<PAGE> 1
'33 ACT FILE NO._______
'40 ACT FILE NO._______
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933/X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/
(CHECK APPROPRIATE BOX OR BOXES)
NATIONWIDE INVESTING FOUNDATION III
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX FUND
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
NATIONWIDE MONEY MARKET FUND
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (614) 249-7855
MR. DAVID E. SIMAITIS SEND COPIES OF COMMUNICATIONS TO:
ONE NATIONWIDE PLAZA DRUEN, DIETRICH,
COLUMBUS, OHIO 43215 REYNOLDS AND KOOGLER
(NAME AND ADDRESS OF AGENT FOR SERVICE) ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
Approximate Date of Proposed Public Offering:
As soon as practical after the Registration Statement becomes
effective.
In accordance with Rules 24f-1 and 24f-2 under the Investment Company
Act of 1940, upon the effective date of its registration statement, Registrant
shall be deemed to have registered an indefinite amount of securities and will
pay registration fees no later than 90 days after its fiscal year end.
The Registrant hereby amends this Registration Statement under the
Securities Act of 1933 on such date or dates as may be necessary to delay its
effective date until Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a) may determine.
1
<PAGE> 2
NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX FUND
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
NATIONWIDE MONEY MARKET FUND
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
PART A
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary of Fund Expenses
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant Objectives, and Management;
Investment Techniques,
Considerations and Risk
Factors
Item 5. Management of the Fund Management of the Trust
Item 6. Capital Stock and Other Securities Additional Information;
Distributions and Taxes
Item 7. Purchase of Securities Being Offered How to Purchase Shares
Item 8. Redemption or Repurchase How to Sell (Redeem) Shares
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 Additional Information on
Portfolio Instruments
and Investment Policies;
Investment Restrictions
Item 14. Management of the Registrant Trustees and Officers of the Trust
Item 15. Control Persons and Principal Holders
of Securities *
Item 16. Investment Advisory and Other Services Investment Advisory and Other
Services
Item 17. Brokerage Allocation Brokerage Allocation
Item 18. Capital Stock and Other Securities Additional Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered *
Item 20. Tax Status Additional General Tax Information
Item 21. Underwriters *
Item 22. Calculation of Yield Quotations of
Money Market Funds Calculating Money Market Fund Yield
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Item 23. Financial Statements *
</TABLE>
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.
* Not applicable or negative answer.
<PAGE> 4
[PHOTO] [NATIONWIDE LOGO] NATIONWIDE
ADVISORY
SERVICES, INC.
NATIONWIDE (R)
FAMILY OF FUNDS
PROSPECTUS
DECEMBER 1997
<PAGE> 5
This Prospectus provides
you with information you
should know before
investing in the Funds.
Read it and keep it for
future reference.
A Statement of Additional
Information dated December
, 1997, incorporated
herein by reference and
containing further
information about the
Funds, have been filed
with the Securities and
Exchange Commission. You
may obtain a copy without
charge by calling or
writing Nationwide
Advisory Services, Inc.
(NAS), Three Nationwide
Plaza, P.O. Box 1492,
Columbus, Ohio 43216-1492.
Nationwide Investing
Foundation III (NIF-III)
is an open-end investment
management company.
NIF-III was created under
the laws of Ohio by a
Declaration of Trust, as
an Ohio Business Trust on
October 30, 1997. The
Trust offers shares in
nine separate mutual
funds, each with its own
investment objectives.
This Prospectus relates to
the following eight funds
(the "Funds"):
Nationwide(R) Mid Cap
Growth Fund
Nationwide(R) Growth Fund
Nationwide(R) Fund
(together referred to as
the "Stock Funds")
Nationwide(R) Bond Fund
Nationwide(R) Tax-Free
Income Fund
Nationwide(R) Long-Term
U.S. Government
Bond Fund
Nationwide(R) Intermediate
U.S. Government
Bond Fund
(together referred to as
the "Bond Funds")
Nationwide(R) Money Market
Fund
Except for the Money
Market Fund, this
prospectus offers Class D
shares of the Funds, which
are sold with a front end
sales charge. Additional
classes of shares may be
created for the Funds in
the future. See p. for
additional information
about the Shares of the
Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE NATIONWIDE MONEY MARKET FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE NATIONWIDE MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
Three Nationwide Plaza - P.O.
