess of the amount of commission that another broker would have
charged for effecting that transaction.
It is recognized that the services provided by such brokers
may be useful to the Subadviser in connection with the Subadviser's
services to other clients. On occasions when the Subadviser deems the
purchase or sale of a security to be in the best interests of the Fund
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<PAGE> 4
as well as other clients of the Subadviser, the Subadviser, to the
extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of securities so sold or purchased, as well as the expenses
incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and consistent
with its fiduciary obligations to the Fund and to such other clients.
It is recognized that in some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the
position obtainable for, or disposed of by, the Fund.
(f) Securities Transactions. The Subadviser and any affiliated
person of the Subadviser will not purchase securities or other
instruments from or sell securities or other instruments to the Fund;
provided, however, the Subadviser may purchase securities or other
instruments from or sell securities or other instruments to the Fund if
such transaction is permissible under applicable laws and regulations,
including, without limitation, the 1940 Act and the Advisers Act and
the rules and regulations promulgated thereunder.
The Subadviser, including its Access Persons (as defined in
subsection (e) of Rule 17j-1 under the 1940 Act), agrees to observe
and comply with Rule 17j-1 and its Code of Ethics (which shall comply
in all material respects with Rule 17j-1), as the same may be amended
from time to time. On a quarterly basis, the Subadviser will either (i)
certify to the Adviser that the Subadviser and its Access Persons have
complied with the Subadviser's Code of Ethics with respect to the
Subadviser Assets or (ii) identify any violations which have occurred
with respect to the Subadviser Assets.
(g) Books and Records. The Subadviser shall maintain separate
detailed records of all matters pertaining to the Subadviser Assets
(the "Fund's Records"), including, without limitation, brokerage and
other records of all securities transactions. The Fund's Records
(relating to the Subadviser Assets) shall be available to the Adviser
at any time upon reasonable request during normal business hours and
shall be available for telecopying without delay to the Adviser during
any day that the Fund is open for business.
(h) Information Concerning Fund Investments and Subadviser.
From time to time as the Adviser or the Fund may request, the
Subadviser will furnish the requesting party reports on portfolio
transactions and reports on Fund Investments held in the portfolio, all
in such detail as the Adviser or the Fund may reasonably request. The
Subadviser will also inform the Adviser in a timely manner of material
changes in portfolio managers responsible for Subadviser Assets, any
changes in the partners of the Subadviser, or of material changes in
the control of the Subadviser. Upon reasonable request, the Subadviser
will make available its officers and employees to meet with the Trust's
Board of Trustees to review the Fund Investments.
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<PAGE> 5
The Subadviser will also provide such information or perform
such additional acts as are customarily performed by a subadviser and
may be required for the Fund or the Adviser to comply with their
respective obligations under applicable laws, including, without
limitation, the Code, the 1940 Act, the Advisers Act, the Securities
Act of 1933, as amended (the "Securities Act") and any state securities
laws, and any rule or regulation thereunder.
(i) Custody Arrangements. The Subadviser shall on each
business day provide the Adviser and the Trust's custodian such
information as the Adviser and the Trust's custodian may reasonably
request relating to all transactions concerning the Fund Investments.
3. Independent Contractor. In the performance of its duties hereunder,
the Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Fund or the Adviser in any way or
otherwise be deemed an agent of the Fund or the Adviser.
4. Expenses. During the term of this Agreement, Subadviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased for the
Fund. The Subadviser shall, at its sole expense, employ or associate itself with
such persons as it believes to be particularly fitted to assist it in the
execution of its duties under this Agreement. The Subadviser shall not be
responsible for the Trust's, the Fund's or Adviser's expenses. The Trust or the
Adviser, as the case may be, shall reimburse the Subadviser for any expenses of
the Fund or the Adviser as may be reasonably incurred by such Subadviser on
behalf of the Fund or the Adviser. The Subadviser shall keep and supply to the
Trust and the Adviser reasonable records of all such expenses.
5. Compensation. For the services provided and the expenses assumed
with respect to the Fund pursuant to this Agreement, the Subadviser will be
entitled to a fee, computed daily and payable no later than the seventh (7th)
business day following the end of each month, from the Adviser or the Trust,
calculated at the annual rate of .25% of the Subadviser Assets' average daily
net assets for the first $100 million of Subadviser Assets and 0.15% of the
Subadviser Assets' average daily net assets on Subadviser Assets in excess of
$100 million. This fee for the Subadviser is subject to annual minimum fee of
$25,000.
