<PAGE> 1
'33 Act File No. 2-73024
'40 Act File No. 811-3213
As filed with the Securities and Exchange Commission on April 23, 1996
----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 21 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 [x]
(Check appropriate box or boxes)
NATIONWIDE SEPARATE ACCOUNT TRUST
- Total Return Fund
- Capital Appreciation Fund
- Government Bond Fund
- Money Market Fund
- Nationwide Small Company Fund
(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 I. Mercer Druen, Rath & Dietrich
One Nationwide Plaza One Nationwide Plaza
Columbus, Ohio 43216 Columbus, Ohio 43216
(Name and Address of Agent for Service)
[x] It is proposed that this filing will become effective on May 1, 1996
pursuant to paragraph (b) of Rule 485.
Registrant has declared that an indefinite number of its shares are
registered by a prior registration statement in accordance with Rule 24f- 2
under the Investment Company Act of 1940. Pursuant to Paragraph (a)(3) thereof,
a non-refundable fee in the amount of $500 has been paid to the Commission for
the shares. Registrant filed its Rule 24f-2 Notice for the fiscal year ended
December 31, 1995, on February 29, 1996.
<PAGE> 2
- --------------------------------------------------------------------------------
NATIONWIDE SEPARATE ACCOUNT TRUST
- TOTAL RETURN FUND
- CAPITAL APPRECIATION FUND
- GOVERNMENT BOND FUND
- MONEY MARKET FUND
- SMALL COMPANY FUND
- --------------------------------------------------------------------------------
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page..........................................................................Cover Page
Item 2. Synopsis ..........................................................................*
Item 3. Condensed Financial Information ....................................................Financial Highlights
Item 4. General Description of Registrant .................................................Investment Objectives and Policies
Item 5. Management of the Fund .............................................................Management of the Trust
Item 6. Capital Stock and Other Securities .................................................Additional Information
Item 7. Purchase of Securities Being Offered ...............................................Investment in Fund Shares;
....................................................................................Net Income and Distributions
Item 8. Redemption or Repurchase ...........................................................Share Redemption
Item 9. Pending Legal Proceedings ..........................................................*
PART B
Item 10. Cover Page ........................................................................Cover Page
Item 11. Table of Contents .................................................................Table of Contents
Item 12. General Information and History ...................................................General Information and History
Item 13. Investment Objectives and Policies ................................................Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Registrant .......................................................Trustees and Officers of the Trust
Item 15. Control Persons and Principal
Holders of Securities ..............................................................Major Shareholders
Item 16. Investment Advisory and Other
Services ...........................................................................Investment Adviser and Other
Services
Item 17. Brokerage Allocation ...............................................................Brokerage Allocations
Item 18. Capital Stock and Other Securities .................................................*
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ..........................................................Purchases, Redemptions and
Pricing of Shares
Item 20. Tax Status ........................................................................Tax Status
Item 21. Underwriters .......................................................................*
Item 22. Calculation of Yield Quotations of
Money Market .......................................................................Calculating Yield--The Money
Market Fund
Item 23. Financial Statements ...............................................................Financial Statements
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.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not applicable or negative answer
<PAGE> 3
PROSPECTUS
May 1, 1996
Shares of Beneficial Interest
NATIONWIDE SEPARATE ACCOUNT TRUST
- Total Return Fund
- Capital Appreciation Fund
- Government Bond Fund
- Money Market Fund
Nationwide Separate Account Trust
One Nationwide Plaza
Columbus, Ohio 43216
For Information and Assistance, Call
(614) 249-5134
Nationwide Separate Account Trust (the "Trust") is a diversified,
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 the five separate mutual funds, each with
its own investment objective.This prospectus relates to the Total Return
Fund, Capital Appreciation Fund, Government Bond Fund and Money Market Fund
(each a "Fund"). The shares of the Trust are sold only to life insurance
company separate accounts to fund the benefits of variable insurance and
annuity policies.
The investment objective of the Total Return Fund is to seek a
reasonable, long term return on invested capital from a flexible combination of
current return and capital gains.
The investment objective of the Capital Appreciation Fund is to provide
long-term growth, 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.
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.
The investment objective of the Money Market Fund is to seek as high
a level of current income as is considered consistent with the preservation
of capital and liquidity.
INVESTMENTS IN THE MONEY MARKET FUND ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus provides you with the basic information you should
know before investing in the Funds. You should read it and keep it for future
reference. A Statement of Additional Information, dated May 1, 1996, 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, Ohio43216.
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 OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1996,
IS INCORPORATED HEREIN BY REFERENCE.
<PAGE> 4
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS ENDED DECEMBER 31
<TABLE>
<CAPTION>
Net
Realized Distributions
Net Gain from Net
Asset (Loss) & Total Dividends Realized
Value Net Unrealized From from Net Gain from Returns
Beginning Investment Appreciation Investment Investment Investment of Total
of Period Income (Depreciation) Operations Income Transactions Capital Distributions
----------------------------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 8.02 $.32 $1.16 $ 1.48 $(.31) $(.56) $- $(.87)
8.63 .32 (.26) .06 (.41) (1.79) - (2.20)
6.49 .28 1.01 1.29 (.27) (.07) - (.34)
7.45 .25 .74 .99 (.23) (.44) - (.67)
TOTAL 7.77 .31 (.94) (.63) (.28) (.12) - (.40)
RETURN 6.74 .22 2.34 2.56 (.23) - - (.23)
FUND 9.07 .25 .48 .73 (.25) (.09) - (.34)
9.46 .23 .79 1.02 (.24) (.14) - (.38)
10.10 .21 (.10) .11 (.28) (.23) - (.51)
9.70 .31 2.49 2.80 (.31) (.65) - (.96)
CAPTIAL $10.00 $.10 $ .48 $ .58 $ (.10) $(.02) $- $(.12)
APPRECI- 10.46 .26 .74 1.00 (.26) - - (.26)
ATION 11.20 .18 (.28) (.10) (.18) - - (.18)
FUND 10.92 .23 2.96 3.19 (.23) (.40) - (.63)
$10.59 $.91 $ .63 $ 1.54 $ (.92) $(.02) $- $(.94)
11.19 .87 (.73) .14 (1.10) (.12) (.10) (1.32)
10.01 .89 (.10) .79 ( .89) - - (.89)
GOVERN- 9.91 .95 .38 1.33 ( .93) - - (.93)
MENT 10.31 .88 .06 .94 ( .85) - - (.85)
BOND 10.40 .86 .82 1.68 ( .84) - - (.84)
FUND 11.24 .98 (.14) .84 ( .93) (.23) - (1.16)
10.92 .71 .32 1.03 ( .66) (.03) - (.69)
11.26 .69 (1.06) (.37) ( .69) - - (.69)
10.20 .71 1.16 1.87 ( .71) - - (.71)
$ 1.00 $.06 $ - $ .06 $ (.06) $ - $- $(.06)
1.00 .06 - .06 (.06) - - (.06)
1.00 .07 - .07 (.07) - - (.07)
MONEY 1.00 .09 - .09 (.09) - - (.09)
MARKET 1.00 .08 - .08 (.08) - - (.08)
FUND 1.00 .06 - .06 (.06) - - (.06)
1.00 .03 - .03 (.03) - - (.03)
1.00 .03 - .03 (.03) - - (.03)
1.00 .04 - .04 (.04) - - (.04)
1.00 .06 - .06 (.06) - - (.06)
</TABLE>
<TABLE>
<CAPTION>
Net
Net Investment
Asset Expenses Income to Net Assets
Value to Average Average at end of
End of Total Net Net Portfolio Period
of Period Return Assets Assets Turnover (000's) Year
----------------------------------------------------------------------------------------------------------------------------
RATIOS & NET
SUPLEMENTAL DATA ASSETS
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$8.63 20.23% .55% 3.86% 160.5% $145,822 1986
6.49 (.72) .54 3.82 119.3 156,633 1987
7.45 20.05 .54 3.91 89.8 155,247 1988
7.77 13.22 .56 3.15 51.9 185,674 1989
TOTAL 6.74 (8.03) .54 4.31 38.1 162,661 1990
RETURN 9.07 38.49 .53 2.74 14.5 250,701 1991
FUND 9.46 8.18 .53 2.69 12.5 334,917 1992
10.10 10.92 .53 2.51 9.8 456,243 1993
9.70 1.07 .52 2.76 12.1 534,821 1994
11.54 29.09 .51 2.84 16.1 814,964 1995
CAPTIAL $10.46 10.92% .69% 1.95% 5.0% $18,800 1992
APPRECI- 11.20 9.61 .59 2.82 16.9 38,926 1993
ATION 10.92 (.90) .56 1.76 11.2 60,442 1994
FUND 13.48 29.35 .54 1.89 20.3 81,237 1995
$11.19 15.22% .56% 8.27% 67.9% $58,681 1986
10.01 1.43 .56 8.29 206.9 63,225 1987
9.91 8.06 .55 8.82 113.1 65,962 1988
10.31 13.97 .57 9.18 200.0 83,299 1989
GOVERN- 10.40 9.49 .55 8.70 127.8 113,399 1990
MENT 11.24 16.70 .55 8.07 77.7 198,769 1991
BOND 10.92 7.87 .53 8.75 73.8 301,841 1992
FUND 11.26 9.52 .53 5.91 175.4 433,584 1993
10.20 ( 3.23) .51 6.46 111.4 391,253 1994
11.36 18.74 .51 6.45 97.1 454,016 1995
$1.00 6.54% .56% 6.33% -% $121,801 1986
1.00 6.42 .56 6.30 - 161,707 1987
1.00 6.61 .55 7.12 - 181,699 1988
1.00 9.11 .57 8.73 - 216,498 1989
MONEY 1.00 8.03 .55 7.74 - 330,586 1990
MARKET 1.00 5.84 .54 5.65 - 363,502 1991
FUND 1.00 3.40 .53 3.36 - 330,011 1992
1.00 2.76 .53 2.72 - 351,798 1993
1.00 3.88 .54 4.00 - 828,027 1994
1.00 5.66 .52 5.51 - 737,408 1995
</TABLE>
+ Period from April 15, 1992 (date of commencement of operations) through
December 31, 1992. Ratio percentages are annualized for periods of less
than twelve months. Total return is not annualized.
The information in the above tables has been audited by KPMG Peat Marwick LLP,
Independent Auditors, whose report, together with certain financial information,
appears in the Statement of Additional Information. The Statement of Additional
Information and the Annual Report for the Funds, which contains further
information about the Funds' performance may be obtained free of charge by
calling 1-614-249-5134. These Financial Highlights should be read in
conjunction with the audited financial statements for each Fund.
2
<PAGE> 5
SALE OF FUND SHARES
Currently, shares of the Trust are sold only to life insurance company
separate accounts (Accounts) to fund the benefits of variable insurance or
annuity policies (Policies) issued by life insurance companies. The Accounts
purchase shares of the Trust in accordance with variable account allocation
instructions received from owners of the Policies. The Trust then uses the
proceeds to buy securities for its portfolios. The investment adviser manages
the portfolios from day to day to accomplish the Trust's investment objectives.
The kinds of investments and the way they are managed depend on what is
happening in the economy and the financial marketplaces. Each of the Accounts,
as a shareholder, has an ownership in the Trust's investments. The Trust also
offers to buy back (redeem) shares of the Trust from the Accounts at any
time at net asset value.
INVESTMENT OBJECTIVES AND POLICIES
Investments in each Fund are made in many different securities which
provide diversification to minimize risk. While there is careful selection
and constant supervision by a team of professional investment managers,
there can be no guarantee that the Funds' objectives will be achieved.
The fundamental policies of each Fund do not require shareholder approval to
change a Fund's investment objective.
-TOTAL RETURN FUND
The investment objective of this Fund is to obtain a reasonable, long
term total return (i.e. earnings growth plus potential dividend yield) on
invested capital from a flexible combination of current return and capital
gains through investments in common stocks, convertible issues, money market
instruments, and bonds, with a primary emphasis on common stocks.
By investing in securities that are subject to market risk, the Fund
is subject to more fluctuations in its market value and involves the assumption
of a higher degree of risk as compared to a portfolio seeking stability of
principal, such as a money market portfolio or a portfolio investing in
corporate debt securities, United States and Canadian government obligations
and commercial paper.
While it is the Fund's intention 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, other than
those stated in the Statement of Additional Information.
Portfolio Manager: John M. Schaffner, MBA, CFA-is the portfolio
manager for the Total Return Fund. He has been with Nationwide since 1977 and
has managed the Total Return Fund since 1982. He also manages the Nationwide
Growth Fund. He graduated with a Bachelor of Arts in Economics from Occidental
College. He received his Masters of Business Administration degree from the
University of Michigan and is a Chartered Financial Analyst.
-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 Fund's intention 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, other than
those stated in the Statement of Additional Information.
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.
Portfolio Manager: Charles Bath, MBA, CFA, CPA-is the portfolio
manager of the Capital Appreciation Fund. Charles joined Nationwide as a
securities analyst and has managed the Capital Appreciation Fund since 1992.
He has also managed the Nationwide Fund since 1985. He graduated with a
Bachelor of Science in Accounting from Miami University. He received his
Master of Business Administration degree in Finance from The Ohio State
University and is a Certified Public Accountant and a Chartered Financial
Analyst.
-GOVERNMENT BOND FUND
The investment objective of this 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, its agencies or instrumentalities.
3
<PAGE> 6
These securities are of varying maturities and types. They include
direct obligations of the U.S. Government backed by the full faith and credit
of the United States, such as U.S. Treasury bills, notes and bonds. Bills
mature in one year or less, notes in one to ten years, and bonds in ten
years or more.
In addition, the Fund will hold securities issued by U.S. Government-
chartered agencies and instrumentalities. These securities are usually either
guaranteed by the U.S. Treasury or are supported by the issuer's rights to
borrow from the Treasury and backed by the issuer's own credit. Examples may
include (among others): Federal Land Banks, Federal Home Banks, Government
National Mortgage Association, Tennessee Valley Authority, Farmers Home
Association, etc. The Government Bond Fund may invest in zero coupon or
mortgage-related securities issued or backed by the U.S. Government or its
agencies, and in repurchase agreements in any of the securities described
above.
While there is minimal credit risk in purchasing U.S. Government
guaranteed securities, there is the normal risk associated with fixed income
investments of market value fluctuations inversely related to changing
interest rates.
Portfolio Manager: Wayne Frisbee, CFA-is the portfolio manager of the
Government Bond Fund. Wayne joined Nationwide in 1981 as a securities analyst
and has managed the Government Bond Fund since 1986. He also manages the
Nationwide U.S. Government Income Fund. He received a Bachelor of Science
degree from The Ohio State University and is a Chartered Financial Analyst.