Box 1492
Columbus, Ohio 43216-1492
December , 1997
Call toll-free 1-800-848-0920
for information, assistance,
and wire orders, 8 AM-5 PM
Call toll-free 1-800-637-0012
for 24-hour account access
FAX: (614) 249-8705
CONTENTS
<TABLE>
<S> <C>
Summary of Fund Expenses................... 3
Which Fund Is Right for You................ 4
Objectives And Management.................. 6
Investment Techniques, Considerations and
Risk Factors............................. 11
Minimum Investment......................... 17
How to Purchase Shares..................... 18
How to Sell (Redeem) Shares................ 19
Investor Strategies........................ 20
Investor Privileges........................ 21
Investor Services.......................... 23
Management of the Trust.................... 24
The Effect of Interest Rates on Bond
Values...................................
Distributions and Taxes.................... 25
Tax Advantages of the Tax-Free Income
Fund..................................... 26
Performance Advertising for the Funds...... 27
Additional Information..................... 27
</TABLE>
NATIONWIDE(R)
FAMILY OF
FUNDS
NATIONWIDE(R)
MID CAP
GROWTH FUND
Capital Appreciation --
Mid size companies
NATIONWIDE(R)
GROWTH FUND
Capital Appreciation --
Companies of all sizes
NATIONWIDE(R)
FUND
Capital Appreciation --
Generally larger
company stocks
NATIONWIDE(R)
BOND FUND
Monthly Income --
BBB-Rated or better
debt securities
NATIONWIDE(R)
TAX-FREE INCOME
FUND
Monthly Income --
Free from Federal taxes
NATIONWIDE(R)
LONG-TERM
U.S. GOVERNMENT
BOND FUND
Monthly Income --
Long-term U.S. Gov't
securities
NATIONWIDE(R)
INTERMEDIATE
U.S. GOVERNMENT
BOND FUND
Monthly Income --
Intermediate
U.S. Gov't securities
NATIONWIDE(R)
MONEY MARKET FUND
Monthly Income --
Current rates of return
<PAGE> 6
NATIONWIDE(R) FAMILY OF FUNDS
SUMMARY OF
FUND EXPENSES
This summary helps you
understand the various
costs and expenses you
will bear, directly or
indirectly, when investing
in the funds.
Nationwide(R) Mid Cap
Growth Fund
Nationwide(R) Growth Fund
Nationwide(R) Fund
Nationwide(R) Bond Fund
Nationwide(R) Tax-Free
Income Fund
Nationwide(R) Long-Term
U.S. Government
Bond Fund
Nationwide(R) Intermediate
U.S. Government
Bond Fund
Nationwide(R) Money Market
Fund
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
LONG-TERM
MID TAX-FREE U.S. INTERMEDIATE MONEY
CAP GROWTH FUND BOND INCOME GOV'T U.S. GOV'T MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum
Sales
Charge
Imposed on
Purchases* 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% None
Maximum
Contingent
Deferred
Sales
Charge on
Redemptions None None None None None None None None
Maximum
Sales
Charge
Imposed on
Reinvested
Dividends None None None None None None None None
Redemption
Fees None None None None None None None None
Exchange
Fees None None None None None None None None
</TABLE>
* Lower sales charges are available as the amount of the
investment increases. To receive even greater sales charge
discounts, investors may also include the value of shares
held in other accounts (including household family
members' accounts). See pages 18-19.
