<PAGE> 1
PROSPECTUS
February 2, 1998
Shares of Beneficial Interest
Nationwide Income Fund
Nationwide Separate Account Trust
Three Nationwide Plaza
Columbus, Ohio 43215
For Information and Assistance,
Call (614) 249-5134
Nationwide Income Fund (the "Fund") is a diversified portfolio of the Nationwide
Separate Account Trust (the "Trust"). The Trust is an open-end management
investment company organized under the laws of Massachusetts, by a Declaration
of Trust, dated June 30, 1981, as subsequently amended. The Trust offers shares
in six separate mutual funds, each with its own investment objective. This
Prospectus relates only to the Nationwide Income Fund. The shares of the Fund
are sold to other open-end investment companies created by Nationwide Advisory
Services, Inc., the Fund's investment adviser, as well as to life insurance
company separate accounts to fund the benefits of variable life insurance
policies and annuity contracts.
The Fund seeks to provide as high a level of income as is consistent with
reasonable concern for safety of principal. The Fund intends to pursue its
investment objective by investing in investment grade corporate and U.S.
Government debt obligations.
This Prospectus provides you with the basic information you should know before
investing in the Fund. You should read it and keep it for future reference. A
Statement of Additional Information dated November 1, 1997, has been filed with
the Securities and Exchange Commission. You can obtain a copy without charge by
calling (614) 249-5134, or writing Nationwide Life Insurance Company, One
Nationwide Plaza, Columbus, Ohio 43216.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION FOR THE TRUST, DATED NOVEMBER 1, 1997,
IS INCORPORATED BY REFERENCE.
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SALE OF FUND SHARES
Shares of the Fund may be sold to life insurance company separate accounts (the
"Accounts") to fund the benefits of variable life insurance policies or annuity
contracts ("Contracts") issued by life insurance companies, as well as to other
open-end investment companies (each , a "Fund of Funds") created by Nationwide
Advisory Services, Inc. (the "Adviser"), the Fund's investment adviser. The
Accounts purchase shares of the Fund in accordance with variable account
allocation instructions received from owners of the Contracts. The Fund then
uses the proceeds to buy securities for its portfolio. The Adviser, together
with a group of subadvisers, manages the portfolio from day to day to accomplish
the Fund's investment objective. The types of investments and the way they are
managed depend on what is happening in the economy and the financial
marketplaces. Each Fund of Funds and Accounts, as a shareholder, has an
ownership in the Fund's investments. The Fund also offers to buy back (redeem)
shares of the Fund from the Fund of Funds or the Accounts at any time at net
asset value.
SUMMARY OF EXPENSES
<TABLE>
<S> <C>
Shareholder Transaction Expenses None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.45%
Other Expenses 0.30%
---------
Total Fund Operating Expenses 0.75%
=========
</TABLE>
Example:
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $8 $24
</TABLE>
This summary is provided to assist investors in understanding the various costs
and expenses that an investor in the fund will bear directly or indirectly.
Other Expenses is based on estimated amounts for the fiscal year ending December
31, 1997. The Advisor has agreed to reimburse the Fund total expenses in excess
of 0.75% for the fiscal year ending December 31, 1997.
For more information on Fund expenses, see "Management of the Trust:"
<PAGE> 3
INVESTMENT OBJECTIVE AND POLICIES
Nationwide Income Fund (the "Fund") seeks to provide as high a level of income
as is consistent with reasonable concern for safety of principal. The Fund
intends to pursue its investment objective by investing at least 65% of its
assets, under normal market conditions, in investment grade corporate and U.S.
Government debt obligations. Under normal market conditions, the Fund may invest
up to 35% of its assets in cash or cash equivalents, commercial paper and
certain other money market instruments, as well as repurchase agreements
collateralized by these types of securities (collectively, "short-term money
market obligations"). For a further discussion of the types of debt obligations
in which the Fund may invest, see "INVESTMENT TECHNIQUES, CONSIDERATIONS AND
RISK FACTORS" below.
In addition, for temporary or emergency purposes, the Fund can invest up to 100%
of total assets in short-term money market obligations.
While there is careful selection and constant supervision by a group of
professional investment managers, there can be no guarantee that the Fund's
objective will be achieved. The investment objective of the Fund is not
fundamental and shareholder approval is not required to change the Fund's
investment objective.
Management of the Fund
Nationwide Advisory Services, Inc. (the "Adviser") has employed two subadvisers
(each, a "Subadviser") each of which will manage part of the Fund's portfolio.