-MONEY MARKET FUND
The investment objective of the Fund is to seek as high a level of
current income as is considered consistent with the preservation of capital and
liquidity by investing primarily in money market instruments, including U.S.
government securities, obligations of larger banks, prime commercial paper,
high grade, short term corporate obligations (with remaining maturities of 397
days or less), and securities of foreign issuers and foreign branches of U.S.
banks.
Pursuant to its objectives of maintaining a fixed one dollar share
price, the Fund will not purchase securities with a remaining maturity of more
that 397 days and will maintain a dollar weighted average portfolio maturity of
90 days or less.
Yields on such short-term instruments are very sensitive to short-term
lending conditions. The principal value of such instruments tends to decline as
interest rates rise and conversely tends to rise as interest rates decline. In
addition, there is an element of risk in such money market instruments that the
issuer may become insolvent and default in meeting interest and principal
payments.
The Money Market Fund's yield and compound yield for the last seven
days of its most recent fiscal year ended December 31, 1995, was 4.85% and
4.97% respectively. This yield quotation may be of limited use for comparative
purposes because it does not reflect charges imposed at the Account level
which, if included, would decrease the yield. For the current yield of the
Fund, please call (614) 249-5134.
Portfolio Manager: Karen G. Mader, MBA-is the portfolio manager of the
Money Market Fund. Karen received a Bachelor of Arts degree in Political
Science and a Masters degree in International Business and Political Science,
both from The Ohio State University. She has managed the Money Market Fund
since 1987.
MANAGEMENT OF THE TRUST
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.
Under the terms of the Investment Advisory Agreement, Nationwide
Financial Services, Inc. (NFS or Adviser), One Nationwide Plaza, Columbus, Ohio
43216, manages the investment of the assets and, subject to the supervision of
the Trustees, provides various administrative services and supervises the daily
business affairs of the Trust. NFS, 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 Trust pays to the Adviser fees based on the average daily net
assets at the rate of .5% per annum.
NFS provides the accounting services, including daily valuation of
each Fund's shares, preparation of financial statements, taxes, and regulatory
reports. For these accounting services, NFS receives an annual fee of $48,000
from the Trust.
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 NFS.
4
<PAGE> 7
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
TOTAL RETURN FUND
The Total Return Fund gained 29.1% in 1995, compared to a gain of
37.5% for the S&P 500. The stock market was led upwards by technology stocks
through much of the first three quarters. In the final quarter, technology
stocks were weak, but the market as a whole continued upwards, as leadership
shifted to companies with defensive, stable-growth business prospects, such
as drug stocks.
The Total Return Fund's performance in 1995 was influenced
significantly by strength in energy stocks, where the Fund had a weighting of
about 14% of assets. Financial stocks, where the Fund had a weighting of about
11%, also recorded strong year-over-year performance, as did
telecommunications, where the Fund asset weight was about 10%. Several of the
stocks the Fund categorizes as conglomerates, such as Eastman Kodak, Honeywell,
Rockwell International and EG&G also performed well. Holdings in chemicals,
especially specialty chemicals, lagged the market, as did the Fund's holdings
in the auto industry, plus machinery and capital goods. In addition, the Fund
was not heavily weighted in the defensive, stable-growth type stocks that led
the market in the final quarter. The level of cash in the Fund, averaging
close to 14% for the year, also hindered performance with the market up
strongly.
Part of the Total Return Fund's strategy is to profit from improved
valuation of its holdings. This results in holding cash when there are not
enough undervalued situations to invest in, and this can often occur during
periods of exceptional market strength, such as in 1995, when valuations,
especially of good-quality companies, are high, then continue to go even
higher.
Despite periods when this strategy may contribute to the Total Return
Fund's lagging of the market, we continue to believe that investing in stocks
where there is not a strong possibility for future valuation improvement is an
excessively risky practice that is unlikely to be successful over the
long-term. We believe this to be true even when the companies involved are
well positioned in their business niche, and have strong managements and
finances. Therefore, the Fund is continuing to invest where there is room for
valuation improvement, and has been increasing its holdings in the financial,
healthcare and food and beverage sectors of the market.
COMPARISON OF A RETURN ON A HYPOTHETICAL $10,000 INVESTMENT
IN THE TOTAL RETURN FUND AND THE S&P 500
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/86 86 87 88 89 90 91 92 93 94 95
Total Return Fund 32,352
S & P 500 40,021
</TABLE>
Total Return Fund
Average Annual Total Return
<TABLE>
<CAPTION>
<S> <C> <C>
1 Year 5 Years 10 Years
29.1% 16.7% 12.5%
</TABLE>
The S&P 500 is a broad based, unmanaged index of securities, and unlike Fund
returns, does not reflect any fees or expenses. Past performance is not
predictive of future performance.
5
<PAGE> 8
CAPITAL APPRECIATION FUND
The total return for the Capital Appreciation Fund for 1995 was 29.4%
compared to 37.5% for the S&P 500. The Capital Appreciation Fund lagged the
performance of the S&P 500 primarily due to the Fund's low weighting in
technology stocks. Technology was one of the market's strongest sectors in
1995. However, the Capital Appreciation Fund had minimal investments in this
market sector. Technology companies are often characterized by short product
cycles and highly competitive markets. Therefore, due to the Capital
Appreciation Fund's long-term perspective, technology has tended to have
only a modest weighting.
The Capital Appreciation Fund benefited from the excellent performance
of the broadcasting sector. CBS was one of the Fund's largest holdings prior
to its acquisition by Westinghouse. Capital Cities/ABC was also a holding
prior to the recent merger with Disney. Disney remains a holding in the Fund
due to its position as the world's dominant entertainment company.
Investments in the Capital Appreciation Fund will continue to be made
with a long-term perspective. Investments made in the first quarter of 1996
will be important in determining the current year's performance. At the end of
the first quarter Warner-Lambert and IBM were the Fund's two largest holdings.
These companies combine attractive growth opportunities with very reasonable
valuations. These securities are each approximately 5% of the portfolio. While
these are large positions, it is important to invest heavily in securities
which provide unusually attractive opportunities.
COMPARISON OF A RETURN ON A HYPOTHETICAL $10,000 INVESTMENT
IN THE CAPITAL APPRECIATION FUND AND THE S&P
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
5/1/92 93 94 95
Capital Appreciation $15,585
S & P 500 $16,338
</TABLE>
*Initial public offering commenced May 1, 1992
Capital Appreciation Fund
Average Annual Total Return
<TABLE>
<CAPTION>
<S> <C>
1 Year Since Inception
29.4% 11.8%
</TABLE>
The S&P 500 is a broad based, unmanaged index of securities, and unlike Fund
returns, does not reflect any fees or expenses. Past performance is not
predictive of future performance.
GOVERNMENT BOND FUND
The total return for the Government Bond Fund for 1995 was 18.7%.
The Merrill Lynch Government Master Index, an index designed to reflect the
performance of the broad Government and Agency market, returned 18.3% over the
same period.
During 1995, those bond market investors that stayed invested during a
difficult prior year were rewarded for their patience. Long-term interest
rates dropped by approximately 190 basis points during the year resulting in
significantly higher prices for bonds. Intermediate-term interest rates
dropped even more with rates on the five-year
6
<PAGE> 9
U.S. Treasury note, for example, falling from 7.83% to 5.37%. The Government
Bond Fund participated in this rally by maintaining market exposure as interest
rates declined during the year.
The rally in the fixed-income markets was due to the confluence of
several factors. The most notable of these was the perception of an improving
fiscal policy in the United States and a Federal Reserve that was given credit
for engineering an economy that continued to expand without igniting inflation
concerns. Continuing reports of subdued inflation were interpreted both as
signs of successful Federal Reserve policy and as indications of continued
value in the bond market.
The Government Bond Fund continues to be invested in sectors of the
government, agency and mortgage-backed markets perceived to be undervalued.
Positions in the callable agency market were added selectively during the year
as this sector represented value. Approximately one-third of portfolio assets
are invested in the Collateralized Mortgage Obligation (CMO) market. The
additional yield on these conservatively-structured investments continues to
make them attractive portfolio holdings.
COMPARISON OF A RETURN ON A HYPOTHETICAL $10,000 INVESTMENT IN
THE GOVERNMENT BOND FUND AND THE MERRILL LYNCH GOVERNMENT MASTER INDEX
<TABLE>
<CAPTION>
1/1/86 86 87 88 89 90 91 92 93 94 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Bond Fund $24,965
Merrill Lynch Gov't $24,542
Master Index
</TABLE>
Government Bond Fund
Average Annual Total Return
<TABLE>
<CAPTION>
<S> <C> <C>
1 Year 5 Years 10 Years
18.7% 9.6% 9.6%
</TABLE>
The Merrill Lynch Government Master Index is an index of unmanaged groups of
bonds which unlike Fund returns, does not reflect any fees or expenses. Past
performance is not predictive of future performance.
MONEY MARKET FUND
Short-term interest rates rose during the first half of 1995. The
Federal Reserve increased rates due to both an expanding economy and concern
about inflation. By early July, expansion and inflation concerns had
diminished. The Federal Reserve lowered the Fed Funds rate in July 1995 to
5.75% and again lowered rates in December 1995 and January 1996 to 5.50% and
5.25%, respectively. Additional easing may occur if indicators point to a
slowing economy and low inflation.
The Fund continues to invest in only the highest rated money market
securities. An internal credit review is completed on every company the Fund
invests in.
COMPARISON OF A RETURN ON A HYPOTHETICAL $10,000 INVESTMENT IN
THE MONEY MARKET FUND AND THE CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
1/1/86 86 87 88 89 90 91 92 93 94 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund $17,587
Consumer Price Index $14,081
</TABLE>
Money Market Fund
Average Annual Total Return
--------------------------------
1 Year 5 Years 10 Years
--------------------------------
5.7% 4.3% 5.8%
--------------------------------
The Consumer Price Index is a broad index reflecting price changes in
a market basket of consumer goods, and unlike Fund returns, does not reflect
any fees or expenses. Past performance is not predictive of future performance.
INVESTMENT IN FUND SHARES
An insurance company purchases the shares of the Funds at their net
asset value using purchase payments received on Policies issued by Accounts.
These Accounts are funded by shares of the Trust. There is no sales charge.
All shares are sold at net asset value.
Shares of the Trust are currently sold only to separate accounts of
Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, One Nationwide Plaza, Columbus, Ohio 43216, to fund the benefits under
variable insurance or annuity policies.
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. Initial and subsequent purchase payments allocated to a specific
Fund are subject to the limits applicable to the policies.
SHARE REDEMPTION
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
7
<PAGE> 10
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 each 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. 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
-TOTAL RETURN FUND, CAPITAL APPRECIATION FUND AND GOVERNMENT BOND FUND
Substantially all of the net investment income, if any, of these
Funds will be paid as dividends in March, June, September, and December. In
those years in which sales of a Fund's portfolio securities result in net
realized capital gains, the Fund will distribute such gains to its shareholders
with the December dividend.
-MONEY MARKET FUND
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 the 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.
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, for purposes of complying with the Investment
Company Act of 1940.
Because the net income of the 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.
8
<PAGE> 11
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 changing 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 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. Although the sole
shareholders of the Trust are Nationwide Life insurance Company and Nationwide
Life and Annuity Insurance Company, under current law, the life insurance
company shareholders are required to request voting instructions from
policyholders and must vote Trust shares held in proportion to the voting
instructions received. 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:
- 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.
PERFORMANCE ADVERTISING FOR THE FUNDS
The Funds may use historical performance in advertisements, sales
literature, and the prospectus. Such figures will include quotations of
average 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.
The Government Bond Fund may advertise a yield which is calculated daily
dividing the net investment income per share earned during a 30-day period by
the maximum offering price per share on the last day of the period.
The Money Market Fund may advertise current seven-day yield quotations
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the base period to obtain a base period return and then
multiplying the base period return by (365/7), or (366/7) in 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. The Fund's effective yield represents a compounding on an annualized
basis of the current yield quotation of the Fund.
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
The Trust's policy is for each Fund to qualify as a regulated investment
company and to meet the requirements of Subchapter M of the Code. Each Fund
intends to distribute all its taxable net investment income and capital gains
to shareholders, and therefore, will not be required to pay any federal income
taxes.
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 a Fund are considered separately for
purposes of determining whether or not a Fund qualifies as a regulated
investment company. Each Fund intends to comply with the diversification
requirements currently imposed by the Internal Revenue Service on separate
9
<PAGE> 12
accounts of insurance companies as a condition of maintaining the tax-deferred
status of the Policies. See the Statement of Additional Information for more
specific information.
The tax treatment of payments made by a separate account to a Policy holder
is described in the separate account prospectus.
10
<PAGE> 13
<TABLE>
<CAPTION>
Contents Page
- -------- ----
<S> <C>
Financial Highlights 2
Sale of Fund Shares 3
Investment Objectives and Policies 3
Management of the Trust 4
Management Discussion of Fund Performance 5
Investment in Fund Shares 7
Share Redemption 7
Net Income and Distributions 9
Additional Information 10
Performance Advertising for the Funds 10
Tax Status 10
</TABLE>
INVESTMENT ADVISER
Nationwide Financial 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
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Druen, Rath & Dietrich
One Nationwide Plaza
Columbus, Ohio 43216
11
<PAGE> 14
PROSPECTUS
May 1, 1996
- -----------
Shares of Beneficial Interest
Nationwide Small Company Fund
Nationwide Separate Account Trust
One Nationwide Plaza
Columbus, Ohio 43216
For Information and Assistance, Call
(614) 249-5134
Nationwide Small Company Fund (the "Fund") is a non-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 five separate mutual funds, each with its own investment
objective. This Prospectus relates only to the Nationwide Small Company Fund.
The shares of the Fund are sold only to life insurance company separate
accounts to fund the benefits of variable insurance and annuity policies.
The Fund seeks long-term growth of capital. The Fund invests primarily in
equity securities of small capitalization companies.
This Prospectus provides you with the basic information you should know before
investing in the Funds. You should read it and keep it for future reference.
A Statement of Additional Information dated May 1,1996, 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, DATED MAY 1, 1996,
IS INCORPORATED HEREIN BY REFERENCE.