ESTIMATED ANNUAL FUND OPERATING EXPENSES**
(as a percentage of average net assets)
<TABLE>
<CAPTION>
LONG-TERM
MID TAX-FREE U.S. INTERMEDIATE MONEY
CAP GROWTH FUND BOND INCOME GOV'T U.S. GOV'T MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management
Fees .60% .60% .60% .50% .50% .50% .50% .40%
12b-1
Fees 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other
Expenses .37% .21% .17% .28% .18% .28% .29% .21%
----- ----- ----- ----- ----- ----- ----- -----
Total
Fund
Operating
Expenses .97% .81% .77% .78% .68% .78% .79% .61%
</TABLE>
Example:
The following example illustrates the expenses you would
pay on a $1,000 investment over the indicated time periods
assuming: (1) a 5% annual return, and (2) redemption at
the end of each time period.
<TABLE>
<CAPTION>
LONG-TERM
MID TAX-FREE U.S. INTERMEDIATE MONEY
CAP GROWTH FUND BOND INCOME GOV'T U.S. GOV'T MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 54 $ 53 $53 $53 $ 52 $ 53 $ 53 $ 6
3 Years $ 75 $ 70 $68 $69 $ 66 $ 69 $ 69 $ 20
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
** For a more detailed explanation of these expenses, see
"Management of the Trust" on page 25. Other expenses
are estimates for the fiscal year ending October 31,
1998.
3
<PAGE> 7
NATIONWIDE(R) FAMILY OF FUNDS
Each Fund is a separate, diversified investment fund of the Trust, which was
organized on October 30, 1997, as an Ohio business trust. The Trust is
registered and operates as an open-end management investment company. Each Fund
was organized for the purposes of acquiring all of the assets and liabilities of
one or more separate series of Nationwide Investing Foundation ("NIF"),
Nationwide Investing Foundation II ("NIF II") and/or Financial Horizons
Investment Trust ("FHIT") (together called the "Former Trusts"), to effect a
reorganization of each series of the Former Trusts with and into a separate
series of NIF III. Subject to shareholder approval, such reorganization is
anticipated to be completed during the first quarter of 1998. Each Fund and its
corresponding series of the Former Trust are as follows:
<TABLE>
<CAPTION>
FUND SERIES OF THE FORMER TRUST
- ------------------------------- ------------------------------
<S> <C>
Mid Cap Growth Fund Growth Fund of FHIT
Growth Fund Growth Fund of NIF
Nationwide Fund Nationwide Fund of NIF
Bond Fund Bond Fund of NIF I
Tax-Free Income Fund Tax-Free Income Fund of NIF II
and Municipal Bond Fund of
FHIT
Long-Term U.S. Government Bond Government Bond Fund of FHIT
Fund
Intermediate U.S. Government U.S. Government Income Fund of
Bond Fund NIF II
Money Market Fund Money Market Fund of NIF I and
Cash Reserve Fund of FHIT
</TABLE>
WHICH FUND IS RIGHT FOR YOU?
Long-term and short-term goals require different financial planning. Whether
you're seeking greater growth opportunity, looking for more income, or a
combination of both, Nationwide's Family of Funds, strategies, and services may
help.
While there is careful selection of securities and constant supervision of the
Funds, there can be no guarantee that a Fund's objective will be achieved.
CONSIDER YOUR TIME FRAME
For long-term goals, you have the luxury of time on your side. With goals five
or more years away -- where growth of your investments is the highest
priority -- you may want to consider Nationwide's Stock Funds. These funds
provide greater long-term return potential through portfolios of common stocks
with a higher degree of risk.
If you're seeking greater income today or have intermediate to long-term
goals -- you may want to consider Nationwide's Bond Funds. These funds invest in
high-quality and investment grade bonds, providing monthly income and normally
provide greater price stability than stock funds. Plus, it is also possible to
have capital appreciation in these funds.
For short-term goals such as saving for next year's needs, an emergency reserve,
or as a temporary "parking place" for your money -- the Money Market Fund may be
most appropriate for you. This fund provides investors with greater stability of
principal while providing current monthly income.