Although the Adviser reserves the right to allocate and reallocate the assets
among the Subadvisers at any time, it is anticipated that each of the
Subadvisers will receive a substantially equal proportion of the funds that are
invested in the Fund and will generally retain such assets and any capital
appreciation attributable to them.
The Adviser has chosen the Subadvisers because they approach investing in debt
obligations in different ways. The Adviser has decided to employ a number of
Subadvisers because even successful investment managers may experience
fluctuations in performance which may be caused by factors or conditions that
affect the particular securities emphasized by that Subadviser or that may
impact its particular investment style. As a result of the diversification among
securities and styles, the Adviser expects to increase prospects for investment
return and to reduce market risk and volatility.
The following is a brief description of the investment strategies for each of
the Subadvisers:
NCM Capital Management Group, Inc. ("NCM Capital") manages fixed income
securities by selecting a diversified portfolio of investment grade issues in
which overall credit risk is minimized. NCM Capital established the average
maturity and duration of a portfolio based on the intermediate and longer-term
outlook of interest rates, the economy and the financial markets. No attempt is
made to manage portfolios based on daily or short-term fluctuations in interest
rates or economic statistics.
<PAGE> 4
Subsequent to establishing the average maturity and duration of a portfolio, NCM
Capital determines which sectors of the fixed income market offer the most
attractive potential returns. Over a market cycle, individual sectors are either
emphasized or de-emphasized based on their relative value after analyzing the
current and prospective developments in the economy and the financial markets.
After determining the sector to be emphasized or de-emphasized, NCM Capital
selects the specific issues which offer the greatest potential returns over a
selected time horizon.
Smith Graham & Co. Asset Managers, L.P. ("Smith Graham") Smith Graham's
investment process centers around maximizing stable cash flows across the yield
curve. Cash flows in this context consist of coupon income on fixed income
securities, prepayments from mortgage securities and the reinvestment of income
and prepayments. Smith Graham begins by analyzing the characteristics that
determine performance and then utilizes proprietary software models to identify
the least expensive segments of the yield curve. Incremental performance is also
obtained by investing in undervalued sectors and undervalued securities.
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
Debt Obligations - Debt obligations in which the Fund may invest generally will
be investment grade debt obligations, although the Fund may invest up to 35% of
its assets in high-quality short-term money market obligations. The Fund's risk
and return potential depends in part on the maturity and credit-quality
characteristics of the underlying investments in its portfolio. In general, the
longer the maturity of a debt obligation, the greater its sensitivity to changes
in interest rates. Similarly, debt obligations issued by less creditworthy
entities tend to carry higher yields than those with higher credit ratings. The
market value of all debt obligations is also affected by changes in the
prevailing interest rates. Therefore, the market value of such instruments
generally reacts inversely to interest rate changes. If the prevailing interest
rates decrease, the market value of debt obligations generally increases. If the
prevailing interest rates increase, the market value of debt obligations
generally decreases.
Debt obligations in which the Fund may invest include: 1) bonds or bank
obligations rated in one of the four highest rating categories by any nationally
recognized statistical rating organization ("NRSRO") (e.g., Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group); 2) U.S. government securities
(as described below); 3) commercial paper rated in one of the two highest
ratings categories of any NRSRO; 4) short-term bank obligations that are rated
in one of the two highest categories by any NRSRO, with respect to obligations
maturing in one year or less; 5) repurchase agreements relating to debt
obligations which the Fund could purchase directly; or 6) unrated debt
obligations which are determined by the Adviser or a Subadviser to be of
comparable quality.
Medium-quality obligations are obligations rated in the fourth highest rating
category by any NRSRO. Medium-quality securities, although considered
investment-grade, may have some speculative characteristics and may be subject
to greater fluctuations in value than higher-rated securities. In
<PAGE> 5
addition, the issuers of medium-quality securities may be more vulnerable to
adverse economic conditions or changing circumstances than that of higher-rated
issuers.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Adviser or a Subadviser
to consider what action, if any, the Fund should take consistent with its
investment objective; such event will not automatically require the sale of the
downgraded securities.