<PAGE> 15
FINANCIAL HIGHLIGHTS
NATIONWIDE SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS OF THE FUND
PERIOD FROM OCTOBER 23, 1995* THROUGH DECEMBER 31, 1995
(SELECTED PER SHARE DATA AND RATIOS FOR A SHARE
OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Net
Realized
Gain and
Unrealized Net Net
Appreciation Investment Investment
Net on Expenses Expenses Income Income
Asset Investments Total Dividends Net Asset to to to to
Value-- Net and Foreign from from Net Value-- Average Average Average Average
Beginning Investment Currency Investment Investment End of Total Net Net Net Net Portfolio
of Period Income Transactions Operations Income period Return Assets** Assets** Assets Assets** Turnover
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.00 $.02 $1.42 $1.44 ($.02) $11.42 14.38% 1.25% 1.74% 1.32% .83% 9.03%
</TABLE>
<TABLE>
<CAPTION>
Net Assets
at End of
Period
(000's)
<S> <C>
$ 17,155
</TABLE>
*Initial public offering was October 23, 1995.
**Ratios calculated as if no expenses were waived or reimbursed. Waived and
reimbursed expenses per share were $.011.
Ratios are annualized. Total return and portfolio turnover are not annualized.
The information in the Financial Highlights has been audited by KPMG Peat
Marwick LLP, independent auditors, whose report on the financial statements
appears in the Statement of Additional Information. The Statement of Additional
Information and the Annual Report for the Fund which contains further
information about the Fund's performance may be obtained free of charge by
calling (614) 249-5134. These Financial Highlights should be read in
conjunction with the audited financial statements of the Fund.
2
<PAGE> 16
SALE OF FUND SHARES
Currently, shares of the Fund are sold only to life insurance company
separate accounts ("Accounts") to fund the benefits of variable insurance or
annuity policies ("Policies") issued by life insurance companies. The Accounts
purchase shares of the Fund in accordance with variable account allocation
instructions received from owners of the Policies. The Fund then uses the
proceeds to buy securities for its portfolio. The investment 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 of the 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 Accounts at any time at net asset value.
INVESTMENT OBJECTIVE AND POLICIES
Nationwide Small Company Fund (the "Fund") seeks long-term growth of
capital. The Fund invests primarily in equity securities of small market
capitalization companies ("small company stocks"). Market capitalization means
the total market value of a company's outstanding common stock. The Fund
anticipates that under normal market conditions, the Fund will invest at least
65% of its assets in equity securities of domestic and foreign companies with
market capitalizations of less than $1 billion at the time of purchase. The
equity securities in which the Fund may invest include common stocks, preferred
stocks (both convertible and non-convertible), warrants and rights. It is
anticipated that the Fund will invest primarily in companies whose securities
are traded on foreign or domestic stock exchanges or in the over-the-counter
market ("OTC"). The Fund may also invest in securities of emerging growth
companies, some of which may have market capitalizations over $1 billion.
Emerging growth companies are companies which have passed their start-up phase
and which show positive earnings and prospects of achieving significant profit
and gain in a relatively short period of time.
The Fund may purchase an unlimited number of foreign securities,
including securities of companies in emerging markets. The Fund may also
invest in foreign securities indirectly through American Depository Receipts
("ADRs") and other similar instruments as described below in "INVESTMENT
TECHNIQUES, CONSIDERATIONS AND RISK FACTORS - Foreign Securities and
Currencies".
Under normal conditions, the Fund intends to invest primarily in small
company stocks; however, the Fund is also permitted to invest up to 35% of its
assets in equity securities of domestic and foreign issuers with a market
capitalization of more than $1 billion at the time of purchase, debt
obligations and domestic and foreign money market instruments, including
bankers acceptances, certificates of deposit and discount notes of U.S.
Government securities. In addition, for temporary or emergency purposes, the
Fund can invest up to 100% of total assets in cash, cash equivalents, U.S.
Government securities, commercial paper and certain other money market
instruments, as well as repurchase agreements collateralized by these types of
securities.
At various times the Fund may invest in derivative instruments for
hedging or risk management purposes or for any other permissable purpose. See
"INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS - Derivative
Instruments" below.
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 fundamental policies of the Fund do not
require shareholder approval to change the Fund's investment objective.
MANAGEMENT OF THE FUND
Nationwide Financial Services, Inc. (the "Adviser") has employed a
group of 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. In addition, it is anticipated
that the Adviser will maintain a portion of the Fund's assets in cash or money
market instruments.
The Adviser has chosen the Subadvisers because they utilize a number
of different investment styles when investing in small company stocks. 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 hopes to increase prospects for investment return and to reduce market
risk and volatility.
3
<PAGE> 17
The following is a brief description of the investment strategies for
each of the Subadvisers:
THE DREYFUS CORPORATION ("Dreyfus") primarily seeks out domestic and
foreign small company stocks that have the potential for significant growth.
Dreyfus believes these companies to be characterized by new or innovative
products or services which should enhance prospects for growth in future
earnings. Dreyfus will also make investments based on prospective economic or
political changes and will invest in securities relating to special situations,
such as corporate restructurings, mergers or acquisitions, thereby seeking out
undervalued securities.
NEUBERGER & BERMAN, L.P. ("Neuberger & Berman") tries to enhance the
potential for appreciation and limit the risk of decline in the value of the
small company stocks that it purchases for the Fund by employing a
value-oriented investment approach. Neuberger & Berman seeks securities that
appear to be underpriced and are issued by companies with proven management,
sound finances and strong potential for market growth. It focuses on the
fundamentals of each smaller company, instead of trying to anticipate what
changes might occur in the stock market or in the economy or the political
environment; in doing so, the Fund's securities will be selected in the belief
that they are currently undervalued, based on existing conditions.
STRONG CAPITAL MANAGEMENT, INC. ("Strong") invests in companies whose
earnings are believed to be in a relatively strong growth trend, and, to a
lesser extent, in companies in which significant further growth is not
anticipated but which are perceived to be undervalued. In identifying
companies with favorable growth prospects, Strong considers factors such as
prospects for above-average sales and earnings growth; high return on invested
capital; overall financial strength; competitive advantages, including
innovative products and services; effective research, product development and
marketing; and stable, capable management.
PICTET INTERNATIONAL MANAGEMENT LIMITED ("PIML") AND VAN ECK
ASSOCIATEs ("VEAC") together invest internationally in small company stocks.
PIML and VEAC will primarily choose securities of issuers whose individual
market capitalizations would place them at the time of purchase in the same
size range as companies in approximately the lowest 20% by total market
capitalization of companies that have equities listed on major U.S. exchanges
or traded in the NASDAQ system. These companies will typically have individual
market capitalizations below $500 million. Because this policy is applied on
an international basis, the Fund may invest in companies that may rank above
the lowest 20% by total market capitalization in local markets and in some
countries such companies might rank among the largest companies in terms of
capitalization. When considering where assets will be allocated abroad, VEAC
and PIML will assess where opportunities for long-term capital appreciation are
greatest. In making specific stock selections, VEAC and PIML will invest in
quality, growth-oriented smaller companies that are relatively inexpensive.
WARBURG, PINCUS COUNSELLORS, INC. ("Warburg") invests primarily in
domestic small company stocks. Warburg may choose securities of small
companies which may be in the developmental stage, may be older companies that
appear to be entering a new stage of growth owing to factors such as management
changes or development of new technology, products or markets or may be
companies providing products or services with a high unit volume growth rate.
Warburg may also select securities of emerging growth companies, which can be
either small- or medium-sized companies that have passed their start-up phase
and that show positive earnings and prospects of achieving significant profit
and gain in a relatively short period of time. Emerging growth companies
generally stand to benefit from new products or services, technological
developments or changes in management and other factors and include smaller
companies experiencing unusual developments affecting their market value.
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
SMALL COMPANY AND EMERGING GROWTH STOCKS
Investing in securities of small-sized and emerging growth companies
may involve greater risks than investing in larger, more established issuers
since these securities may have limited marketability and, thus, they may be
more volatile than securities of larger, more established companies or the
market averages in general. Because small-sized companies normally have fewer
shares outstanding than larger companies, it may be more difficult for the Fund
to buy or sell significant numbers of such shares without an unfavorable impact
on prevailing prices. Small-sized companies may have limited product lines,
markets or financial resources and may lack management depth. In addition,
small-sized companies are typically subject to wider variations in earnings and
business prospects than are larger, more established companies. There is
typically less publicly available information concerning small-sized companies
than for larger, more established ones.
Securities of issuers in "special situations" also may be more
volatile, since the market value of these securities may decline in value if
the anticipated benefits do not materialize. Companies in "special situations"
include, but are not limited to,
4
<PAGE> 18
companies involved in an acquisition or consolidation; reorganization;
recapitalization; merger, liquidation or distribution of cash, securities or
other assets; a tender or exchange offer, a breakup or workout of a holding
company; litigation which, if resolved favorably, would improve the value of
the companies' securities; or a change in corporate control.
Although investing in securities of emerging growth companies or
"special situations" offers potential for above-average returns if the
companies are successful, the risk exists that the companies will not succeed
and the prices of the companies' shares could significantly decline in value.
Therefore, an investment in the Fund may involve a greater degree of risk than
an investment in other mutual funds that seek long-term growth of capital by
investing in better-known, larger companies.
FOREIGN SECURITIES AND CURRENCIES
The Fund may invest in foreign securities, either directly or
indirectly through the use of depositary receipts. Depositary receipts,
including ADRs, European Depository Receipts and American Depository Shares,
are generally issued by banks or trust companies and evidence ownership of
underlying foreign securities. The Fund may also invest in securities of
foreign investment funds or trusts (including passive foreign investment
companies).
Foreign investments involve special risks, including the possibility
of expropriation, confiscatory taxation, and withholding taxes on dividends and
interest; less extensive regulation of foreign brokers, securities markets, and
issuers; political, economic or social instability; and less publicly available
information and different accounting standards. When investing in foreign
securities, the Fund may also incur costs in conversions between currencies,
possible delays in settlement in foreign securities markets, limitations on the
use or transfer of assets (including suspension of the ability to transfer
currency from a given country), and difficulty in enforcing obligations in
other countries.
Foreign economies may differ favorably or unfavorably from the U.S.
economy in various respects, including growth of gross domestic product, rates
of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities
are less liquid and their prices more volatile than comparable U.S.
securities. Although the Fund generally invests only in securities that are
regularly traded on recognized exchanges or OTC, from time to time, foreign
securities may be difficult to liquidate rapidly without adverse price effects.
Certain costs attributable to foreign investing, such as custody charges and
brokerage costs, are higher than those attributable to domestic investing.
The Fund may invest a portion of its assets in securities of issuers
in developing or emerging markets and economies. Investing in securities of
issuers in developing or emerging markets involves special risks, including
less social, political, and economic stability; smaller securities markets and
lower trading volume, which may result in a lack of liquidity and greater price
volatility; certain national policies that may restrict the Fund's investment
opportunities, including restrictions on investments in issuers or industries
deemed sensitive to national interests, or expropriation or confiscation of
assets or property, which could result in a Fund's loss of its entire
investment in that market; and less developed legal structures governing
private or foreign investment or allowing for judicial redress for injury to
private property.
In addition, brokerage commissions, custodial services, withholding
taxes, and other costs relating to investment in emerging markets generally are
more expensive than in the U.S. and certain more established foreign markets.
Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values, and other protectionist measures negotiated or imposed by the
countries with which they trade.
Because most foreign securities are denominated in non-U.S.
currencies, the investment performance of the Fund could be significantly
affected by changes in foreign currency exchange rates. The value of the
Fund's assets denominated in foreign currencies will increase or decrease in
response to fluctuations in the value of those foreign currencies relative to
the U.S. dollar. Currency exchange rates can be volatile at times in response
to supply and demand in the currency exchange markets, international balances
of payments, governmental intervention, speculation, and other political and
economic conditions.
The Fund may purchase and sell foreign currency on a spot basis and
may engage in forward currency contracts, currency options, and futures
transactions for hedging or risk management purposes. (See "Derivative
Instruments" below.)
WARRANTS
A warrant is an instrument which gives the holder the right to
subscribe to a specified amount of the issuer's securities at a set price for a
specified period of time or on a specified date.
5
<PAGE> 19
CONVERTIBLE SECURITIES
A convertible security is a fixed income security or preferred stock
that may be converted at either a stated price or stated rate into underlying
shares of common stock. Convertible securities have general characteristics
similar to both debt obligations and equity securities. Although to a lesser
extent than with debt obligations generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends
to increase as interest rates decline. In addition, because of the conversion
feature, the market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stock, and therefore,
also will react to variations in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of
the underlying common stock increases, the prices of the convertible securities
tend to rise as a reflection of the value of the underlying common stock.
While no securities investments are without risk, investments in convertible
securities generally entail less risk than investments in common stock of the
same issuer.
As debt obligations, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all debt obligations, there can be no assurance of
current income because the issuers of the convertible securities may default on
their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non- convertible securities of similar quality
because of the potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because the market
value of securities will fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible
securities.
DEBT OBLIGATIONS
In General - Debt obligations in which the Fund may invest will be
investment-grade debt obligations, although the Fund may invest up to 5% of its
assets in non-investment-grade debt obligations. The market value of all debt
obligations is affected by changes in the prevailing interest rates. The
market value of such instruments generally reacts inversely to interest rate
changes. If the prevailing interest rates decrease, the market value of debt
obligations generally increases. If the prevailing interest rates increase,
the market value of debt obligations generally decreases. In general, the
longer the maturity of a debt obligation, the greater its sensitivity to
changes in interest rates.
Investment-grade debt obligations include 1) bonds or bank obligations
rated in one of the four highest rating categories by any nationally recognized
statistical rating organization ("NRSRO") (e.g., Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group ("Standard & Poor's")); 2) U.S.
government securities (as described below); 3) commercial paper rated in one of
the three highest ratings categories of any NRSRO; 4) short-term bank
obligations that are rated in one of the three highest categories by any NRSRO,
with respect to obligations maturing in one year or less; 5) repurchase
agreements involving investment-grade debt obligations; or 6) unrated debt
obligations which are determined by the Adviser or a Subadviser to be of
comparable quality.
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. Securities rated in the fourth highest
category by an NRSRO, although considered investment-grade, have speculative
characteristics and may be subject to greater fluctuations in value than
higher-rated securities. Non-investment-grade debt obligations include 1)
securities rated as low as C by Standard & Poor's or its equivalents; 2)
commercial paper rated as low as C by Standard & Poor's or its equivalents; or
3) unrated debt securities judged to be of comparable quality by the Adviser or
a Subadviser.
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.
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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.
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.
DERIVATIVE INSTRUMENTS
Derivative instruments may be used by the Fund for hedging or risk
management purposes or for any other permissible purposes consistent with the
Fund's investment objective. Derivative instruments are securities or
agreements whose value is based on the value of some underlying asset, for
example, securities, currencies, or reference indices. Options, futures, and
options on futures transactions are considered derivative transactions.