Most investors have a combination of long and short-term goals. By investing in
several, or all, of the Family of Funds, you'll have the opportunity to satisfy
your many investment needs.
ASSESS YOUR TOLERANCE FOR RISK
Where you choose to invest depends as much on your tolerance for risk as on your
desire for reward. Opportunity and risk go hand-in-hand. Generally the greater
the potential long-term opportunity, the greater the potential risk.
The most common risk people associate with investing is short-term market
risk -- the day-to-day fluctuation in an investment's value. Nationwide's
portfolio managers seek to minimize this risk by investing primarily in quality
securities.
Investors looking for greater growth in our Stock Funds should be willing to
accept greater account value fluctuation. A wide range of factors -- corporate
earnings potential, interest rates, competition, and other economic
conditions -- can cause both downward and upward share price changes.
In the past, investors with a long-term time horizon and a tolerance for
fluctuation have typically been rewarded. Despite years when short-term returns
have not been satisfactory, over long-term holding periods, money has grown more
in common stocks than in fixed income securities.
The Bond Funds generally provide investors with greater price stability than
stock funds. More predictable investments may make an investor more comfortable,
but historically the total return in bond funds has been less than in stock
funds. Prevailing interest rates, more than any other factor, contribute to
price fluctuation in bond funds, and long-term bonds are generally affected more
than shorter-term bonds. A discussion of the relationship of interest rates and
bond prices is found on page 26.
Investors who would prefer not to have their investment principal fluctuate
should consider the Money Market Fund. While it provides the greatest price
stability of these investments over the long term it has less long-term return
potential.
4
<PAGE> 8
NATIONWIDE(R) FAMILY OF FUNDS
One of the biggest risks investors may face is being too conservative, thereby
not earning enough return on their investments to achieve their future needs.
Another big risk to consider is the eroding value of the dollar, known as
inflation. The amount of money needed to satisfy a goal (after taking inflation
into consideration) may dictate investment in a fund with a potential for
greater returns. Although common stocks are generally the most volatile over
short periods of time, historically they have provided double-digit returns and
exceeded inflation over long periods.
Procrastination is yet another risk investors must consider. Delay, and you take
the chance that there may not be enough time to attain your objective. Start
early and invest regularly in funds with growth opportunities, and you stand a
better chance to reach your goals.
For more information concerning the risk factors of the Funds, see "Investment
Techniques, Considerations and Risk Factors."
CONSIDER YOUR TAX BRACKET
For investors seeking to shelter their investment income from federal taxes, the
Tax-Free Income Fund may be an appropriate investment. The tax-equivalent yield
of this Fund can be especially appealing for investors in the 28% or higher tax
brackets. To determine if a tax-free investment may be right for you, see page
27.
5
<PAGE> 9
OBJECTIVES AND MANAGEMENT
THE MID CAP GROWTH FUND
INVESTMENT OBJECTIVE & POLICY: Seeks long-term capital appreciation. The Fund
invests primarily in a diversified portfolio of equity securities of mid cap
companies.
- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION.
- - EQUITY PORTFOLIO -- GENERALLY MID CAP COMPANIES.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Mid Cap Growth Fund generally falls on this continuum.
++
ARROW
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: Major emphasis in the selection of securities is placed on
companies which have capable management, and are in fields where social and
economic trends, technological developments, and new processes or products
indicate a potential for greater-than-average growth.
The Fund will invest at least 65% of its total assets in equity securities
of mid cap companies. The fund defines mid cap companies as those with market
capitalization or sales in the range between $300 million and $8 billion, but
will generally focus on companies between $300 million and $5 billion. The
equity securities in which the Fund will invest are generally common stock or
securities convertible into common stocks ("convertible securities").
Investments are made in different types of equity securities among many
companies and industries which provide diversification to help minimize risk.