U.S. Government Securities - U.S. government securities are issued or guaranteed
by the U.S. government or its agencies or instrumentalities. Securities issued
by the government include U.S. Treasury obligations, such as Treasury bills,
notes, and bonds. Securities issued by government agencies or instrumentalities
include, but are not limited to, obligations of the following:
- - the Federal Housing Administration, Farmers Home Administration, and
the Government National Mortgage Association ("GNMA"), including GNMA
pass-through certificates, whose securities are supported by the full
faith and credit of the United States;
- - the Federal Home Loan Banks and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association and the International Bank for
Reconstruction and Development, whose securities are supported only by
the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
Mortgage- and Asset-Backed Securities - The Fund may purchase both mortgage- and
asset-backed securities. Mortgage-backed securities represent direct or indirect
participation in, or are secured by and payable from, mortgage loans secured by
real property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. Such securities may be issued or guaranteed
by U.S. government agencies or instrumentalities or by private issuers,
generally originators in mortgage loans, including savings and loan
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities (collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they
<PAGE> 6
include assets such as motor vehicle installment sales contracts, other
installment loan contracts, home equity loans, leases of various types of
property and receivables from credit card and other revolving credit
arrangements. Payments or distributions of principal and interest on
asset-backed securities may be supported by non-governmental credit enhancements
similar to those utilized in connection with mortgage-backed securities.
The yield characteristics of mortgage- and asset-backed securities differ from
those of traditional debt obligations. Among the principal differences are that
interest and principal payments are made more frequently on mortgage- and
asset-backed securities, usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is lower than expected will have the
opposite effect of increasing the yield to maturity. Conversely, if the Fund
purchases these securities at a discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a prepayment rate that is slower
than expected will reduce yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. The market for privately issued mortgage- and
asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.
The Fund may invest in stripped mortgage- or asset-backed securities, which
receive differing proportions of the interest and principal payments from the
underlying assets. The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases the market
value may be extremely volatile. With respect to certain stripped securities,
such as interest-only ("IO") and principal-only ("PO") classes, a rate of
prepayment that is faster or slower than anticipated may result in the Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
Repurchase Agreements - The Fund may engage in repurchase agreement transactions
as long as the underlying securities are of the type that the Fund would be
permitted to purchase directly. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying debt obligation for a relatively
short period (usually not more than one week) subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed upon
price and time, thereby determining the yield during the Fund's holding period.
The Fund will enter into repurchase agreements with respect to securities in
which it may invest with member banks of the Federal Reserve System or certain
non-bank dealers. Under each repurchase agreement the selling institution will
be required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. Repurchase agreements could
involve certain risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon a Fund's ability to dispose of
the underlying securities. The Adviser or a Subadviser, acting under the
supervision of the Board of Trustees, reviews the creditworthiness of those
banks and non-bank dealers with which
<PAGE> 7
the Fund enters into repurchase agreements to evaluate these risks. See
"Repurchase Agreements" in the Statement of Additional Information.
Bank Obligations - The Fund may invest in bank obligations, such as certificates
of deposit, banker's acceptances, and time deposits of domestic or foreign banks
and their subsidiaries and branches (only if the time deposits are denominated
in U.S. dollars), and domestic savings and loan associations. While these bank
obligations will be issued by institutions whose accounts are insured by the
Federal Deposit Insurance Corporation ("FDIC"), the Fund may invest in the
obligations in amounts in excess of the FDIC insurance coverage (currently
$100,000 per account).
When-Issued Securities - The Fund may invest without limitation in securities
purchased on a when-issued or delayed delivery basis. Although the payment and
interest terms of these securities are established at the time the purchaser
enters into the commitment, these securities may be delivered and paid for at a
future date, generally within 45 days (for mortgage-backed securities, the
delivery date may extend to as long as 120 days). Purchasing when-issued
securities allows the Fund to lock in a fixed price or yield on a security it
intends to purchase. However, when the Fund purchases a when-issued security, it
immediately assumes the risk of ownership, including the risk of price
fluctuation until the settlement date.
The greater the Fund's outstanding commitments for these securities, the greater
the exposure to potential fluctuations in the net asset value of a Fund.
Purchasing when-issued securities may involve the additional risk that the yield
available in the market when the delivery occurs may be higher or the market
price lower than that obtained at the time of commitment. Although the Fund may
be able to sell these securities prior to the delivery date, it will purchase
when-issued securities for the purpose of actually acquiring the securities,
unless after entering into the commitment a sale appears desirable for
investment reasons. When required by guidelines issued by the Securities and
Exchange Commission, the Fund will set aside permissible liquid assets in a
segregated account to secure its outstanding commitments for when-issued
securities.
Lending Portfolio Securities - From time to time, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions
needing to borrow securities to complete certain transactions. In connection
with such loans, the Fund will receive collateral consisting of cash, U.S.