The method of determining net assets of the Fund for purposes hereof
shall be the same as the method of determining net assets for purposes of
establishing the offering and redemption price of the Shares as described in the
Fund's Prospectus. If this Agreement shall be effective for only a portion of a
month, the aforesaid fee shall be prorated for the portion of such month during
which this Agreement is in effect.
6. Representations and Warranties of Subadviser. The Subadviser
represents and warrants to the Adviser and the Fund as follows:
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<PAGE> 6
(a) The Subadviser is registered as an investment adviser
under the Advisers Act;
(b) The Subadviser has filed a notice of exemption pursuant to
Rule 4.14 under the Commodity Exchange Act (the "CEA") with the
Commodity Futures Trading Commission (the "CFTC") and the National
Futures Association, or is not required to file such exemption;
(c) The Subadviser is a limited partnership duly organized and
validly existing under the laws of the State of Texas with the power to
own and possess its assets and carry on its business as it is now being
conducted;
(d) The execution, delivery and performance by the Subadviser
of this Agreement are within the Subadviser's powers and have been duly
authorized by all necessary action on the part of its partners, and no
action by or in respect of, or filing with, any governmental body,
agency or official is required on the part of the Subadviser for the
execution, delivery and performance by the Subadviser of this
Agreement, and the execution, delivery and performance by the
Subadviser of this Agreement do not contravene or constitute a default
under (i) any provision of applicable law, rule or regulation, (ii) the
Subadviser's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the
Subadviser;
(e) The Form ADV of the Subadviser previously provided to the
Adviser is a true and complete copy of the form filed with the SEC and
the information contained therein is accurate and complete in all
material respects and does not omit to state any material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
7. Representations and Warranties of Adviser. The Adviser represents
and warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under
the Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to
Rule 4.14 under the CEA with the CFTC and the National Futures
Association or is not required to file such exemption;
(c) The Adviser is a corporation duly organized and validly
existing under the laws of the State of Ohio with the power to own and
possess its assets and carry on its business as it is now being
conducted;
(d) The execution, delivery and performance by the Adviser of
this Agreement are within the Adviser's powers and have been duly
authorized by all necessary action on the part of its shareholders, and
no action by or in respect of, or filing with, any governmental body,
6
<PAGE> 7
agency or official is required on the part of the Adviser for the
execution, delivery and performance by the Adviser of this Agreement,
and the execution, delivery and performance by the Adviser of this
Agreement do not contravene or constitute a default under (i) any
provision of applicable law, rule or regulation, (ii) the Adviser's
governing instruments, or (iii) any agreement, judgment, injunction,
order, decree or other instrument binding upon the Adviser;
(e) The Form ADV of the Adviser previously provided to the
Subadviser is a true and complete copy of the form filed with the SEC
and the information contained therein is accurate and complete in all
material respects and does not omit to state any material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading;
(f) The Adviser acknowledges that it received a copy of the
Subadviser's Form ADV prior to the execution of this Agreement; and
(g) The Adviser and the Trust have duly entered into the
Advisory Agreement pursuant to which the Trust authorized the Adviser
to enter into this Agreement.
8. Representations and Warranties of the Trust. The Trust represents
and warrants to the Adviser and the Subadviser as follows:
(a) The Trust is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with the
power to own and possess its assets and carry on its business as it is
now being conducted;
(b) The Trust is registered as an investment company under the
1940 Act and the Fund's shares are registered under the Securities Act;
and
(c) The execution, delivery and performance by the Trust of
this Agreement are within the Trust's powers and have been duly
authorized by all necessary action on the part of the Trust and its
Board of Trustees, and no action by or in respect of, or filing with,
any governmental body, agency or official is required on the part of
the Trust for the execution, delivery and performance by the Adviser of
this Agreement, and the execution, delivery and performance by the
Trust of this Agreement do not contravene or constitute a default under
(i) any provision of applicable law, rule or regulation, (ii) the
Trust's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the Trust.
9. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Subadviser and the
Adviser pursuant to Sections 6, 7 and 8, respectively, shall survive for the
duration of this Agreement and the parties hereto shall promptly
7
<PAGE> 8
notify each other in writing upon becoming aware that any of the foregoing
representations and warranties are no longer true.