PORTFOLIO MANAGER: John M. Schaffner, MBA, CFA -- is the portfolio manager for
the Nationwide(R) Mid Cap Growth Fund. He has been with Nationwide since 1977
and has managed the Financial Horizons Growth Fund which is the predecessor to
the Mid Cap Growth Fund from June 1989 through December 1995 and resumed
managing the Fund in August 1997. Schaffner graduated with a Bachelor of Arts in
Economics from Occidental College. He received his Master of Business
Administration degree from the University of Michigan and is a Chartered
Financial Analyst.
THE GROWTH FUND
INVESTMENT OBJECTIVE & POLICY: Seeks long-term capital appreciation. The Fund
invests primarily in equity securities of companies of all sizes.
- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION.
- - EQUITY PORTFOLIO -- COMPANIES OF ALL SIZES.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Growth Fund generally falls on this continuum.
++
ARROW
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: The Fund seeks to benefit from both the underlying
economic growth of the companies it invests in, plus improvement in the
valuation of the stock. Major emphasis in the selection of securities is placed
on companies which have capable management, and are in fields where social and
economic trends, technological developments, and new processes or products
indicate a potential for greater-than-average growth.
The Fund will invest at least 65% of its total assets in equity securities
of companies of all sizes, generally common stock and convertible securities.
Investments are made in different types of equity securities among many
companies and industries which provide diversification to help minimize risk.
PORTFOLIO MANAGER: John M. Schaffner, MBA, CFA -- is the portfolio manager for
the Nationwide(R) Growth Fund. He has been with Nationwide since 1977 and has
managed the NIF Growth Fund which is the predecessor to the Growth Fund since
June 1981. Schaffner graduated with a Bachelor of Arts in Economics from
Occidental College. He received his Master of Business Administration degree
from the University of Michigan and is a Chartered Financial Analyst.
THE NATIONWIDE(R) FUND
INVESTMENT OBJECTIVE & POLICY: Seeks total return through a flexible combination
of current income and capital appreciation. The Fund invests primarily in common
stocks, but also in convertible securities, bonds and money market obligations.
- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION AND CURRENT INCOME POTENTIAL.
- - COMMON STOCK PORTFOLIO -- GENERALLY LARGER COMPANIES.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Nationwide(R) Fund generally falls on this continuum.
++
ARROW
6
<PAGE> 10
OBJECTIVES AND MANAGEMENT
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: Major emphasis is placed on capital appreciation and
current income. The Fund seeks to maximize shareholder returns through a
diversified portfolio where the primary emphasis is given to common stocks.
Although not limited to these investments, in the past the majority of the
Fund's portfolio assets have normally contained the common stocks of well-known,
larger companies.
Investments are made in different types of securities among many companies
and industries which provide diversification to help minimize risk.
PORTFOLIO MANAGER: Charles Bath, MBA, CFA, CPA -- is the portfolio manager of
the Nationwide(R) Fund. Bath joined Nationwide as a securities analyst and has
managed the NIF Nationwide(R) Fund, predecessor to 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.
ADDITIONAL INFORMATION CONCERNING THE STOCK FUNDS
Equity securities include common stock, preferred stock, convertible securities
and warrants and the Funds may invest in both domestic and foreign issues. The
Fund may invest in foreign securities directly or through depository receipts.
In addition to investing in equity securities, the Stock Funds may invest in
index futures, options and other derivatives, and securities which are not
readily marketable or are restricted as to disposition. They may also invest in
U.S. government securities, short-term fixed income securities and money market
obligations ("Money Market Obligations") and shares of other investment
companies. The Stock Funds may also enter into repurchase agreements, and may
purchase when-issued securities.
For temporary or emergency purposes as determined by Nationwide Advisory
Services, Inc. ("NAS"), each such Fund may invest up to 100% of its total assets
in cash, and/or money market obligations.
See "Investment Techniques, Considerations and Risk Factors" below and
"Additional Information on Portfolio Instruments and Investment Policies" in the
Statement of Additional Information for further information.