Government securities or irrevocable letters of credit. Such collateral will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund can increase its income through
the investment of such collateral. The Fund continues to be entitled to payments
in amounts equal to the interest, dividends or other distributions payable on
the loaned security and receives interest on the amount of the loan. Such loans
will be terminable at any time upon specified notice. The Fund might experience
risk of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.
Borrowing Money - The Fund may borrow money from banks limited by any investment
restrictions to 33 1/3% of its total assets. However, the Fund currently intends
to borrow money only for temporary or emergency purposes (but not for leverage
or the purchase of investments), in an amount
<PAGE> 8
up to 5% of the value of the Fund's total assets (including the amount borrowed)
valued at the time the borrowing is made.
Portfolio Turnover
The Fund will attempt to purchase securities with the intent of holding them for
investment but may purchase and sell portfolio securities whenever the Adviser
or a Subadviser believes it to be in the best interests of the Fund. The Fund
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies.
The portfolio turnover rate for the Fund is not expected to exceed 150%. Higher
turnover rates will generally result in higher transaction costs to the Fund, as
well as higher brokerage expenses and higher levels of capital gains. The
portfolio turnover rates for the Fund may vary greatly from year to year and
within a particular year.
MANAGEMENT OF THE TRUST
Trustees and Officers
The business and affairs of the Trust are managed under the direction of its
Board of Trustees.
The Board of Trustees sets and reviews policies regarding the operation of the
Trust, whereas the officers perform the daily functions of the Trust.
Investment Management of the Fund
The Adviser - Under the terms of the Investment Advisory Agreement, Nationwide
Advisory Services, Inc., One Nationwide Plaza, Columbus, Ohio 43216, oversees
the investment of the assets for the Fund and supervises the daily business
affairs of the Fund. Subject to the supervision and direction of the Trustees,
the Adviser also determines the allocation of assets among the Subadvisers and
evaluates and monitors the performance of Subadvisers. The Adviser is also
authorized to select and place portfolio investments on behalf of the Fund;
however, the Adviser does not intend to do so at this time.
The Adviser provides to the Fund investment management evaluation services
principally by performing initial due diligence on prospective Subadvisers for
the Fund and thereafter monitoring the performance of the Subadvisers through
quantitative and qualitative analysis as well as periodic in-person, telephonic
and written consultations with the Subadvisers. The Adviser has responsibility
for communicating performance expectations and evaluations to the Subadvisers
and ultimately recommending to the Trust's Board of Trustees whether a
Subadviser's contract should be renewed, modified or terminated; however, the
Adviser does not expect to recommend frequent changes of Subadvisers. The
Adviser will regularly provide written reports to the Board of Trustees
regarding the results of its evaluation and monitoring functions. Although the
Adviser will monitor the
<PAGE> 9
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 owned by Nationwide Financial Services, Inc.
(NFS). NFS, a holding company, has two classes of common stock outstanding with
different voting rights enabling Nationwide Corporation (the holder of all the
outstanding Class B Common Stock) to control NFS. Nationwide Corporation is
also a holding company in the Nationwide Insurance Enterprise. The Fund pays to
the Adviser a fee at the annual rate of 0.45% of the Fund's average daily net
assets.
The Subadvisers - Subject to the supervision of the Adviser and the Trustees,
the Subadvisers each manage separate portions of the Fund's assets in accordance
with the Fund's investment objective and policies. With regard to the portion of
the Fund's assets allocated to it, each Subadviser shall make investment
decisions for the Fund and in connection with such investment decisions shall
place purchase and sell orders for securities. No Subadviser shall have any
investment responsibility for any portion of the Fund's assets not allocated to
it for investment management. For the investment management services they
provide to the Fund, each Subadviser receives an annual fee from the Adviser
based on the average daily net assets of the portion of the Fund managed by that
Subadviser as specified below:
Subadvisory Fees Average Daily Net Assets
0.25% on the first $100 million
0.15% on assets in excess of $100
million
The fees for each of the Subadvisers are subject to the following annual minimum
fees: $15,000 for NCM Capital and $25,000 for Smith Graham.
Below is a brief description of each of the subadvisers.
NCM Capital Management Group, Inc. NCM Capital was founded in 1986 and serves as
one of the Fund's Subadvisers. As of September 30, 1996, NCM Capital had
approximately $3.86 billion in assets under management, of which $1.35 billion
represents fixed income management.