Derivatives generally have investment characteristics that are based upon
either forward contracts (under which one party is obligated to buy and the
other party is obligated to sell an underlying asset at a specific price on a
specified date) or option contracts (under which the holder of the option has
the right but not the obligation to buy or sell an underlying asset at a
specified price on or before a specified date). Consequently, the change in
value of a forward-based derivative generally is roughly proportional to the
change in value of the underlying asset. In contrast, the buyer of an
option-based derivative generally will benefit from favorable movements in the
price of the underlying asset but is not exposed to corresponding losses due to
adverse movements in the value of the underlying asset. The seller of an
option-based derivative generally will receive fees or premiums but generally
is exposed to losses due to changes in the value of the underlying asset.
Derivative transactions may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative transaction in relation to the
underlying asset may be magnified. In addition to options, futures, and
options on futures transactions, derivative transactions may include short
sales against the box, in which the Fund sells a security it owns for delivery
at a future date. Derivative transactions may also include forward currency
contracts and foreign currency exchange-related securities.
Derivative transactions in which the Fund may engage include the
writing of covered put and call options on securities and the purchase of put
and call options thereon, the purchase of put and call options on securities
indexes and exchange-traded options on currencies and the writing of put and
call options on securities indexes. The Fund may enter into spread
transactions and swap agreements. The Fund also may buy and sell financial
futures contracts which may include interest-rate futures, futures on currency
exchanges and stock and bond index futures contracts. The Fund may enter into
any futures contracts and related options without limit for "bona fide hedging"
purposes (as defined in Commodity Futures Trading Commission regulations) and
for other permissible purposes, provided that aggregate initial margin and
premiums on positions engaged in for purposes other than "bona fide hedging"
will not exceed 5% of its net asset value, after taking into account unrealized
profits and losses on such contracts. The Fund may also enter into forward
currency contracts to purchase or sell foreign currencies.
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<PAGE> 21
Derivative instruments may be exchange-traded or traded in OTC
transactions between private parties. OTC transactions are subject to the
credit risk of the counterparty to the instrument and are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction. When required by guidelines of the Securities
and Exchange Commission ("SEC"), the Fund will set aside permissible liquid
assets or securities positions that substantially correlate to the market
movements of the derivatives transactions in a segregated account to secure its
obligations under derivative transactions. Segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations. In order to maintain its required cover for a derivative
transaction, the Fund may need to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a derivative
position.
The successful use of derivative transactions by the Fund is dependent
upon a Subadviser's ability to correctly anticipate trends in the underlying
asset. Hedging transactions are subject to risks; if a Subadviser incorrectly
anticipates trends in the underlying asset, the Fund may be in a worse position
than if no hedging had occurred. In addition, there may be imperfect
correlation between the Fund's derivative transactions and the instruments
being hedged.
SHORT SALES AGAINST THE BOX
The Fund may also engage in short selling against the box as long as
no more than 15% of the value of the Fund's net assets is in deposits on short
sales against the box at any one time.
HARD ASSET SECURITIES
The Fund may invest in equity securities of issuers which are directly
or indirectly engaged to a significant extent in the exploration, development
or distribution of one or more of the following: precious metals; ferrous and
non-ferrous metals; gas, petroleum, petrochemical and/or other hydrocarbons;
forest products; real estate and other basic non-agricultural commodities
(collectively, "Hard Assets"). The production and marketing of Hard Assets may
be affected by actions and changes in governments. In addition, Hard Asset
securities may be cyclical in nature. During periods of economic or financial
instability, the securities of some Hard Asset companies may be subject to
broad price fluctuations, reflecting the volatility of energy and basic
materials prices and the possible instability of supply of various Hard Assets.
In addition, some Hard Asset companies may also be subject to the risks
generally associated with extraction of natural resources, such as the risks of
mining and oil drilling, and the risks of the hazards associated with natural
resources, such as fire, drought, increased regulatory and environmental costs,
and others. Securities of Hard Asset companies may also experience greater
price fluctuations than the relevant Hard Asset. In periods of rising Hard
Asset prices, such securities may rise at a faster rate, and, conversely, in
time of falling Hard Asset prices, such securities may suffer a greater price
decline.
REAL ESTATE SECURITIES
Although the Fund will not invest in real estate directly, it may
invest in equity securities of real estate investment trusts ("REITs") and
other real estate industry companies or companies with substantial real estate
investments and therefore, the Fund may be subject to certain risks associated
with direct ownership of real estate and with the real estate industry in
general. These risks include, among others: possible declines in the value of
real estate; possible lack of availability of mortgage funds; extended
vacancies of properties; risks related to general and local economic
conditions; overbuilding; increases in competition, property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents;
and changes in interest rates.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
Internal Revenue Code, as amended (the "Code").
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities that are
illiquid, in that they cannot be expected to be sold within seven days at
approximately the price at which they are valued. Due to the absence of an
active trading market,
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<PAGE> 22
the Fund may experience difficulty in valuing or disposing of illiquid
securities. Each Subadviser will determine the liquidity of the Fund's
securities, under the supervision the Trust's trustees.
RESTRICTED SECURITIES, NON-PUBLICLY TRADED SECURITIES AND RULE 144A SECURITIES
Each Portfolio may invest in restricted securities and Rule 144A
securities. Restricted securities cannot be sold to the public without
registration under the Securities Act of 1933 ("1933 Act"). Unless registered
for sale, these securities can be sold only in privately negotiated
transactions or pursuant to an exemption from registration. Restricted
securities are generally considered illiquid and, therefore, subject to the
Fund's 15% limitation on illiquid securities.
Non-publicly traded securities (including Rule 144A securities) may
involve a high degree of business and financial risk which may result in
substantial losses. The securities may be less liquid than publicly traded
securities. Although these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less than those
originally paid by the Fund. In particular, Rule 144A securities may be resold
only to qualified institutional buyers in accordance with Rule 144A under the
1933 Act. Unregistered securities may also be sold abroad pursuant to
Regulation S under the 1933 Act. Companies whose securities are not publicly
traded are not subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
Acting pursuant to guidelines established by the Trustees of the Trust, some
restricted securities and Rule 144A securities may be considered liquid.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
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. 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 SEC guidelines, the Fund will set
aside permissible liquid assets in a segregated account to secure its
outstanding commitments for when-issued securities.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements with the
same parties with whom it may enter into repurchase agreements. Reverse
repurchase agreements involve the sale of securities held by the Fund pursuant
to its agreement to repurchase them at a mutually agreed upon date, price and
rate of interest. At the time the Fund enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing cash or liquid high-grade debt securities having a value
not less than the repurchase price (including accrued interest). The assets
contained in the segregated account will be marked-to-market daily and
additional assets will be placed in such account on any day in which the assets
fall below the repurchase price (plus accrued interest). The Fund's liquidity
and ability to manage its assets might be affected when it sets aside cash or
portfolio securities to cover such commitments. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale may decline below the price of the securities the Fund has sold but is
obligated to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether
to enforce the Fund's obligation to repurchase the securities, and the
Portfolio's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decision. Reverse repurchase agreements
are considered to be borrowings under the Investment Company Act of 1940 (the
"1940 Act").
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,
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<PAGE> 23
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 1940 Act. However, the Fund currently intends to borrow
money only for temporary or emergency purposes (but not for leverage or the
purchase of investments, except when entering into reverse repurchase
agreements as described above), in an amount up to 33-1/3% of the value of the
Fund's total assets (including the amount borrowed) valued at the time the
borrowing is made.
NON-DIVERSIFIED STATUS
The Fund is classified as non-diversified under the 1940 Act, which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that it may invest in securities of a single issuer. The Fund's
investments will be limited, however, in order to qualify as a "regulated
investment company" for purposes of the Code. To qualify, the Fund will comply
with certain requirements, including limiting its investments so that at the
close of each quarter of the taxable year (a) not more than 25% of the market
value of its total assets will be invested in the securities of a single
issuer, and (b) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in
the securities of a single issuer and the Fund will not own more than 10% of
the outstanding voting securities of a single issuer. Being non-diversified
means that the Fund may invest a greater proportion of its assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that the Fund
assumes large positions in the securities of a small number of issuers, its
return may fluctuate to a greater extent than that of a diversified company as
a result of changes in the financial condition or in the market's assessment of
the issuers.
PORTFOLIO TURNOVER
The 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.
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<PAGE> 24
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 Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio
43216, oversees the investment of the assets and, subject to the supervision of
the Trustees, provides various administrative services and supervises the daily
business affairs of the Fund.
Subject to the supervision and 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 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 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 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.
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 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.
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 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 proprietary mutual fund assets. As
of December 31, 1995, various subsidiaries of Mellon provided non-investment
services, such as
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<PAGE> 25
custodial or administration services, for approximately $786
billion in assets including approximately $60 billion in mutual fund assets.
The primary portfolio manager of the portion of the Fund's portfolio
managed by Dreyfus is Thomas A. Frank. Mr. Frank joined Dreyfus in June 1985
and currently serves as Senior Portfolio Manager and Director of Equity
Research responsible for directing all equity research functions. Mr. Frank
also serves as Portfolio Manager for various investment companies advised or
administered by Dreyfus, including Dreyfus New Leaders Fund, Inc.
Prior to joining Dreyfus, Mr. Frank served for twelve years at A.G.
Becker and Company, beginning in 1969 as a securities analyst, and eventually
becoming a shareholder and senior line officer in that firm's institutional
department. From 1981 through 1984, Mr. Frank served as Vice President, Special
Equities Group, at Chase Investors Management Corporation, an affiliate of The
Chase Manhattan Bank, N.A., where he shared management responsibility for
investment in smaller capitalization securities for pension, profit sharing and
foundation accounts totalling approximately $1 billion. From 1984 through
1985, Mr. Frank was a portfolio manager at Neuberger & Berman, with primary
responsibility for overseeing that firm's internal research effort. Mr. Frank
received a B.A. from Williams College and attended the Columbia University
Graduate School of Business Administration.
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.
Stephen E. Milman, who is a Vice President of Neuberger & Berman
Management, Inc. ("N&B Management", an affiliate of Neuberger & Berman) and a
general partner of Neuberger & Berman, is the Manager of the Small Cap Group of
Neuberger & Berman. He has overall responsibility for activities of the Small
Cap Group, providing guidance and reviewing portfolio strategy and structure.
Judith M. Vale, who has been a member of the Small Cap Group since 1992 and a
Vice President of N&B Management since November 1994, is primarily responsible
for the day-to-day management of Neuberger & Berman's advisory activities for
the Fund. Ms. Vale also has primary responsibility for day-to-day management
of the Neuberger & Berman Genesis Fund. Ms. Vale was a portfolio manager for
another investment management group from 1990 to 1992, and was a senior fund
analyst at another prominent investment adviser from 1987 to 1990.
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.
Ronald C. Ognar is responsible for Strong's portfolio management
activities for the Fund. Mr. Ognar, a Chartered Financial Analyst with more
than 25 years of investment experience, joined Strong in April 1993 after two
years as a principal and portfolio manager with RCM Capital Management. For
approximately three years prior to that, he was a portfolio manager at Kemper
Financial Services in Chicago. Mr. Ognar began his investment career in 1968
at LaSalle National Bank in Chicago after serving two years in the U.S. Army.
He received his bachelor's degree in accounting from the University of Illinois
in 1968. In addition to his portfolio management duties for the Fund, he also
manages the Strong Growth Fund and co-manages the Strong Total Return Fund.
PICTET INTERNATIONAL MANAGEMENT LIMITED AND VAN ECK ASSOCIATES
CORPORATION. VEAC and PIML 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.
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PIML is 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.
In performing its investment management duties, PIML assigns a team of
managers led by a Chief Investment Officer. The primary portfolio managers for
the Fund are listed below. This team also performs similar functions for the
Van Eck Worldwide Insurance Trust, Worldwide Small Cap Fund and the Van Eck
Funds Global Small Cap Fund.
Nicholas Johnson is the Chief Investment Officer and Chief Investment
Officer for the portion of the Fund managed by PIML. Mr. Johnson is
responsible for all aspects of the investment process including global asset
allocation. Prior to joining PIML in 1993, Mr. Johnson specialized in Japanese
and Asian investments at Invesco MIM, where he had been head of international
investment responsible for investment operations outside of North America.
Jonathan Neill is a Senior Investment Manager for the portion of the
Fund managed by PIML. Mr. Neill is jointly responsible for worldwide small
companies and emerging markets. Prior to joining PIML in 1990, Mr. Neill
worked for two years with Mercury Asset Management as an investment manager
responsible for specialist international funds.
Douglas Polunin is also a Senior Investment Manager for the portion of
the Fund managed by PIML. Mr. Polunin joined PIML in 1989 and is jointly
responsible for worldwide small companies and emerging markets. Prior to
joining PIML, Mr. Polunin spent two and a half years with the Union Bank of
Switzerland in London where he was in charge of the Discretionary Portfolio
Management section. Before that, he spent four years as an equity analyst with
UBS in Switzerland.
Richard Yarlott is a Senior Investment Manager within the small
companies and emerging markets team and for the portion of the Fund managed by
PIML. His main responsibilities currently include asset allocation and
securities analysis on an international basis. Prior to joining PIML in 1994,
Mr. Yarlott worked for over ten years in banking, strategic consulting and
private investment. In 1985 he joined JP Morgan where he worked in structured
finance and merger and acquisition roles until 1990. He spent two years as a
principal for a private investment company, and subsequently worked for Marakom
Associates, a value-based consulting firm.
For VEAC, Derek van Eck assists PIML regarding the Hard Asset sector.
He is an Analyst and is Director of Global Investments and Executive Vice
President of VEAC. Mr. van Eck is also an officer and portfolio manager of
other mutual funds advised by VEAC, including Worldwide Hard Assets Fund.
WARBURG, PINCUS COUNSELLORS, INC. The Fund also employs Warburg as a
Subadviser to the Fund. Warburg is a professional investment counselling firm
which provides investment services to investment 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. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
The portfolio managers for Warburg's portion of the Fund are Elizabeth
B. Dater and Stephen J. Lurito. Ms. Dater and Mr. Lurito are also co-portfolio
managers of Warburg, Pincus Emerging Growth Fund and Warburg, Pincus Small
Company Growth Portfolio, a portfolio of Warburg, Pincus Trust. Ms. Dater is a
managing director of EMW and has been a portfolio manager of Warburg since
1978. Mr. Lurito is a managing director of EMW and has been with Warburg
since 1987, before which time he was a research analyst at Sanford C.
Bernstein & Company, Inc.
OTHER SERVICES
NFS provides the accounting services, including daily valuation of
each Fund's shares, preparation of financial statements, taxes, and regulatory
reports.
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 NFS.