THE BOND FUND
INVESTMENT OBJECTIVE & POLICY: Seeks a high level of income, consistent with
capital preservation. The Fund invests primarily in fixed-income securities
currently focusing on corporate debt investments and U.S. Government
mortgage-backed securities. Under normal market conditions, the average maturity
of the Fund will be intermediate, which is defined by the Fund as being between
6 and 10 years.
- - MONTHLY INCOME FROM A PORTFOLIO OF INVESTMENT GRADE CORPORATE AND GOVERNMENT
OBLIGATIONS.
- - INTERMEDIATE MATURITIES -- YIELDS ARE USUALLY HIGHER THAN SHORT-TERM FUNDS,
BUT WITH LOWER YIELDS AND VOLATILITY THAN LONG-TERM FUNDS.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Bond Fund generally falls on this continuum.
++
ARROW
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: Major emphasis is placed on a diversified portfolio of
investment grade taxable debt securities including corporate debt securities
rated within the four highest credit categories by Standard & Poor's Corporation
("Standard & Poor's") (AAA, AA, A or BBB) or Moody's ("Moody's") (Aaa, Aa, A or
Baa), U.S. and Canadian Government obligations, mortgage-backed securities, and
the highest investment grade commercial paper rated by Moody's Investors
Service, Inc. (Prime-1 or Prime-2) or by Standard & Poor's (A-1 or A-2). The
Fund may invest in unrated securities if NAS determines them to be of comparable
quality. The Fund may also enter into repurchase agreements, purchase restricted
or illiquid securities which are not readily marketable or are restricted as to
disposition, and engage in securities lending transactions. The Fund also
purchases securities on a when-issued or delayed delivery.
The Fund may invest in securities rated BBB by Standard & Poor's or Baa by
Moody's, commonly referred to as medium-grade securities which are considered by
Standard and Poor's and Moody's to have some speculative characteristics. While
interest payments and principal security appear adequate at the present time,
such securities lack certain protective elements or may be characteristically
unreliable over any great period of time.
Should subsequent events cause the rating of BBB securities to fall below
this rating, NAS will consider such an event in determining whether the Fund
should continue to hold that security. In no event, however, would the Fund be
required to liquidate any portfolio security where the Fund would suffer a loss
on the sale of such security.
In addition, for temporary or emergency purposes, the Fund may invest up to
100% of its total assets in cash and/or money market obligations.
See "Investment Techniques, Considerations and Risk Factors" below and
"Additional Information on Portfolio Instruments and Investment Policies" in the
Statement of Additional Information for further information.
PORTFOLIO MANAGER: Douglas Kitchen, CFA -- is the portfolio manager of the
Nationwide(R) Bond Fund. He joined Nationwide in 1986 as a securities analyst
and began managing the NIF Nationwide Bond Fund, the predecessor of the
Nationwide(R)
7
<PAGE> 11
OBJECTIVES AND MANAGEMENT
Bond Fund on March 11, 1997. From 1992 to March 11, 1997, he managed the bond
portfolio for the Nationwide Foundation. Kitchen received a Bachelor of Arts in
Geology from Thiel College and a Bachelor of Science in Finance from The Ohio
State University and is a Chartered Financial Analyst.
THE TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income exempt
from Federal income tax* as is consistent with the preservation of capital
through investing in a diversified portfolio of high-quality intermediate-term
and long-term municipal obligations.
- - MONTHLY INCOME FROM AN INTERMEDIATE TO LONG-TERM MATURITY PORTFOLIO OF
HIGH-QUALITY MUNICIPAL BONDS.
- - INCOME FREE FROM FEDERAL TAXES.*
*Investors may be subject to state and local tax and the Federal alternative
minimum tax.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Tax-Free Income Fund generally falls on this continuum.
++
ARROW
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: Major emphasis is placed on a diversified portfolio of
municipal obligations rated within the three highest credit categories
(investment grade) assigned by Moody's and Standard & Poor's or if not rated,
are of equivalent investment quality as determined by NAS.