10. Liability and Indemnification.
(a) Liability. Except to the extent that the Subadviser is
liable to the Trust or any other party as a direct result of the action
or inaction of the Subadviser and in the absence of wilful misfeasance,
bad faith or gross negligence on the part of the Subadviser or a
reckless disregard of its duties hereunder, the Subadviser, each of its
affiliates and all respective partners, officers, directors and
employees ("Affiliates") and each person, if any, who within the
meaning of the Securities Act controls the Subadviser ("Controlling
Persons") shall not be subject to any expenses or liability to the
Adviser, the Trust or the Fund or any of the Fund's shareholders. In
the absence of wilful misfeasance, bad faith or gross negligence on the
part of the Adviser or a reckless disregard of its duties hereunder,
the Adviser, any of its Affiliates and each of the Adviser's
Controlling Persons, if any, shall not be subject to any liability to
the Subadviser, for any act or omission in the case of, or connected
with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of Fund Investments;
provided, however, that nothing herein shall relieve the Adviser and
the Subadviser from any of their obligations under applicable law,
including, without limitation, the federal and state securities laws
and the CEA.
(b) Indemnification. The Subadviser shall indemnify the
Adviser and the Trust, and their respective Affiliates and Controlling
Persons for any liability and expenses, including attorneys' fees,
which may be sustained as a result of the Subadviser's wilful
misfeasance, bad faith, gross negligence, reckless disregard of its
duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The
Adviser shall indemnify the Subadviser, its Affiliates and its
Controlling Persons, for any liability and expenses, including
attorneys fees, which may be sustained as a result of the Adviser's
wilful misfeasance, bad faith, gross negligence, reckless disregard of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA.
11. Duration and Termination.
(a) Duration. Unless sooner terminated, this Agreement shall
continue until January __, 1999 and thereafter shall continue
automatically for successive annual periods, provided such continuance
is specifically approved at least annually by the Trust's Board of
Trustees or vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (b) more than
50% of the outstanding shares of the Fund; provided that in either
event its continuance also is approved by a majority of the Trust's
Trustees who are not "interested persons" (as defined in the 1940 Act)
of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
8
<PAGE> 9
(b) Termination. Notwithstanding whatever may be provided
herein to the contrary, this Agreement may be terminated at any time,
without payment of any penalty:
(i) By vote of a majority of the Trust's Board of
Trustees, or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, in each case, upon
sixty (60) days' written notice to the Subadviser;
(ii) By any party hereto immediately upon written
notice to the other parties in the event of a breach of any
provision of this Agreement by either of the other parties; or
(iii) By the Subadviser upon 60 days written notice
to the Adviser and the Trust.
This Agreement shall not be assigned (as such term is defined in the
1940 Act) and shall terminate automatically in the event of its
assignment or upon the termination of the Advisory Agreement.
12. Duties of the Adviser. The Adviser shall continue to have
responsibility for all services to be provided to the Fund pursuant to the
Advisory Agreement and shall oversee and review the Subadviser's performance of
its duties under this Agreement. Nothing contained in this Agreement shall
obligate the Adviser to provide any funding or other support for the purpose of
directly or indirectly promoting investments in the Fund.
13. Reference to Subadviser. Neither the Adviser nor any affiliate or
agent of it shall make reference to or use the name of Subadviser or any of its
affiliates, or any of their clients, except references concerning the identity
of and services provided by Subadviser to the Fund, which references shall not
differ in substance from those included in the Fund's Prospectus and this
Agreement, in any advertising or promotional materials without the prior
approval of Subadviser, which approval shall not be unreasonably withheld or
delayed. The Adviser hereby agrees to make all reasonable efforts to cause the
Fund and any affiliate thereof to satisfy the foregoing obligation.
14. Amendment. This Agreement may be amended by mutual consent of the
parties, provided that the terms of any material amendment shall be approved by:
a) the Trust's Board of Trustees or by a vote of a majority of the outstanding
voting securities of the Fund (as required by the 1940 Act) and b) the vote of a
majority of those Trustees of the Trust who are not "interested persons" of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval, if such approval is required by applicable law.
15. Confidentiality. Subject to the duties of the Adviser, the Fund and
the Subadviser to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction, the parties hereto shall
treat as confidential all information pertaining to the Fund and the actions of
the Subadviser, the Adviser and the Fund in respect thereof.
9
<PAGE> 10
16. Notice. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be in writing, delivered, or
mailed postpaid to the other parties, or transmitted by facsimile with
acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Smith, Graham & Co. Asset Managers, L.P.