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<PAGE> 27
INVESTMENT IN FUND SHARES
An insurance company purchases the shares of the Fund at the Fund's
net asset value using purchase payments received on Policies issued by
Accounts. These Accounts are funded by shares of the Fund. 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 Nationwide Life and Annuity Insurance
Company, One Nationwide Plaza, Columbus, Ohio 43216, to fund the benefits under
variable insurance or annuity policies.
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 certificates. Initial and
subsequent purchase payments allocated to the Fund are subject to the limits
applicable to the policies.
SHARE REDEMPTION
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 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. 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 with each other share. The Trust reserves
the right to create and issue 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. Although the sole shareholders
of the Trust are Nationwide Life Insurance Company and Nationwide Life and
Annuity Insurance Company, under current law, the life insurance company
shareholders are required to request voting instructions from policyholders and
must vote Trust shares
14
<PAGE> 28
held in proportion to the voting instructions received. 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:
- 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.
ADVERTISING PERFORMANCE 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. The total return (not annualized) for the
period from October 23, 1995 (inception) through December 31, 1995 was 14.4%.
TAX STATUS
The Trust's policy is to qualify as a regulated investment company and
to meet the requirements of Subchapter M of the Code. The Fund intends to
distribute all its taxable net investment income and capital gains to
shareholders, and therefore, will not be required to pay any federal income
taxes.
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 Policies. See the Statement of Additional Information for more
specific information.
Dividends and interest received by the Fund may be subject to
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. 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 tax treatment of payments made by a separate account to a Policy
holder is described in the separate account prospectus.
15
<PAGE> 29
<TABLE>
<CAPTION>
Contents Page
- -------- ----
<S> <C>
FINANCIAL HIGHLIGHTS 2
Sale of Fund Shares 3
Investment Objective and Policies 3
Investment Techniques, Considerations and Risk Factors 4
Management of the Trust 11
Investment in Fund Shares 14
Share Redemption 14
Net Income and Distributions 14
Additional Information 14
Advertising Performance for the Fund 15
Tax Status 15
INVESTMENT ADVISER
Nationwide Financial 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
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Druen, Rath & Dietrich
One Nationwide Plaza
Columbus, Ohio 43216
</TABLE>
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<PAGE> 30
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
NATIONWIDE SEPARATE ACCOUNT TRUST
--TOTAL RETURN FUND
--CAPITAL APPRECIATION FUND
--GOVERNMENT BOND FUND
--MONEY MARKET FUND
--SMALL COMPANY 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. The Prospectuses may be obtained from
Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216,
or by calling (614) 249-5134.
<TABLE>
<CAPTION>
Table Of Contents Page
- -------------------------------------------------------------------
<S> <C>
General Information and History 1
Investment Objectives and Policies 1
Investment Restrictions 19
Major Shareholders 22
Trustees and Officers of the Trust 23
Calculating Yield - The Money Market Fund 24
Calculating Yield and Total Return-Non-Money Market Funds 24
Investment Adviser and Other Services 25
Brokerage Allocations 28
Purchases, Redemptions and Pricing of Shares 30
Additional Information 31
Tax Status 32
Tax Consequences for the Small Company Fund 33
Tax Consequences to Shareholders 34
Appendix A - Bond Ratings 35
Independent Auditors' Report 44
Financial Statements 45
</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 and November 3, 1995. The Trust offers shares in
five 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.
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<PAGE> 31
- --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 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)
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<PAGE> 32
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.
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
3
<PAGE> 33
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.
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.
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;
4
<PAGE> 34
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 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
5
<PAGE> 35
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 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.
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, 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
6
<PAGE> 36
securities ("Comparable Unrated Securities"). The ratings of an NRSRO
represent its opinion as to the quality of securities it undertakes to rate.
Ratings are not absolute standards of quality; consequently, securities with
the same maturity, coupon, and rating may have different yields. The ratings
assigned by the NRSROS are described in Appendix A to this Statement of
Additional Information.
Fixed income securities are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and
general market liquidity ("market risk"). Lower-rated securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general
level of interest rates. Subsequent to its purchase by 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 asst 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 lower interest rate. To the extent an issuer is
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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.
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
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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, 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
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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.
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
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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
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
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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.
(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
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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 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.
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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.
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
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<PAGE> 44
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.
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
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
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<PAGE> 45
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 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
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<PAGE> 46
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 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.
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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 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.
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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
Fund, 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 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.
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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 -- The following are the
Small Company Fund's fundamental investment limitations which cannot be changed
without shareholder approval:
THE SMALL COMPANY 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 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.
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<PAGE> 50
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 Fund's non-fundamental operating policies which may be
changed by the Board of Trustees of the Trust without shareholder approval:
The Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
or unless it covers such short 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 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.
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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.
MAJOR SHAREHOLDERS
As of March 31, 1996, separate accounts of Nationwide Life Insurance
Company and Nationwide Life and Annuity Insurance Company had shared voting and
investment power of 92.9% and 7.1% of the shares of the Total Return Fund,
91.5% and 8.5% of the shares of Government Bond Fund, 99.1% and 0.9% of the
shares of Money Market Fund, and 95.1% and 4.9% of the shares of Capital
Appreciation Fund, respectively. As of March 31, 1996, Nationwide Life
Insurance Company owned beneficially 16.7% and had shared voting and investment
power for 83.3% of the shares of the Small Company Fund.
As of March 31, 1996, the Trustees and Officers of the Trust as a
group owned less than 1% of the shares of the Funds.
22
<PAGE> 52
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.
378 Bricker Hall, 190 North Oval Mall, 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
1223-A Central Street, Evanston, Illinois.
Dr. Kerr is President of Kendall College. He was formerly 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.
Rae I. Mercer, Secretary.
One Nationwide Plaza, Columbus, Ohio.
Mrs. Mercer 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").
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<PAGE> 53
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. Brayant $1,000 $12,500
Rober 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 December 31, 1995, the Fund's
seven-day current yield was 4.85%. The Fund's effective yield represents an
annualization of the current seven day return with all dividends reinvested,
and for the period ended December 31, 1995 was 4.97%.
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 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.
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<PAGE> 54
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 December 31, 1995 are shown below.
<TABLE>
<CAPTION>
Total Government
Return Bond
<S> <C> <C>
1 Year 29.1% 18.7%
5 Years 16.7% 9.6%
10 Years 12.5% 9.6%
</TABLE>
The Capital Appreciation Fund began operations on May 1, 1992. Its
annualized average annual total return for one year ended December 31, 1995 and
for the three years and eight months from May 1, 1992 through December 31, 1995
was 29.4% and 11.8%, 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 December 31, 1995 was 14.4%.
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
December 31, 1995, was 5.84%.
INVESTMENT ADVISER AND OTHER SERVICES
The Adviser manages the Funds (except the Small Company 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 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 Fund).
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.
25
<PAGE> 55
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 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
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 fees 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
26
<PAGE> 56
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 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 domicied
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.
27
<PAGE> 57
Warburg, Pincus Counsellors, Inc. The Fund also employs Warburg as a
Subadviser to the Fund. Warburg is a professional investment counselling 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. 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.
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 DISBURSEMENT
Nationwide Investors Services, Inc. (NIS) is the Transfer and Dividend
Disbursing Agent for the Funds. NIS is a wholly-owned subsidiary of Nationwide
Financial Services, Inc. Management believes the charges for the esrvices
performed are comparable to fees charged by other companies performing similar
services.
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 Sub-Adviser) 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 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
28
<PAGE> 58
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.
SPECIAL BROKERAGE ALLOCATION CONSIDERATIONS RELATING TO THE SMALL
COMPANY FUND. In purchasing and selling the Small Company Fund's portfolio
investments, it is the policy of each of 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 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.
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,
29
<PAGE> 59
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.
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.
The Trustees periodically review 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.
PURCHASES, REDEMPTIONS AND PRICING OF SHARES
An insurance company purchases shares of the Funds at their net asset
value using purchase payments received on Policies issued by Accounts. These
Accounts are funded by shares of the Trust.
All investments in the Trust are credited to the shareholder's account
in the form of full and fractional shares of the designated Fund (rounded to
the nearest 1/1000 of a share). The Trust does not issue share certificates.
The net asset value per share of the Funds is determined once daily,
as of the close of the New York Stock Exchange (currently 4 P.M. eastern time)
on each business day the New York Stock Exchange is open and on such days as
the Board determines and on any other day during which there is a sufficient
degree of trading in each Fund's portfolio securities that the net asset value
of the Fund is materially affected by changes in the value of portfolio
securities. The Fund will not compute net asset value on customary national
business holidays, including the following: Christmas, New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day and
Thanksgiving. The net asset value per share is calculated by adding the value
of all securities and other assets of a 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 the Total Return Fund, Capital Appreciation Fund, Government Bond
Fund and Small Company Fund, short-term notes and bank certificates of deposit
are valued at amortized cost, which approximates market. For the Money Market
Fund, 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
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<PAGE> 60
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.
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:
- designate series of the Trust; or
- change the name of the Trust; or
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<PAGE> 61
- 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 the sole shareholders of record of the Trust. Each Fund of the
Trust is treated as a separate entity for purpose of the regulated investment
company provisions of the Internal Revenue Code, and, therefore, the assets,
income, and distributions of each Fund are considered separately for purposes
of determining whether or not the Fund qualifies as a regulated investment
company.
Each Fund of the Trust intends to qualify as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, a Fund will pay no federal income taxes on its taxable net
investment income (that is, taxable income other than net realized capital
gains) and its net realized capital gains that are distributed to shareholders.
To qualify under Subchapter M, a Fund must, among other things: (i) 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 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
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<PAGE> 62
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 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
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<PAGE> 63
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
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 Policies. For information concerning the Federal income tax
consequences to such holders, see the Prospectuses for such Policies.
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<PAGE> 64
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.
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.
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<PAGE> 65
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.
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
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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.
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
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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.
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 valuede on the basis of their
and ultimate recovery value in liquidation or reorganization of the
D obligor. 'DDD' represents the highest potintial 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.
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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.
<TABLE>
<CAPTION>
Rating
Scale Definition
- ----- ----------
<S> <C>
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
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.
</TABLE>
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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 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.
40
<PAGE> 70
FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ (Exceptionally strong credit quality) issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 (Very strong credit quality) issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated 'f-1+'.
F-2 (Good credit quality) issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned '
F-1+' and 'F-1' ratings.
F-3 (Fair credit quality) issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below
investment grade.
F-S (Weak credit quality) issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D (Default) issues assigned this rating are in actual or
imminent payment default.
LOC The symbol loc indicates that the rating is based on a
letter of credit issued by a commercial bank.
DUFF & PHELPS SHORT-TERM DEBT RATINGS
Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to all
obligations with maturities under one year, including commercial paper, the
uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial paper is also rated
according to this scale.
Emphasis is placed on liquidity which as defined is not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale Definition
- ------------ ----------
Duff 1+ Highest certainty of timely payment. short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
41
<PAGE> 71
Rating Scale Definition
- ------------ ----------
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 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"
42
<PAGE> 72
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.
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
43
<PAGE> 73
[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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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>
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> 81
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>
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> 82
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>
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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 Prospectus for the Funds (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 Prospectus (Part A).
Independent Auditors' Report
Statements of Investments as of December 31, 1994
Statements of Assets and Liabilities as of
December 31, 1994.
Statements of Operations for the year ended
December 31, 1994.
Statements of Changes in Net Assets for each
of the years ended December 31, 1995 and 1994.
Financial Highlights
Notes to Financial Statements
(b) Exhibits:
(1) Amended Declaration of Trust - previously
filed with Post-Effective Amendment No.
14, 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.
C-1
<PAGE> 109
(4) Not applicable.
(5) (a) Investment Advisory Agreement for
the Funds (except the Small Company
Fund)-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.
(6) Underwriting Contract-previously filed
with Registration Statement and
Post-Effective Amendments, and herein
incorporated by reference.
(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.
(27) 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 March 31 , 1995
-------------- ---------------------
Total Return Fund
Government Bond Fund 2
2
C-2
<PAGE> 110
Money Market Fund 2
Capital Appreciation Fund 2
Small Company Fund 2
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, and
Financial Horizons Investment Trust, and services as general
distributor to the Nationwide Multi-Flex Variable Account,
Nationwide Variable Account-II, Nationwide Variable Account-4,
Nationwide Variable Account-5, Nationwide Variable Account-6,
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 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.
Joseph J. Gasper PRESIDENT AND CHIEF OPERATING OFFICER AND
DIRECTOR
Nationwide Life Insurance Company and
Nationwide Life and Annuity Insurance
Companies
PRESIDENT AND DIRECTOR
Nationwide 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
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
InHealth Agency, Inc.
Nationwide HMO, Inc.
InHealth Management Systems, Inc.
Landmark Financial Services of New York, Inc.
Nationwide Indemnity Corporation
Nationwide Property Management, Inc.
PEBSCO Securities Corp.
CHAIRMAN OF THE BOARD AND DIRECTOR
West Coast Life Insurance Company
Neckura Holding Company
VICE CHAIRMAN. EXECUTIVE VICE PRESIDENT-CHIEF
INVESTMENT OFFICER AND DIRECTOR
Nationwide Financial Services, Inc.
CHAIRMAN AND TRUSTEE
Financial Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Separate Account Trust
C-3
<PAGE> 111
Gordon E. McCutchan EXECUTIVE VICE PRESIDENT-LAW AND
CORPORATE SERVICES AND SECRETARY
Nationwide Mutual, Nationwide Mutual Fire,
Nationwide Life, Nationwide General, Nationwide
Property and Casualty and Nationwide
Life and Annuity Insurance Companies
NEA Valuebuilder Investor Services, Inc.
Nationwide Financial Institution Distributors
Agency, Inc.
Colonial County Mutual Insurance Company
Colonial Insurance Company of California
Lone Star General Agency, Inc.
Nationwide Communications Inc.
Nationwide Community Urban Redevelopment
Corporation
Nationwide 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 Benefit Administration
Company
Employers Insurance of Wausau A Mutual Company
EXECUTIVE VICE PRESIDENT-LAW AND
CORPORATE SERVICES
Employers Life Insurance Company of Wausau
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
Pension Associations of Wausau, Inc.
PEBSCO Securities Corp.
Public Employees Benefit Services 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
Nationwide Property Management Inc.
EXECUTIVE VICE PRESIDENT-LAW AND CORPORATE
SERVICES AND DIRECTOR
Nationwide Financial Services, Inc.
Nationwide Investor Services, Inc.
EXECUTIVE VICE PRESIDENT-LAW AND
CORPORATE SERVICES AND SECRETARY AND DIRECTOR
California Cash Management Company
National Casualty Company
Nationwide Cash Management Company
Nationwide Indemnity Company
C-4
<PAGE> 112
VICE CHAIRMAN AND DIRECTOR
Neckura Insurance Company
Neckura Life
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
NEA Valuebuilder Investor Services of Nevada
NEA Valuebuilder Investor Services of Ohio,
Inc.