NCM Capital's Chairman of the Board, President and Chief Executive Officer is
Maceo K. Sloan. Other directors are Justin F. Beckett, Executive Vice President;
Peter J. Anderson, Chairman and Chief Investment Officer of IDS Advisory Group,
Inc.; and Morris Goodwin, Jr., Vice President, Corporate Treasurer, American
Express Financial Advisers Inc.
NCM Capital is a wholly-owned subsidiary of Sloan Financial Group, Inc. Both NCM
Capital and Sloan Financial Group, Inc. are located at 103 West Main Street, 4th
Floor, Durham, North Carolina 27701. Sloan Financial Group, Inc. is a
corporation of which Maceo K. Sloan, CFA, Chairman, President and Chief
Executive Officer of NCM Capital, owns 43%; Justin F. Beckett, Executive Vice
President and director of NCM Capital, owns 17%; and IDS Financial Services
Inc., a wholly-owned subsidiary of American Express Company owns 40% as of
September 30, 1996.
<PAGE> 10
The primary portfolio manager of the portion of the Fund's portfolio
managed by NCM Capital is Paul L. Van Kampen, CFA. Mr. Van Kampen joined NCM
Capital as Senior Vice President and the Director of Fixed Income Research.
Prior to joining NCM Capital, he was an Executive Director of Aon Advisors, Inc.
Mr. Van Kampen has both an M.A. and B.S. from the University of Alabama and has
over 28 years of investment experience.
Smith Graham & Co. Asset Managers, L.P. Smith Graham also serves as a
sub-adviser to the Fund. Its corporate offices are located at 6900 Texas
Commerce Tower, 600 Travis Street, Houston, Texas 77002-3007. Smith Graham
serves as an investment adviser to a variety of corporate, foundation, public,
Taft Hartley and mutual fund clients. The firm provides global and international
money management through its affiliate Smith Graham Robeco Global Advisers. As
of October 1, 1996, Smith Graham managed approximately $2 billion of assets.
Smith Graham is 60% owned by its Managing General Partner, Smith Graham & Co.,
Inc., while 40% of the firm is owned by the Dutch based Robeco Group. Smith
Graham & Co., Inc. is wholly owned by Gerald B. Smith, Ladell Graham and Jamie
G. House.
The management group of Smith Graham consists of Gerald B. Smith, Chairman and
Chief Executive Officer; Ladell Graham, President and Chief Investment Officer;
Jamie G. House, Executive Vice President and Chief Financial Officer; and
Gilbert A. Garcia, Executive Vice President and Director of Marketing.
The primary portfolio manager of the portion of the Fund's portfolio managed by
Smith Graham is Mark Delaney. Mr. Delaney joined Smith Graham in November 1994
and currently serves as a Portfolio Manager. From July 1988 to November 1994, he
was a Senior Portfolio Manager for
<PAGE> 11
Transamerica Fund Management. Mr. Delaney has over 15 years of experience in
fixed income investing.
Other Services
Under the terms of an Administrative Services Agreement, the Adviser also
provides various administrative and accounting services, including daily
valuation of each Fund's shares, preparation of financial statements, taxes, and
regulatory reports. For these services the Fund pays to the Adviser a fee at the
annual rate of 0.07% of the Fund's average daily net assets up to $250 million
in assets, 0.05% on the next $750 million and 0.04% on assets of $1 billion and
more.
The Transfer and Dividend Disbursing Agent, Nationwide Investors Services, Inc.,
("NIS"), Three Nationwide Plaza, Columbus, Ohio 43215, serves as transfer agent
and dividend disbursing agent for the Trust. NIS is a wholly owned subsidiary of
the Adviser. For these services, the Fund pays NIS a fee at the annual rate of
.01% of the Fund's average daily net assets.
INVESTMENT IN FUND SHARES
An insurance company may purchase the shares of the Fund at the Fund's net asset
value using purchase payments received on Contracts issued by Accounts. These
Accounts are funded by shares of the Fund. Funds of Funds may also purchase
shares of the Fund for their portfolios. There is no sales charge. All shares
are sold at net asset value.
Shares of the Fund are currently sold only to separate accounts of Nationwide
Life Insurance Company and its wholly owned subsidiary Nationwide Life and
Annuity Insurance Company to fund the benefits under the Contract and to
affiliated Fund of Funds. The address for each of these entities is One
Nationwide Plaza, Columbus, Ohio 43216,
All investments in the Fund are credited to the shareholder's account in the
form of full and fractional shares of the Fund (rounded to the nearest 1/1000 of
a share). The Trust does not issue share certificates. Initial and subsequent
purchase payments allocated to the Fund are subject to the limits applicable to
the Contracts.