6900 Texas Commerce Tower
600 Travis Street
Houston, TX 77002
Attention: Jamie G. House
Facsimile: (713) 227-0912
(b) If to the Adviser:
Nationwide Advisory Services, Inc.
One Nationwide Plaza, 25-T
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
(c) If to the Trust:
Nationwide Separate Account Trust
One Nationwide Plaza, 25-T
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
16. Jurisdiction. This Agreement shall be governed by and construed to
be consistent with the Advisory Agreement and in accordance with substantive
laws of the Commonwealth of Massachusetts without reference to choice of law
principles thereof and in accordance with the 1940 Act. In the case of any
conflict, the 1940 Act shall control.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, all of which shall
together constitute one and the same instrument.
10
<PAGE> 11
18. Certain Definitions. For the purposes of this Agreement,
"interested person," "affiliated person," "assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to such
exemptions as may be granted by the SEC.
19. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
20. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision or applicable law, the remainder of the
Agreement shall not be affected adversely and shall remain in full force and
effect.
21. Nationwide Separate Account Trust and its Trustees. The terms
"Nationwide Separate Account Trust" and the "Trustees of Nationwide Separate
Account Trust" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated as of June 30, 1981, as has been or may be amended
from time to time, and to which reference is hereby made and a copy of which is
on file at the office of the Secretary of State of The Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of the Trust entered into
in the name or on behalf thereof by any of Nationwide Separate Account Trust's
Trustees, representatives, or agents are not made individually, but only in
their capacities with respect to Nationwide Separate Account Trust. Such
obligations are not binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the assets of the Trust.
All persons dealing with any series of Shares of the Trust must look solely to
the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
TRUST
NATIONWIDE SEPARATE ACCOUNT TRUST
By:__________________________________
Name:
Title:
ADVISER
NATIONWIDE ADVISORY SERVICES, INC.
By:__________________________________
Name:
Title:
SUBADVISER
SMITH, GRAHAM & CO. ASSET MANAGERS, L.P.
By: Smith Graham & Co., General Partner
By:__________________________________
Name:
Title:
12
<PAGE> 1
Exhibit 11
AUDITORS' CONSENT
To the Board of Trustees
Nationwide Separate Account Trust:
We consent to the use of our report dated February 23, 1996 included in the
Statement of Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
October 21, 1996
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<OTHER-ITEMS-ASSETS> 0
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<OTHER-ITEMS-LIABILITIES> 5,274,746
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<PAID-IN-CAPITAL-COMMON> 94,049,723
<SHARES-COMMON-STOCK> 7,967,050
<SHARES-COMMON-PRIOR> 6,028,094
<ACCUMULATED-NII-CURRENT> 34,957
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,215,405
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,158,997
<NET-ASSETS> 117,459,082
<DIVIDEND-INCOME> 1,034,132
<INTEREST-INCOME> 251,155
<OTHER-INCOME> 0
<EXPENSES-NET> 298,651
<NET-INVESTMENT-INCOME> 986,636
<REALIZED-GAINS-CURRENT> 3,216,734
<APPREC-INCREASE-CURRENT> 5,130,499
<NET-CHANGE-FROM-OPS> 9,333,869
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<DISTRIBUTIONS-OF-INCOME> 972,787
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<NUMBER-OF-SHARES-SOLD> 5,667,602
<NUMBER-OF-SHARES-REDEEMED> 3,795,112
<SHARES-REINVESTED> 66,466
<NET-CHANGE-IN-ASSETS> 36,222,071
<ACCUMULATED-NII-PRIOR> 21,108
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 283,039
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<GROSS-EXPENSE> 298,651
<AVERAGE-NET-ASSETS> 111,930,248
<PER-SHARE-NAV-BEGIN> 13.48
<PER-SHARE-NII> .19
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<MULTIPLIER> 1
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 751,356,132
<INVESTMENTS-AT-VALUE> 961,873,333
<RECEIVABLES> 8,479,584
<ASSETS-OTHER> 2,436
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 970,355,353
<PAYABLE-FOR-SECURITIES> 8,462,347
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 390,547
<TOTAL-LIABILITIES> 8,852,894
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 731,931,562
<SHARES-COMMON-STOCK> 77,551,007
<SHARES-COMMON-PRIOR> 70,638,277
<ACCUMULATED-NII-CURRENT> 501,835
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,551,861
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 210,517,201
<NET-ASSETS> 961,502,459