NEA Valuebuilder Investor Services of
Oklahoma, Inc.
NEA Valuebuilder Investor Services of
Wyoming
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
InHealth Agency, Inc.
Nationwide HMO, Inc. InHealth
Management Systems, Inc.
DIRECTOR
Leben Direkt Insurance Company
Neckura Holding Company
MRM Investments, Inc.
NWE, Inc.
D. Richard McFerson CHIEF EXECUTIVE OFFICER-NATIONWIDE INSURANCE
ENTERPRISE AND DIRECTOR
Nationwide Mutual, Nationwide Mutual Fire,
Nationwide General, and Nationwide Property
and Casualty
Nationwide Life and Nationwide Life
and Annuity Insurance Companies
Colonial Insurance Company of California
West Coast Life Insurance Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Development Company
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
National Casualty Company
Nationwide Financial Services, Inc.
California Cash Management Company
Nationwide Cash Management Company
Employers Insurance of Wausau A Mutual
Company
Wausau Service Corporation
Wausau Business Insurance Company
Wausau Underwriters Insurance Company
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICE- NATIONWIDE INSURANCE ENTERPRISE AND
DIRECTOR
American Marine Underwriters, Inc.
C-5
<PAGE> 113
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency Insurance Services of
California
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Employers Life Insurance Company of Wausau
Pension Associates of Wausau, Inc.
Wausau Preferred Health Insurance Company
Nationwide Financial Institutions
Distributors, Inc.
CHAIRMAN AND DIRECTOR
PEBSCO Securities Corp.
NEA Valuebuilder Investor Services, Inc.
PRESIDENT 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
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Wausau General Insurance Company
CHAIRMAN OF THE BOARD
Nationwide Insurance Golf Charities, Inc.
CHAIRMAN OF THE BOARD AND DIRECTOR
Lone Star General Agency, Inc.
Nationwide Community Urban Redevelopment
Corporation
Colonial County Mutual Insurance Company
Nationwide Property Management, Inc.
VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER-NATIONWIDE INSURANCE ENTERPRISE AND
DIRECTOR
Scottsdale Indemnity Company
Scottsdale Insurance Company
CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND
DIRECTOR
American Marine Underwriters, Inc.
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER-NATIONWIDE INSURANCE
ENTERPRISE AND DIRECTOR
Gates, McDonald & Company
Nationwide Investor Services, Inc.
Public Employees Benefit Services
Corporation
DIRECTOR
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York
CHAIRMAN OF THE BOARD. PRESIDENT AND CHIEF
EXECUTIVE OFFICER-NATIONWIDE INSURANCE
ENTERPRISE AND TRUSTEE
Nationwide Insurance Enterprise Foundation.
Robert A. Oakley EXECUTIVE PRESIDENT-CHIEF FINANCIAL OFFICER
Nationwide Mutual, Nationwide Mutual Fire,
Nationwide Life, Nationwide General,
Nationwide
C-6
<PAGE> 114
Property and Casualty, and Nationwide
Life and Annuity Insurance Companies
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.
Employers Life Insurance 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
Nationwide Financial Institution Distributors
Agency, Inc.
Lone Star General Agency, Inc.
MRM Investments, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Development Co.
Nationwide Financial Services, Inc.
Nationwide Investor Services, Inc
Nationwide Insurance Enterprise Foundation
Nationwide Property Management, Inc.
NEA Valuebuilder Investor Services, Inc.
Colonial County Mutual Insurance Company
PEBSCO Securities Corp.
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
West Coast Life Insurance Company
SENIOR VICE PRESIDENT-CHIEF FINANCIAL OFFICER
Countrywide Services Corporation
EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL OFFICER AND
DIRECTOR
California Cash Management Company
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment Corporation
Nationwide Indemnity Company
EXECUTIVE VICE PRESIDENT
Companies Agency Insurance Services of California
Wausau International Underwriters
DIRECTOR
Auto Direkt Insurance Company
C-7
<PAGE> 115
Neckura Holding Company Wausau
Insurance Company (U.K.) Limited
Robert J. Woodward, Jr. EXECUTIVE VICE PRESIDENT-CHIEF INVESTMENT
OFFICER
Nationwide Mutual, Nationwide Mutual Fire,
Nationwide General, Nationwide Property
and Casualty,
Nationwide Life and Nationwide Life and
Annuity Insurance Companies
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 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
Wausau Service Corporation
Wausau Underwriters Insurance Company
West Coast Life Insurance Company
EXECUTIVE VICE PRESIDENT-CHIEF INVESTMENT
AND DIRECTOR
Nationwide Communications, Inc.
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
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, Nationwide Mutual Fire,
Nationwide Life, Nationwide General,
Nationwide Property and Casualty and
Nationwide Life and Annuity Insurance
Companies
C-8
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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
W. Sidney Druen SENIOR VICE PRESIDENT AND GENERAL COUNSEL AND
ASSISTANT SECRETARY
Nationwide Mutual, Nationwide Mutual Fire,
Nationwide Life, Nationwide General,
Nationwide Property and Casualty, and
Nationwide Life and Annuity Insurance
Companies
Nationwide Financial 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 Life Insurance Company
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
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.
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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
Nationwide Indemnity Company
NEA Valuebuilder Investor Services, 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
NEA Valuebuilder Investor Services of Nevada
NEA Valuebuilder Investor Services of
Wyoming
Nationwide Investor Services, Inc.
MRM Investments Services, Inc.
NWE, Inc.
Nationwide Property Management, Inc.
PEBSCO of Massachusetts Insurance Agency,
Inc.
PEBSCO Securities Corp.
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 I. Mercer 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, Nationwide Mutual Fire,
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Nationwide General, Nationwide Property
and Casualty, Nationwide Life and
Nationwide Life and Annuity Insurance
Companies
Nationwide Indemnity Company
VICE PRESIDENT
Nationwide Financial Services, Inc.
DIRECTOR
Nationwide Investors Services, Inc.
ASSISTANT SECRETARY
West Coast Life Insurance Company
ASSISTANT TREASURER
Financial Horizons Investment Trust
Hickey-Mitchell Insurance Agency, Inc.
National Casualty Company
National Premium and Benefit Administration
Company
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Separate Account Trust.
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
Auto Direkt Insurance Company
Columbus Service, GMBH
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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.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS OF DREYFUS
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
Director CHIEF EXECUTIVE OFFICER:
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
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
</TABLE>
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<TABLE>
<S> <C>
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
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
</TABLE>
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<PAGE> 121
<TABLE>
<S> <C>
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
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.*
</TABLE>
C-14
<PAGE> 122
<TABLE>
<S> <C>
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.
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
</TABLE>
C-15
<PAGE> 123
<TABLE>
<S> <C>
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
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+
<FN>
* 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.
</TABLE>
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<PAGE> 124
(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.
<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 Morgan & Co., Inc. (from April 1992 to September 1994)
and General Counsel VICE PRESIDENT
Strong Family of Funds
Ronald A. Neville VICE PRESIDENT AND CHIEF FINANCIAL OFFICER:
Senior Vice President and Strong Funds Distributors, Inc.
Chief Financial Officer 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
</TABLE>
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<PAGE> 125
<TABLE>
<S> <C>
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.
<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>
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<PAGE> 126
(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).
(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).
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.
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 Small Company Fund.
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<PAGE> 127
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS OF SECURITIES ACT RULE 485(B) FOR EFFECTIVENESS OF THE
POST-EFFECTIVE AMENDMENT AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF COLUMBUS, AND STATE OF OHIO, ON THIS 23RD DAY OF APRIL, 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,
POST-EFFECTIVE AMENDMENT TO ITS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 23RD DAY OF APRIL,
1996.
Signature & Title
- ------------------
D. Richard McFerson
- -------------------------------------------------------------------------------
D. Richard McFerson, Trustee & Chairman
James F. Laird, Jr.
- -------------------------------------------------------------------------------
James F. Laird, Jr.,Treasurer
John C. Bryant
- -------------------------------------------------------------------------------
John C. Bryant, Trustee
Robert M. Duncan
- -------------------------------------------------------------------------------
Robert M. Duncan, Trustree
Thomas J. Kerr, IV
- -------------------------------------------------------------------------------
Thomas J. Kerr, IV, Trustee
44
<PAGE> 1
Exhibit 5(b)
INVESTMENT ADVISORY AGREEMENT
-----------------------------
THIS AGREEMENT is made and entered into on this 20th day of October,
1995 between NATIONWIDE SEPARATE ACCOUNT TRUST (the "Trust"), a Massachusetts
business trust, and NATIONWIDE FINANCIAL 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 Small Company 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) ADMINISTRATIVE SERVICES. The Adviser shall furnish
to the Fund, at its own expense, adequate office space, office
furnishings, facilities and equipment and clerical personnel as may be
reasonably required for managing and administering the business and
operations of the Fund, including (i) complying with the business
trust, securities and tax reporting requirements for the Fund, and
(ii) supervising the maintenance of all internal bookkeeping,
accounting and auditing services in connection with the Fund's
investment and business activities. The Trust agrees that its
shareholder recordkeeping services and the preparation of certain of
its records required by Section 31 of the 1940 Act and the rules
adopted under such section are maintained by the Trust's Transfer
Agent or Custodian or by a subadviser of the Fund and that with
respect to those records the Adviser's obligations under this
Agreement are supervisory in nature. The Adviser shall also
compensate all
<PAGE> 2
officers and employees of the Trust who are officers or employees of
the Adviser, or its affiliated companies.
(b) 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 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.
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(c) 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.
(d) 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.
(e) 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.
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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.
(f) 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 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.
(g) 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
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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.
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
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<PAGE> 6
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 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
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<PAGE> 7
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.
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 Financial 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 FINANCIAL SERVICES, INC.
By:__________________________________
Name:
Title:
TRUST
NATIONWIDE SEPARATE ACCOUNT TRUST
By:__________________________________
Name:
Title:
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<PAGE> 1
Exhibit 5(c)(1)
SUBADVISORY AGREEMENT
---------------------
THIS AGREEMENT is made and entered into on this 20th day of October,
1995 among NATIONWIDE SEPARATE ACCOUNT TRUST, a Massachusetts business trust
(the "Trust"), on behalf of the Nationwide Small Company Fund (the "Fund"),
NATIONWIDE FINANCIAL SERVICES, INC. (the "Adviser"), an Ohio corporation
registered under the Investment Advisers Act of 1940 (the "Advisers Act"), and
THE DREYFUS CORPORATION (the "Subadviser"), a New York 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 October 20, 1995 (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 Subadviser 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 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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<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 shall place all orders for the purchase and sale of
Fund 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, in its
opinion, 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 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 or dealer 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
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
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<PAGE> 4
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 and any affiliated person of
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, to the best of its knowledge at that
time, 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 material 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
request 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
reasonably 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 primary portfolio manager(s)
responsible for Subadviser Assets or of material changes in the
control of the Subadviser. The Subadviser will make available one or
more of its officers and employees to meet with the Trust's Board of
Trustees on reasonable 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 .60% of the Subadviser Assets' 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 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 such fee or portion thereof would
otherwise accrue). Any such fee reduction may be discontinued or modified by
the Subadviser at any time.
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<PAGE> 6
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 New York 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; and
(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;
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<PAGE> 7
(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; and
(f) The Adviser acknowledges that it received a copy of
the Subadviser's Form ADV prior to the execution of 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 of 1933; 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.
8
<PAGE> 9
10. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. In the absence of wilful misfeasance, bad
faith or gross negligence on its part in the performance of its duties
or reckless disregard of its obligations and duties hereunder, the
Subadviser, any affiliated person of the Subadviser and each person,
if any, who within the meaning of the Securities Act controls the
Subadviser ("Controlling Persons") shall not be liable to the Adviser,
the Trust or the Fund or any of the Fund's shareholders for any error
of judgment or mistake of law or for any loss suffered by the Adviser
or the Fund in connection with the matters to which the Agreement
relates, and, 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 affiliated person of the Adviser
and each of its Controlling Persons 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.
(b) INDEMNIFICATION. The Subadviser shall indemnify the
Adviser and the Trust, and their respective officers and directors and
trustees, for any liability and expenses, including reasonable
attorneys' fees, which may be sustained as a result of the
Subadviser's wilful misfeasance, bad faith, or gross negligence in the
performance of its duties, or reckless disregard of its duties
hereunder. The Adviser shall indemnify the Subadviser, its
affiliates, its Controlling Persons and its officers and directors,
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 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:
(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;
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<PAGE> 10
(ii) By any party hereto immediately upon written
notice to the other parties in the event of a material breach
of any provision of this Agreement by any 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
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 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> 11
(a) If to the Subadviser:
The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attention: General Counsel
Facsimile: (212) 922-6880
(b) If to the Adviser:
Nationwide Financial 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
17. 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.
18. 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.
19. 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.
20. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
21. 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.
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<PAGE> 12
22. 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.
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 FINANCIAL SERVICES, INC.
By:__________________________________
Name:
Title:
SUBADVISER
THE DREYFUS CORPORATION
By:__________________________________
Name:
Title:
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<PAGE> 1
Exhibit 5(c)(2)
SUBADVISORY AGREEMENT
---------------------
THIS AGREEMENT is made and entered into on this 20th day of October,
1995 among NATIONWIDE SEPARATE ACCOUNT TRUST, a Massachusetts business trust
(the "Trust"), on behalf of the Nationwide Small Company Fund (the "Fund"),
NATIONWIDE FINANCIAL SERVICES, INC. (the "Adviser"), an Ohio corporation
registered under the Investment Advisers Act of 1940 (the "Advisers Act"), and
NEUBERGER & BERMAN, L.P. (the "Subadviser"), a New York 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 October 20, 1995 (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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<PAGE> 2
(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 intended 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 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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<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 shall place all orders for the purchase and sale of
portfolio investments for the Fund's account with brokers and dealers
selected by the Subadviser.
In connection with the purchase and sale of Fund Investments,
the Trust, on behalf of the Fund, hereby authorizes any entity or
person associated with the Subadviser which is a member of a national
securities exchange to effect any transaction on the exchange for the
account of the Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934, and the Fund hereby consents to the
retention of compensation for such transactions.