Such obligations include: (1) municipal securities backed by the full faith
and credit of the United States; (2) municipal bonds rated within the three
highest credit categories Aaa, Aa, or A by Moody's and/or AAA, AA, or A by
Standard & Poor's; (3) state and municipal notes rated MIG-1, MIG-2, and MIG-3
by Moody's; and (4) other types of municipal securities such as commercial
paper, provided that such securities are rated at least Prime-2 by Moody's or
A-2 by Standard & Poor's.
The Fund may also invest up to 10% of its net assets in securities rated BBB
by Standard & Poor's or Baa by Moody's or if not rated, are of equivalent
investment quality as determined by NAS. The municipal securities in which the
Fund may invest may include variable and floating rate securities. The Fund also
purchases securities on a when issued or delayed delivery basis.
The Fund may, on a temporary basis or for defensive purposes, hold and
invest up to 20% of its assets in cash and in taxable money market obligations.
The Fund has, however, adopted an investment restriction which requires it to
invest at least 80% of its net assets in the types of securities listed in the
preceding paragraphs.
See "Investment Techniques, Consideration and Risk Factors" below and
"Additional Information on Portfolio Investments and Investment Policies" in the
Statement of Additional Information for further information.
PORTFOLIO MANAGER: Alpha Benson, MBA -- is the portfolio manager of the
Nationwide(R) Tax-Free Income Fund. She joined Nationwide in 1977 as a financial
analyst in the Securities Investment Department. She has managed the NIF
Tax-Free Fund, the predecessor of the Tax-Free Income Fund since its inception
in March 1986 and the FHIT Municipal Bond Fund since March 11, 1997. Benson
graduated with a Bachelor of Science in Accounting from Central State
University. She received her Master of Business Administration degree from the
University of Dayton.
THE LONG-TERM U.S. GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital. The Fund invests in securities of
the U.S. Government, its agencies and instrumentalities ("U.S. Government
Securities"). The average duration of the Fund will be greater than 6 years.
- - MONTHLY INCOME FROM A PORTFOLIO OF U.S. GOVERNMENT SECURITIES.
- - LONG-TERM PORTFOLIO.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the U.S. Government Income Fund generally falls on this continuum.
++
ARROW
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: The Fund will normally invest all of its assets in U.S.
Government securities and in repurchase agreements collateralized by these
securities.
The Fund may invest in mortgage-related securities issued by U.S. Government
agencies. These Securities include pass-through securities and collateralized
mortgage obligations (CMOs). Pass-through securities represent part ownership in
a pool of mortgage loans. These securities differ from typical bonds because
principal is repaid monthly over the term of the loan rather than returned in a
lump sum at maturity. CMOs are fully collateralized by a pool of mortgages on
which payments of principal and interest are dedicated to payment of principal
and interest on the various classes of the CMOs.
The Fund may also invest in zero-coupon securities, that are direct
obligations of the U.S. government and its agencies and instrumentalities and in
money market obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements.
In selecting securities for the Fund, the investment manager utilizes
interest-rate expectations, yield-curve analysis, economic forecasting, market
sector analysis, and other security selection
8
<PAGE> 12
OBJECTIVES AND MANAGEMENT
techniques. The Fund's investments will be concentrated in areas
of the bond market (based on sector, coupon or maturity) the investment manager
believes are relatively undervalued.
In addition, for temporary or emergency purposes, the Fund may invest up to
100% of its total assets, in cash and/or money market obligations.
THE INTERMEDIATE U.S. GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital. The Fund invests primarily in U.S.
Government Securities. The average duration of the Fund will be between three
and a half and 6 years.
- - MONTHLY INCOME FROM A PORTFOLIO OF U.S. GOVERNMENT SECURITIES.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Intermediate U.S. Government Bond Fund generally falls on this
continuum.
++
ARROW
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: The Fund will normally invest all of its assets in U.S.
Government securities and in repurchase agreements collateralized by these
securities.
The Fund may invest in mortgage-related securities, issued by U.S.