<DIVIDEND-INCOME> 9,099,708
<INTEREST-INCOME> 2,713,169
<OTHER-INCOME> 0
<EXPENSES-NET> 2,266,354
<NET-INVESTMENT-INCOME> 9,546,523
<REALIZED-GAINS-CURRENT> 18,779,196
<APPREC-INCREASE-CURRENT> 44,061,640
<NET-CHANGE-FROM-OPS> 72,387,359
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,406,441
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,254,563
<NUMBER-OF-SHARES-REDEEMED> 2,148,346
<SHARES-REINVESTED> 766,513
<NET-CHANGE-IN-ASSETS> 146,537,987
<ACCUMULATED-NII-PRIOR> 361,753
<ACCUMULATED-GAINS-PRIOR> (227,335)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,225,091
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,266,354
<AVERAGE-NET-ASSETS> 894,926,785
<PER-SHARE-NAV-BEGIN> 11.54
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> .86
<PER-SHARE-DIVIDEND> .15
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<PER-SHARE-NAV-END> 12.40
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<CURRENCY> U.S. DOLLARS
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<PERIOD-TYPE> 6-MOS
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<INVESTMENTS-AT-COST> 432,866,380
<INVESTMENTS-AT-VALUE> 433,298,801
<RECEIVABLES> 13,062,000
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<TOTAL-ASSETS> 446,361,314
<PAYABLE-FOR-SECURITIES> 8,162,000
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<OTHER-ITEMS-LIABILITIES> 263,285
<TOTAL-LIABILITIES> 8,425,285
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<PAID-IN-CAPITAL-COMMON> 442,594,612
<SHARES-COMMON-STOCK> 40,454,591
<SHARES-COMMON-PRIOR> 39,968,359
<ACCUMULATED-NII-CURRENT> 40,606
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<ACCUMULATED-NET-GAINS> (5,131,610)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 432,421
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<NET-CHANGE-FROM-OPS> (7,587,687)
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> 3,410,487
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<NET-CHANGE-IN-ASSETS> (16,080,028)
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<ACCUMULATED-GAINS-PRIOR> (8,772,912)
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<PERIOD-TYPE> 6-MOS
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<INVESTMENTS-AT-VALUE> 961,966,862
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<PAYABLE-FOR-SECURITIES> 47,800,479
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<OTHER-ITEMS-LIABILITIES> 488,908
<TOTAL-LIABILITIES> 42,289,387
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 927,561,636
<SHARES-COMMON-STOCK> 927,561,522
<SHARES-COMMON-PRIOR> 737,411,142
<ACCUMULATED-NII-CURRENT> (2,251)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,910)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 927,552,475
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,764,058
<OTHER-INCOME> 0
<EXPENSES-NET> 2,030,734
<NET-INVESTMENT-INCOME> 19,733,324
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<NET-CHANGE-FROM-OPS> 19,732,278
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<DISTRIBUTIONS-OF-INCOME> 19,735,738
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 2,251
<NUMBER-OF-SHARES-SOLD> 854,493,616
<NUMBER-OF-SHARES-REDEEMED> 684,110,652
<SHARES-REINVESTED> 19,767,416
<NET-CHANGE-IN-ASSETS> 190,144,669
<ACCUMULATED-NII-PRIOR> 2,414
<ACCUMULATED-GAINS-PRIOR> (5,864)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,978,067
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,030,734
<AVERAGE-NET-ASSETS> 791,214,836
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .02
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<PER-SHARE-DIVIDEND> .02
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<SERIES>
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<MULTIPLIER> 1
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<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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<INVESTMENTS-AT-VALUE> 83,283,995
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<PAYABLE-FOR-SECURITIES> 10,659,349
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 293,620
<TOTAL-LIABILITIES> 10,952,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,283,427
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<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<REALIZED-GAINS-CURRENT> 1,223,678
<APPREC-INCREASE-CURRENT> 5,393,063
<NET-CHANGE-FROM-OPS> 6,816,021
<EQUALIZATION> 0
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<ACCUMULATED-NII-PRIOR> 2,423
<ACCUMULATED-GAINS-PRIOR> (103,052)
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 49,558,232
<PER-SHARE-NAV-BEGIN> 11.42
<PER-SHARE-NII> .04
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<PER-SHARE-DIVIDEND> .02
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<PER-SHARE-NAV-END> 13.40
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