Whether using the Subadviser or others as broker, the
Subadviser will seek to obtain the best results for the Fund. The
Subadviser's selection of a broker will take into account such
relevant factors as (a) price, (b) the broker's facilities,
reliability and financial responsibility, (c) the ability of the
broker to effect securities transactions, particularly with regard to
such aspects as timing, order size and execution of orders, and (d)
the research and other services provided by such brokers to the
Subadviser which are expected to enhance general portfolio management
capabilities, notwithstanding that the Fund may not be the direct or
exclusive beneficiary of such services. The Subadviser intends to use
itself or an affiliate as broker when such use is in accordance with
the foregoing. 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
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<PAGE> 4
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
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
request 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
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<PAGE> 5
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.
The Subadviser will also provide such information or perform
such additional acts as are requested by the Adviser or the Fund and
which are customarily performed by a subadviser and which 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 .60% of the Subadviser Assets' 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
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<PAGE> 6
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 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 limited partnership duly
organized and validly existing under the laws of the State of New York
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; and
(f) The Adviser will notify the Trust and the Adviser of
any changes in the membership of its partnership.
7. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser
represents and warrants to the Subadviser as follows:
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<PAGE> 7
(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 the
Adviser and 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 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 of 1933; and
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<PAGE> 8
(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 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
8
<PAGE> 9
hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA.
9
<PAGE> 10
11. DURATION AND TERMINATION.
(a) DURATION. Unless sooner terminated, this Agreement
shall continue until October __, 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:
(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 material 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.
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<PAGE> 11
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.
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 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:
(a) If to the Subadviser:
Neuberger & Berman, L.P.
605 Third Avenue
New York, New York 10158
Attention: C. Carl Randolph, General Counsel
Facsimile: (212) 476-9862
(b) If to the Adviser:
Nationwide Financial 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
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<PAGE> 12
17. 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.
18. 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.
19. 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.
20. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
21. 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.
22. 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.
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<PAGE> 13
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 FINANCIAL SERVICES, INC.
By:__________________________________
Name:
Title:
SUBADVISER
NEUBERGER & BERMAN, L.P.
By:__________________________________
Name:
Title:
13
<PAGE> 1
Exhibit 5(c)(3)
SUBADVISORY AGREEMENT
---------------------
THIS AGREEMENT is made and entered into on this 20th day of October,
1995 among NATIONWIDE SEPARATE ACCOUNT TRUST, a Massachusetts business trust
(the "Trust"), on behalf of the Nationwide Small Company Fund (the "Fund"),
NATIONWIDE FINANCIAL SERVICES, INC. (the "Adviser"), an Ohio corporation
registered under the Investment Advisers Act of 1940 (the "Advisers Act"), and
STRONG CAPITAL MANAGEMENT, INC. (the "Subadviser"), a Wisconsin 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 October 20, 1995 (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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<PAGE> 2
(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 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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<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 shall place all orders for the purchase and sale of
portfolio investments for the Fund's account with brokers and dealers
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 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 or dealer in other transactions.
Subject to such policies, if any, 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
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
3
<PAGE> 4
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
request 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.
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
4
<PAGE> 5
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 .60% of the Subadviser Assets' 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 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 such fee or portion thereof would
otherwise accrue). Any such fee reduction may be discontinued or modified by
the Subadviser at any time.
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<PAGE> 6
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 Wisconsin 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; and
(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;
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(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; and
(f) The Adviser acknowledges that it received a copy of
the Subadviser's Form ADV prior to the execution of this Agreement.
8. REPRESENTATIONS AND WARRANTIES OF THE TRUST. The Trust
represents and warrants to the Adviser and the Subadviser a 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 of 1933; 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
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<PAGE> 8
notify each other in writing upon becoming aware that any of the foregoing
representations and warranties are no longer true.
8
<PAGE> 9
10. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. 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, any affiliated
person of the Subadviser 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 and liability to the
Adviser, the Trust or the Fund or any of the Fund's shareholders, and,
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 affiliated person of the Adviser and each
of its Controlling Persons 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 officers and directors and
trustees, 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, its
Controlling Persons and its officers and directors, 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 October __, 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:
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<PAGE> 10
(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 material breach
of any provision of this Agreement by one or more 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
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 party, or
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<PAGE> 11
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:
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Attention: General Counsel
Facsimile: (414) 359-3948
(b) If to the Adviser:
Nationwide Financial 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
17. 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.
18. 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.
19. 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.
20. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
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21. 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.
22. 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.
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 FINANCIAL SERVICES, INC.
By:__________________________________
Name:
Title:
SUBADVISER
STRONG CAPITAL MANAGEMENT, INC.
By:__________________________________
Name:
Title:
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<PAGE> 1
Exhibit 5(c)(4)
SUBADVISORY AGREEMENT
---------------------
THIS AGREEMENT is made and entered into on this 20th day of October,
1995 by and among NATIONWIDE SEPARATE ACCOUNT TRUST, a Massachusetts business
trust (the "Trust"), on behalf of the Nationwide Small Company Fund (the
"Fund"), NATIONWIDE FINANCIAL SERVICES, INC. (the "Adviser"), an Ohio
corporation registered under the Investment Advisers Act of 1940 (the "Advisers
Act"), PICTET INTERNATIONAL MANAGEMENT LIMITED (the "Subadviser"), a
corporation organized under the laws of the Bahamas and registered under the
Advisers Act and VAN ECK ASSOCIATES CORPORATION (the "Co-Subadviser"), a
Delaware 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 October 20, 1995 (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 and Co-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 and
Co-Subadviser (the "Subadviser Assets"), and Subadviser and Co-Subadviser are
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 AND CO-SUBADVISER.
(a) 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
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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.
(b) CO-SUBADVISER. The Adviser and Subadviser hereby
retain the Co-Subadviser to act as investment adviser to provide
assistance to the Subadviser in managing 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 to provide
services to the Adviser and Subadviser as set forth herein; and the
Co-Subadviser hereby accepts such employment. It is recognized that
the Co-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 Subadviser,
the Adviser and the Trust have no objection to such activities.
2. DUTIES OF SUBADVISER AND CO-SUBADVISER.
(a) DUTIES OF SUBADVISER.
(i) 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 invest
the Subadviser Assets ("Fund Investments") (which authority, subject
to the foregoing, shall reside with the Subadviser) 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 Subadvisor 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.
(ii) 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 securities 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 securities laws and regulations and the Subadviser
is only obligated to comply with this subsection (ii) with respect to
the Subadviser Assets.
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<PAGE> 3
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 appropriate written
notice in advance of the effectiveness of such changes from the Trust
or the Adviser. For purposes of this subsection, receipt by the
Subadviser of an amended or modified Prospectus describing any such
changes in the Fund's investment objectives, policies and restrictions
shall constitute notice 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 written 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.
(iii) 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.
(iv) 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 Subadviser Assets. 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.
(v) 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 shall place all orders for the purchase and sale of
Fund Investments with brokers selected by the Subadviser. In the
selection of such brokers and the placing of such orders, the
Subadviser will use reasonable efforts 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
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<PAGE> 4
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 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 or
dealer 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
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.
(vi) SECURITIES TRANSACTIONS. The Subadviser and any
affiliated person of the Subadviser will not as principal 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.
(vii) BOOKS AND RECORDS. Pursuant to the 1940 Act and the
rules and regulations promulgated thereunder, the Subadviser shall
maintain detailed books and records of all
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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 request and shall be available for telecopying
without delay to the Adviser during any day that the Fund is open for
business.
(viii) 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, 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 the
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 who are responsible for the
management of the Subadvisor Assets to meet with the Trust's Board of
Trustees on reasonable prior notice to review the Fund Investments.
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.
(ix) 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.
(b) DUTIES OF CO-SUBADVISER
(i) SUBSTITUTION OF SUBADVISER. In the event that the
Subadviser is unwilling or unable to perform its duties under this
Agreement or upon the request of the Adviser or the Fund to assume the
duties of the Subadviser, the Co-Subadviser shall perform the duties
required of the Subadviser and discharge the obligations of the
Subadviser under this Agreement under the terms and conditions hereof.
In the event of such substitution, the Co-Adviser shall be deemed the
Subadviser for purposes of this Agreement.
(ii) INVESTMENT ADVICE. Co-Subadviser will provide
Subadviser with research and investment recommendations with respect
to securities of issuers which are directly or indirectly engaged to a
significant extent in the exploration, development or distribution of
one or more of the following: precious metals; ferrous and
non-ferrous metals; gas, petroleum, petrochemical and/or other
hydrocarbons; forest products; real estate and other basic
non-agricultural commodities, and allocation recommendations among the
foregoing
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sectors. The Fund, Adviser, Subadviser and Co-Subadviser understand
and agree that Subadviser shall be under no obligation to act upon
such recommendations and that sole responsibility and authority for
the investment of the Subadviser Assets shall rest with the
Subadviser.
(iii) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING
DOCUMENTS. The parties to this Agreement acknowledge and agree that
the Trust shall be solely responsible for compliance with all
disclosure requirements relating to the Trust or the Fund, including,
without limitation, the 1940 Act, and the rules and regulations
thereunder, and that the Co-Subadviser shall have no liability in
connection therewith, except as to material written information
furnished by Co-Subadviser to the Fund or to the Adviser specifically
for inclusion in the Prospectus or other disclosure documents; and
subject to the foregoing, the Co-Subadviser shall provide Adviser and
the Trust with assistance as each may reasonably request in monitoring
on a continuous basis the performance of and compliance with
applicable federal and state securities laws by the Subadviser. The
Co-Subadviser hereby agrees to provide to the Adviser in a timely
manner such information relating to the Co-Subadviser and its
relationship to, and actions for, the Fund as may be required to be
contained in the Prospectus. 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 securities laws and regulations and the
Co-Subadviser is only obligated to comply with this subsection (iii)
with respect to the Subadviser Assets.
(iv) SECURITIES TRANSACTIONS. The Co-Subadviser agrees to
observe and comply with Rule 17j-1 under the 1940 Act and the
Co-Subadviser's Code of Ethics (which shall comply in all material
respects with Rule 17j-1 under the 1940 Act) as the same may be
amended from time to time. On a quarterly basis, the Co-Subadviser
will either (i) certify to the Adviser that the Co-Subadviser and its
Access Persons have complied with the Co-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.
(v) INFORMATION CONCERNING FUND INVESTMENTS AND
SUBADVISER. From time to time as the Adviser or the Fund may request,
the Co-Subadviser will furnish the requesting party reports on
portfolio transactions and investments, all in such detail as the
requesting party may reasonably request.
(vi) OTHER ASSISTANCE. Co-Subadviser agrees to provide
Adviser and Subadviser such assistance, as each may reasonably
request, in monitoring on a continuous basis the performance and
compliance by the Subadviser with the Fund's stated investment
policies and restrictions as set forth in the Fund's current
Prospectus, the Trust's Declaration of Trust and By-Laws and with the
instructions and directions received in writing from the Adviser or
the Trustees of the Trust and the requirements of the 1940 Act, the
Code and all other applicable federal and state securities laws and
regulations as each may from time to time be amended.
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<PAGE> 7
3. INDEPENDENT CONTRACTOR. In the performance of its duties
hereunder, the Subadviser and Co-Subadviser each 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, the Subadviser
and Co-Subadviser each 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, interest
and other transaction charges and any extraordinary items, if any) purchased
with the Subadviser Assets. The Subadviser and Co-Subadviser each shall, at
its sole expense, employ or associate itself with such persons as it reasonably
believes to be suited to assist it in the execution of its duties under this
Agreement. The Subadviser and Co-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 and Co-Subadviser for any expenses
of the Fund or the Adviser as may be reasonably incurred by such Subadviser and
Co-Subadviser on behalf of the Fund or the Adviser. The Subadviser and
Co-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 and
Co-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 .50% and .10%,
respectively, of the Subadviser Assets' 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 of the Fund 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
and Co-Subadviser may from time to time agree not to impose all or a portion of
the 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 Subadviser or Co-Subadviser at any time.
6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER AND CO-SUBADVISER.
(a) The Subadviser represents and warrants to the Adviser and the
Fund as follows:
(i) The Subadviser is registered as an investment adviser
under the Advisers Act;
(ii) 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
7
<PAGE> 8
Commission (the "CFTC") and the National Futures Association, or is
not required to file such exemption;
(iii) The Subadviser is a corporation duly organized and
validly existing under the laws of the Bahamas with the power to own
and possess its assets and carry on its business as it is now being
conducted;
(iv) 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 (1) any provision of applicable law, rule
or regulation, (2) the Subadviser's governing instruments, or (3) any
agreement, judgment, injunction, order, decree or other instrument
binding upon the Subadviser;
(v) The Form ADV of the Subadviser previously provided to
the Co-Subadviser and 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.
(b) The Co-Subadviser represents and warrants to the Adviser,
Subadviser and the Fund as follows:
(i) The Co-Subadviser is registered as an investment
adviser under the Advisers Act;
(ii) The Co-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;
(iii) The Co-Subadviser is a corporation duly organized and
validly existing under the laws of the State of Delaware with the
power to own and possess its assets and carry on its business as it is
now being conducted;
(iv) The execution, delivery and performance by the
Co-Subadviser of this Agreement are within the Co-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 Co-Subadviser for the execution, delivery and performance by the
Co-Subadviser of this Agreement, and the
8
<PAGE> 9
execution, delivery and performance by the Co-Subadviser of this
Agreement do not contravene or constitute a default under (1) any
provision of applicable law, rule or regulation, (2) the
Co-Subadviser's governing instruments, or (3) any agreement, judgment,
injunction, order, decree or other instrument binding upon the
Co-Subadviser; and
(v) The Form ADV of the Co-Subadviser previously provided
to the Subadviser and 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, 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 and Co-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; and
(f) The Adviser acknowledges that it received a copy of
the Subadviser's and Co-Subadviser's Form ADV prior to the execution
of this Agreement.
9
<PAGE> 10
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 of 1933; 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,
Co-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.
(i) 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, any affiliated
person of the Subadviser and each person, if any, who within the
meaning of the Securities Act controls ("Controlling Persons") the
Subadviser shall not be subject to any expenses or liability to the
Adviser, the Trust or the Fund or any of the Fund's shareholders, and,
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 affiliated person of the Adviser and each
of its Controlling Persons 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 the Subadviser Assets
and the 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.
10
<PAGE> 11
(ii) In the absence of willful misfeasance, bad faith or
gross negligence on the part of the Co-Subadviser or a reckless
disregard of its duties hereunder, the Co-Subadviser, any affiliated
person of the Co-Subadviser and each of the Co-Subadviser's
Controlling Persons and shall not be subject to any liability to the
Adviser or the Fund or any of the Fund's shareholders; PROVIDED,
HOWEVER, that nothing herein shall relieve the Co-Subadviser from any
of its obligations under applicable law, including without limitation,
the federal and state securities laws and the CEA.