SHARE REDEMPTION
Redemptions are processed on any day on which the Trust is open for business and
are effected at net asset value next determined after the redemption order, in
proper form, is received by the Trust's transfer agent, NIS.
The net asset value per share of the Fund is determined once daily, as of 4:00
P.M. on each business day the New York Stock Exchange is open and on such other
days as the Board determines and on any other day during which there is a
sufficient degree of trading in the Fund's portfolio securities that the net
asset value of the Fund is materially affected by changes in the value of
portfolio securities. The Trust will not compute net asset value on customary
national business holidays, including the following: Christmas, New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence
<PAGE> 12
Day, Labor Day, and Thanksgiving Day. The net asset value per share is
calculated by adding the value of all securities and other assets of a Fund,
deducting its liabilities, and dividing by the number of shares outstanding.
In determining net asset value, portfolio securities listed on national
exchanges or actively traded in the over-the-counter market are valued at the
last quoted sale price; if there is no sale on that day, the securities are
valued at the prior day's closing price for exchange-traded securities or at the
quoted bid price for over-the-counter-traded securities. Other portfolio
securities are valued at the quoted prices obtained from an independent pricing
organization which employs a combination of methods, including among others, the
obtaining and comparison of market valuations from dealers who make markets and
deal in such securities and the comparison of valuations with those of other
comparable securities in a matrix of such securities. The pricing service
activities and results are reviewed by an officer of the Trust. Securities for
which market quotations are not readily available are valued at fair value in
accordance with procedures adopted by the Board of Trustees.
Expenses and fees are accrued daily.
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;
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
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
shares from a number of different Funds. In that case, the shares of each Fund
would participate equally in the earnings, dividends, and assets of the
particular Fund, but shares of all Funds would vote together in the
<PAGE> 13
election of Trustees. Upon liquidation of a Fund, its shareholders are entitled
to share pro rata in the net assets of such Fund available for distribution to
shareholders.
Voting Rights - Shareholders are entitled to one vote for each share held.
Shareholders may vote in the election or removal of Trustees and on other
matters submitted to meetings of shareholders. No amendment may be made to the
Declaration of Trust without the affirmative vote of a majority of the
outstanding shares of the Trust. The sole shareholders of the Fund initially
will be the affiliated Funds of Funds and Nationwide Life Insurance Company. The
Trustees may, however, amend the Declaration of Trust without the vote or
consent of shareholders to:
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.
Shareholder Inquiries - All inquiries regarding the Fund should be directed to
the Trust at the telephone number or address shown on the cover page of this
Prospectus.
PERFORMANCE ADVERTISING FOR THE FUND
The Fund may use historical performance in advertisements, sales literature, and
the prospectus. Such figures will include quotations of average annual total
return for the most recent one, five, and ten year periods (or the life of the
Fund if less). Average annual total return represents the rate required each
year for an initial investment to equal the redeemable value at the end of the
specific period. Average annual total return reflects reinvestment of all
distributions.
TAX STATUS
The Trust's policy is to qualify as a regulated investment company and to meet
the requirements of Subchapter M of the Internal Revenue Code (the "Code"). The
Fund intends to distribute all its taxable net investment income and capital
gains to shareholders, and therefore, will not be required to pay any federal
income taxes.
<PAGE> 14
Because each Fund of the Trust is treated as a separate entity for purposes of
the regulated investment company provisions of the Code, the assets, income, and
distributions of the Fund are considered separately for purposes of determining
whether or not the Fund qualifies as a regulated investment company. The Fund
intends to comply with the diversification requirements currently imposed by the
Internal Revenue Service on separate accounts of insurance companies as a
condition of maintaining the tax-deferred status of the Contracts. See the
Statement of Additional Information for more specific information.
The tax treatment of payments made by an Account to a Contractholder is
described in the separate account prospectus.
<PAGE> 15
CONTENTS
Sale of Fund Shares
Investment Objective and Policies
Investment Techniques, Considerations and Risk Factors
Management of the Trust
Investment in Fund Shares
Share Redemption
Net Income and Distributions
Additional Information
Performance Advertising for the Fund
Tax Status
INVESTMENT ADVISER AND ADMINISTRATOR
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
Box 1492
Three Nationwide Plaza
Columbus, Ohio 43215
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, Ohio 43215
LEGAL COUNSEL
Druen, Dietrich, Koogler & Reynolds
One Nationwide Plaza
Columbus, Ohio 43215
