<PAGE> 1
PROSPECTUS
February 1, 1997
Shares of Beneficial Interest
NATIONWIDE SEPARATE ACCOUNT TRUST
-- TOTAL RETURN FUND
-- CAPITAL APPRECIATION FUND
-- GOVERNMENT BOND FUND
-- MONEY MARKET FUND
NATIONWIDE SEPARATE ACCOUNT TRUST
Three 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, 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 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> 2
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> <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)
---------------------------------------------------------------------------------------------------------
7.77 .31 (.94) (.63) (.28) (.12) - (.40)
---------------------------------------------------------------------------------------------------------
TOTAL 6.74 .22 2.34 2.56 (.23) - - (.23)
RETURN ---------------------------------------------------------------------------------------------------------
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)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
$10.00 $.10 $.48 $.58 $(.10) $(.02) $- $(.12)
---------------------------------------------------------------------------------------------------------
CAPITAL 10.46 .26 .74 1.00 (.26) - - (.26)
APPRECI- ---------------------------------------------------------------------------------------------------------
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)
---------------------------------------------------------------------------------------------------------
9.91 .95 .38 1.33 ( .93) - - (.93)
GOVERN- ---------------------------------------------------------------------------------------------------------
MENT 10.31 .88 .06 .94 ( .85) - - (.85)
BOND ---------------------------------------------------------------------------------------------------------
FUND 10.40 .86 .82 1.68 ( .84) - - (.84)
---------------------------------------------------------------------------------------------------------
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)
---------------------------------------------------------------------------------------------------------
1.00 .09 - .09 (.09) - - (.09)
MONEY ---------------------------------------------------------------------------------------------------------
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)
---------------------------------------------------------------------------------------------------------
<CAPTION>
Net
Net Investment
Asset Expenses Income to Net Assets
Value to Average Average at End of
End of Total Net Net Portfolio Period
Period Return Assets Assets Turnover (000's) Year
-----------------------------------------------------------------
RATIOS & NET
SUPPLEMENTAL DATA ASSETS
-----------------------------------------------------------------
<S> <C> <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
-----------------------------------------------------------------
6.74) (8.03) .54 4.31 38.1 162,661 1990
-----------------------------------------------------------------
TOTAL 9.07 38.49 .53 2.74 14.5 250,701 1991
RETURN -----------------------------------------------------------------
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
-----------------------------------------------------------------
-----------------------------------------------------------------
$10.46 10.92% .69% 1.95% 5.0% $18,800 1992
-----------------------------------------------------------------
11.20 9.61 .59 2.82 16.9 38,926 1993
CAPITAL -----------------------------------------------------------------
APPRECI- 10.92 (.90) .56 1.76 11.2 60,442 1994
ATION -----------------------------------------------------------------
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 -----------------------------------------------------------------
BOND 11.24 16.70 .55 8.07 77.7 198,769 1991
FUND -----------------------------------------------------------------
10.92 7.87 .53 8.75 73.8 301,841 1992
-----------------------------------------------------------------
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
MONEY -----------------------------------------------------------------
MARKET 1.00 9.11 .57 8.73 - 216,498 1989
FUND -----------------------------------------------------------------
1.00 8.03 .55 7.74 - 330,586 1990
-----------------------------------------------------------------
1.00 5.84 .54 5.65 - 363,502 1991
-----------------------------------------------------------------
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
-----------------------------------------------------------------
<FN>
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.
</TABLE>
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> 3
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> 4
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 5.12% and 5.26%
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 Advisory
Services, Inc. (NAS or Adviser), Three 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. NAS, 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.
NAS provides the accounting services, including daily valuation of each
Fund's shares, preparation of financial statements, taxes, and regulatory
reports. For these accounting services, NAS receives an annual fee of $48,000
from the Trust.
The Transfer and Dividend Disbursing Agent, Nationwide Investors Services,
Inc., (NIS), Three Nationwide Plaza, Columbus, Ohio 43216, serves as transfer
agent and dividend disbursing agent for the Trust. NIS is a wholly owned
subsidiary of NAS.
4
<PAGE> 5
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
[GRAPHIC]
<TABLE>
<CAPTION>
----------------------------------------------------
Total Return Fund
Average Annual Total Return
----------------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------------------
<S> <C> <C>
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> 6
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
[GRAPHIC]
*Initial public offering commenced May 1, 1992
<TABLE>
<CAPTION>
----------------------------------------------------
Capital Appreciation Fund
Average Annual Total Return
----------------------------------------------------
1 Year Since Inception
----------------------------------------------------
<S> <C>
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-
6
<PAGE> 7
year 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
[GRAPHIC]
<TABLE>
<CAPTION>
----------------------------------------------------
Government Bond Fund
Average Annual Total Return
----------------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------------------
<S> <C> <C>
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.
7
<PAGE> 8
COMPARISON OF A RETURN ON A HYPOTHETICAL $10,000 INVESTMENT IN
THE MONEY MARKET FUND AND THE CONSUMER PRICE INDEX
[GRAPHIC]
<TABLE>
<CAPTION>
----------------------------------------------
Money Market Fund
Average Annual Total Return
----------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------------
<S> <C> <C>
5.7% 4.3% 5.8%
----------------------------------------------
</TABLE>
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 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:
o when the New York Stock Exchange is closed (other than weekends and
holidays) or trading is restricted;
8
<PAGE> 9
o when an emergency exists, making disposal of portfolio securities or
the valuation of net assets not reasonably practicable; or
o 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.
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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:
o designate series of the Trust;
o change the name of the Trust; or
o 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 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
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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.
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<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 8
Share Redemption 8
Net Income and Distributions 9
Additional Information 10
Performance Advertising for the Funds 10
Tax Status 10
</TABLE>
INVESTMENT ADVISER
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43216
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
Box 1492
Three 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
12