(iii) As between the Subadviser and Co-Subadviser, in the
absence of willful misfeasance, bad faith or gross negligence or a
reckless disregard of its duties hereunder, neither one (together with
their affiliated persons and Controlling Persons) shall be subject to
any liability to the other 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 the Subadviser
Assets or the Fund Investments; PROVIDED, HOWEVER, that nothing herein
shall relieve either of them from any of their respective obligations
under applicable law, including, without limitation, the federal and
state securities laws and the CEA.
(b) INDEMNIFICATION.
(i) The Subadviser shall indemnify the Adviser and the
Trust, and their respective officers and directors and trustees, 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, its Controlling Persons and
its officers and directors, for any liability and expenses, including
attorneys fees, which may be sustained as a result of the Adviser's
actions or failure to act.
(ii) The Co-Subadviser shall indemnify the Adviser and
the Trust, and their respective officers and directors and trustees,
for any liability and expenses, including attorneys' fees, which may
be sustained as a result of the Co-Subadviser's willful misfeasance,
bad faith, gross negligence, reckless disregard and 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 Co-Subadviser and its officers and
directors, for any liability and expenses, including attorneys fees,
which may be sustained as a result of the Adviser's actions or failure
to act.
(iii) As between Subadviser and Co-Subadviser, each shall
indemnify the other party, and their respective affiliated persons,
Controlling Persons and trustees, for any liability and expenses,
including attorneys' fees, which may be sustained as a result of such
party's willful misfeasance, bad faith, gross negligence, reckless
disregard of its duties hereunder or violation of applicable laws,
including, without limitation, the federal and state securities laws
or the CEA.
11
<PAGE> 12
11. 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:
(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 or Co-
Subadviser, as the case may be;
(ii) By the Adviser immediately upon written
notice to the Subadviser or Co-Subadviser if the Subadviser or
Co-Subadviser, as the case may be, becomes unable to
discharge its duties and obligations under this Agreement; or
(iii) By the Subadviser or Co-Subadviser upon sixty
(60) days written notice to the Co-Subadviser or Subadviser
(as may be appropriate under the circumstances), to the
Adviser and to 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 and
Co-Subadviser's performance of their 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 OR CO-SUBADVISER. Neither the Trust,
the Fund nor the Adviser nor any of their affiliates or agents shall make
reference to or use the name of Subadviser or Co-Subadviser or any of their
affiliates, or any of their clients, except references concerning the identity
of and services provided by Subadviser and Co-Subadviser to the Fund, which
references shall not differ in substance from those included in the Fund's
Prospectus and this Agreement, in any
12
<PAGE> 13
advertising or promotional materials without the prior approval of Subadviser
or Co-Subadviser, as the case may be, which approval shall not be unreasonably
withheld or delayed.
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, the Subadviser and the Co-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 Co-Subadviser, the Adviser and
the Fund in respect thereof.
16. NOTICE. Any notice given under the terms of this Agreement
shall be in writing, delivered, or mailed postpaid, or transmitted by facsimile
with acknowledgment of receipt, to a party at the following address or
facsimile number, which may from time to time be changed by a party by notice
to the other parties:
(a) If to the Subadviser:
Pictet International Management Limited
Cutlers Garden, 5 Devonshire Square
London EC2M4LD, England
Attention: President
Facsimile: 011-44-171-972-6868
(a) If to the Co-Subadviser:
Van Eck Associates Corporation
99 Park Avenue
New York, New York 10016
Attention: President
Facsimile:
With a copy to General Counsel
13
<PAGE> 14
(c) If to the Adviser:
Nationwide Financial Services, Inc.
One Nationwide Plaza, 25-T
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
(d) 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
17. 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.
18. 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.
19. 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.
20. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
21. 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.
22. 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
14
<PAGE> 15
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.
TRUST
NATIONWIDE SEPARATE ACCOUNT TRUST
By:__________________________________
Name:
Title:
ADVISER
NATIONWIDE FINANCIAL SERVICES, INC.
By:__________________________________
Name:
Title:
SUBADVISER
PICTET INTERNATIONAL MANAGEMENT
LIMITED
By:__________________________________
Name:
Title:
CO-SUBADVISER
VAN ECK ASSOCIATES CORPORATION
By:__________________________________
Name:
Title:
15
<PAGE> 1
Exhibit 5(c)(5)
SUBADVISORY AGREEMENT
---------------------
THIS AGREEMENT is made and entered into on this 20th day of October,
1995 among NATIONWIDE SEPARATE ACCOUNT TRUST, a Massachusetts business trust
(the "Trust"), on behalf of the Nationwide Small Company Fund (the "Fund"),
NATIONWIDE FINANCIAL SERVICES, INC. (the "Adviser"), an Ohio corporation
registered under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and WARBURG, PINCUS COUNSELLORS, INC. (the "Subadviser"), a Delaware
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, as amended (the "1940 Act");
WHEREAS, the Adviser has, pursuant to an Advisory Agreement with the
Trust dated as of October 20, 1995 (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. INVESTMENT DESCRIPTION; APPOINTMENT AS SUBADVISER. The Fund
desires to employ its capital by investing and reinvesting in securities of the
kind and in accordance with the limitations specified in the Trust's
Declaration of Trust and By-laws, as may be amended from time to time (the
"Charter Documents"), and in its Prospectus and Statement of Additional
Information as may be in effect from time to time (collectively, the
"Prospectus") and which are filed with the Securities and Exchange Commission
as part of the Trust's Registration Statement on Form N-1A, as amended from
time to time, and in such manner and to such extent as may be approved by the
Board of Trustees of the Trust. Copies of the Prospectus and Charter
Documents, each as currently in effect, have been or will be submitted to the
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
1
<PAGE> 2
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.
(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 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. Subject to the supervision of
the Board of Trustees and the Adviser, the Subadviser will: (1) manage
the Subadviser Assets in accordance with the Fund's investment
objective, policies and limitations as stated in the Prospectus and
the Charter Documents and as the objective, policies and limitations
apply to the Subadviser Assets and in compliance with the 1940 Act and
the Advisers Act; (2) make investment decisions for the Fund; (3)
place purchase and sale orders for portfolio transactions for the
Fund; and (4) manage otherwise uninvested cash assets included in the
Subadviser Assets. In providing these services, the Subadviser will
conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Subadviser 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 Board of Trustees of the Trust and will use its best efforts to
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 use its best efforts to, 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 written notice of the effectiveness of
2
<PAGE> 3
such changes from the Trust or the Adviser. 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 in writing 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.
In fulfilling these requirements and its other requirements
and obligations hereunder, the Subadviser shall be entitled to rely on
and act in accordance with, and the Adviser and the Trust agree to
hold the Subadviser harmless for relying on and acting in accordance
with, (1) information, which is not clearly inaccurate on its face,
provided to it by the Trust's administrator, fund accountant or
custodian and (2) instructions, which may be standing instructions,
from the Adviser. The Adviser agrees to provide or cause to be
provided to the Subadviser on an ongoing basis upon request by the
Subadviser, such information as is requested by the Subadviser for the
performance of its obligations under this Agreement, and the
Subadviser shall not be in breach of any term of this Agreement or be
deemed to have acted negligently if the Adviser fails to provide or
cause to be provided such information and the Subadviser relies on the
information most recently furnished to it.
(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
3
<PAGE> 4
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 use its
reasonable efforts to 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 or dealer 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
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
4
<PAGE> 5
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 material violations which have
occurred with respect to the Subadviser Assets. In addition,
Subadviser will report at least annually to the Adviser concerning any
other violations of the Subadviser's Code of Ethics which required
significant remedial action and which were not previously reported.
(g) BOOKS AND RECORDS. Pursuant to the 1940 Act and the
rules and regulations promulgated thereunder, the Subadviser shall
maintain separate books and records of all matters pertaining to the
Subadviser Assets (the "Fund's Books and Records"). 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 unreasonable
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
reasonably 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 reasonable
notice to review the Fund Investments. Under normal circumstances,
employees of the Subadviser shall not be obligated to attend in person
more than one Board meeting per year.
(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 fees and commissions and other transaction charges, if
any) purchased for the Fund. The Adviser, the Trust and the Fund shall be
responsible for all expenses of the operations of the Fund including, without
limitation, brokerage fees and commissions and other transaction charges, if
any. The Subadviser shall not be responsible for the Trust's, the Fund's or
the Adviser's expenses. The Trust or the Adviser, as the case may be, shall
5
<PAGE> 6
reimburse the Subadviser for any expenses of the Trust, the Fund or the Adviser
as may be reasonably incurred by such Subadviser on behalf of the Fund or the
Adviser, including without limitation all expenses incurred by the Sub-Adviser
in connection with the attendance in person by any officer or employee of the
Subadviser at the request of the Adviser or the Trust, at any meeting of the
Board of Trustees. 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 .60% of the Subadviser Assets' 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 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 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 Delaware 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
6
<PAGE> 7
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; and
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, 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; and
(f) The Adviser acknowledges that it received a copy of
the Subadviser's Form ADV prior to the execution of this Agreement.
7
<PAGE> 8
8. REPRESENTATIONS AND WARRANTIES OF THE TRUST AND THE FUND.
(a) The Trust is registered as an investment company
under the 1940 Act and the Fund's shares are registered under the
Securities Act of 1933, as amended ("Securities Act");
(b) The Trust, on behalf of the Fund, has filed a notice
of exemption pursuant to Rule 4.5 under the CEA with the CFTC and the
National Futures Association or is not required to file such
exemption;
(c) The Trust is a Massachusetts 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; and
(d) The Trust and the Fund have full power and authority
under applicable law and have taken all actions necessary and
appropriate to enter into and perform this Agreement.
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. 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, any affiliated
person of the Subadviser 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, and,
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 affiliated person of theAdviser and each
of its Controlling Persons 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.
(b) INDEMNIFICATION. The Subadviser shall indemnify the
Adviser and the Trust, and their respective officers and directors and
trustees, 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
8
<PAGE> 9
disregard of its duties hereunder. The Adviser shall indemnify the
Subadviser, its affiliates, its Controlling Persons and its officers
and directors, for any liability and expenses, including attorneys
fees, which may be sustained as a result of (i) the Adviser's wilful
misfeasance, bad faith, gross negligence, reckless disregard of its
duties hereunder or (ii) arising out of the Adviser's responsibilities
to the Trust and the Fund which may include, but not be limited to,
responsibilities based upon any act or omission by the Adviser, any of
its employees or representatives or any affiliate of or any person
acting on behalf of the Adviser, or may be based upon any untrue
statement or alleged untrue statement of material fact contained in
the Prospectus or any sales literature relating to the Fund, or
alleged omission to state therein a material fact known or which
should have been known and was required to be stated therein or
necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon written information to
the Adviser by the Subadviser. The Trust also agrees to indemnify the
Subadviser for any act or act or omission by the Trust, any of its
officers or representatives or any affiliate of or any person acting
on behalf of the Trust, or any untrue statement or alleged untrue
statement of material fact contained in the Prospectus or any sales
literature relating to the Fund, or alleged omission to state therein
a material fact known or which should have been known and was required
to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance
upon written information provided to the Trust by the Subadviser.
11. DURATION AND TERMINATION.
(a) DURATION. Unless sooner terminated, this Agreement
shall continue until October __, 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:
(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 material breach
of any provision of this Agreement by either of the other
parties; or
(iii) By the Subadviser upon sixty (60) days
written notice to the Adviser and the Trust.
9
<PAGE> 10
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. In the
event this Agreement is terminated or is not approved in the foregoing
manner, the provisions contained in Sections 8 and 9 shall remain in
effect; however, the parties will have no obligation to notify the
others of changes to the representations.
12. REFERENCE TO SUBADVISER. Neither the Adviser, the Trust nor
any affiliate or agent of either shall make reference to or use the name of
"Warburg, Pincus Counsellors, Inc." or any derivative thereof or logo
associated with that name or the name of 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.
Upon termination of this Agreement in accordance with Section 10(b)
hereof, the Adviser, the Trust and the Fund, and any affiliate of any of them,
shall cease to make such reference or use such name (or derivative or logo).
13. AMENDMENT. This Agreement may be amended by written amendment
signed by 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.
14. CONFIDENTIALITY. Subject to the duties of the Subadviser to
comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the Subadviser shall treat as confidential all
records and other information pertaining to the Fund or the Adviser which the
Subadviser maintains or receives as a result of its responsibilities under this
Agreement. In addition, subject to the duties to comply with any applicable
law, the Adviser and the Fund agree to treat as confidential any information
concerning the Subadviser, including its investment policies or objectives,
which the Adviser and the Fund receive as the result of their actions under
this Agreement.
15. 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, to the parties at the
following addresses, which may from time to time be changed by the parties by
notice to the other party:
10
<PAGE> 11
(a) If to the Subadviser:
Warburg, Pincus Counsellor, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Attention: Eugene P. Grace
(b) If to the Adviser:
Nationwide Financial 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.
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.
11
<PAGE> 12
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.
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 FINANCIAL SERVICES, INC.
By:__________________________________
Name:
Title:
SUBADVISER
WARBURG, PINCUS COUNSELLORS, INC.
By:__________________________________
Name:
Title:
.
12
<PAGE> 1
Exhibit 11
AUDITORS' CONSENT
To the Trustees
Nationwide Separate Account Trust:
We consent to the use of our report dated February 23, 1996 included in the
Statement of Additional Information and to the reference to our firm under the
heading "Financial Highlights" in the prospectus.
KPMG PEAT MARWICK LLP
Columbus, Ohio
April 23, 1996
C-20
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<PERIOD-START> JAN-01-1995
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<INVESTMENTS-AT-COST> 67321284
<INVESTMENTS-AT-VALUE> 82349782
<RECEIVABLES> 142334
<ASSETS-OTHER> 2702
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 82494818
<PAYABLE-FOR-SECURITIES> 1218673
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<TOTAL-LIABILITIES> 1257807
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<DIVIDEND-INCOME> 1243728
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<EXPENSES-NET> 351845
<NET-INVESTMENT-INCOME> 1232936
<REALIZED-GAINS-CURRENT> 2523674
<APPREC-INCREASE-CURRENT> 13171765
<NET-CHANGE-FROM-OPS> 16928375
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1214375
<DISTRIBUTIONS-OF-GAINS> 2302021
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2172400
<NUMBER-OF-SHARES-REDEEMED> 1977044
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<ACCUMULATED-NII-PRIOR> 1218
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 326158
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 351845
<AVERAGE-NET-ASSETS> 65231560
<PER-SHARE-NAV-BEGIN> 10.92
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> 2.96
<PER-SHARE-DIVIDEND> .23
<PER-SHARE-DISTRIBUTIONS> .40
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.48
<EXPENSE-RATIO> .54
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
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