Government agencies. These securities include pass-through securities and
collateralized mortgage obligations (CMOs). Pass-through securities represent
part ownership in a pool of mortgage loans. These securities differ from typical
bonds because principal is repaid monthly over the term of the loan rather than
returned in a lump sum at maturity. CMOs are fully collateralized by a pool of
mortgages on which payments of principal and interest are dedicated to payment
of principal and interest on the various classes of the CMOs.
The Fund may also invest in zero-coupon securities, that are direct
obligations of the U.S. government and its agencies and instrumentalities and in
money market obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements.
In selecting securities for the Fund, the investment manager utilizes
interest-rate expectations, yield-curve analysis, economic forecasting, market
sector analysis, and other security selection techniques. The Fund's investments
will be concentrated in areas of the bond market (based on sector, coupon or
maturity) the investment manager believes are relatively undervalued.
In addition, for temporary or emergency purposes, the Fund may invest up to
100% of its total assets, in cash and/or money market obligations.
PORTFOLIO MANAGERS FOR THE LONG TERM AND INTERMEDIATE U.S. GOVERNMENT BOND FUNDS
(THE "U.S. GOVERNMENT BOND FUNDS"): Wayne Frisbee, CFA; Kimberly Bingle, CFA,
FLMI; and Gary Hunt, MBA -- are the portfolio managers for the U.S. Government
Funds. Frisbee joined Nationwide in 1981 as a securities analyst and has managed
the NIF Nationwide(R) U.S. Government Income Fund, predecessor to the Nationwide
Intermediate U.S. Government Bond Fund, since its inception in 1992 and the
Financial Horizons Government Bond Fund predecessor of The Nationwide Long-Term
U.S. Government Bond Fund since its inception in 1988. He received a Bachelor of
Science from The Ohio State University and is a Chartered Financial Analyst.
Bingle joined Nationwide in 1986 as a securities analyst and began managing the
predecessors to the U.S. Government Bond Funds, on March 11, 1997. Since April
of 1992, she has managed the Fixed Income Fund which is part of the Nationwide
Insurance Enterprise incentive savings plan. Prior to April 1992, she co-managed
the Nationwide Foundation bond portfolio. Bingle received a Bachelor of Arts in
Finance from The Pennsylvania State University. She is a Chartered Financial
Analyst and a Fellow of the Life Management Institute. Hunt joined Nationwide in
1992 as a securities analyst and began managing the predecessors to the U.S.
Government Bond Funds, on March 11, 1997. In his career at Nationwide, Hunt has
been responsible for the analysis of agency CMOs and U.S. Treasury securities.
In addition, he has managed the commercial mortgage-backed securities sector for
Nationwide Life Insurance Company and its affiliates. Hunt received a Bachelor
of Science in Finance and a Master of Business Administration from The Ohio
State University.
ADDITIONAL INFORMATION CONCERNING THE DURATION OF THE U.S. GOVERNMENT BOND
FUNDS: The Long-Term U.S. Government Bond Fund will attempt to limit its
exposure to interest rate risk by maintaining a duration which, on a weighted
average basis and under normal market conditions, will generally be greater than
six years, and the Intermediate U.S. Government Bond Fund will attempt to limit
its exposure by maintaining an average duration between three and a half and six
years. Duration is a measure of the average life of a fixed-income security that
was developed as a more precise alternative to the concepts of "term to
maturity" or "average dollar weighted maturity" as measures of "volatility" or
"risk" associated with changes in interest rates. Duration incorporates a
security's yield, coupon interest payments, final maturity and call features
into one measure.
Most debt obligations provide interest ("coupon") payments in addition to
final ("par") payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in interest rates.
Traditionally, a debt security's "term-to-maturity" has been used as a
measure of the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term-to-maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Average dollar weighted maturity is
9
<PAGE> 13
OBJECTIVES AND MANAGEMENT
calculated by averaging the terms to maturity of each debt
security held with each maturity "weighted" according to the percentage of
assets that it represents. Duration is a measure of the expected life of a debt
security on a present value basis and reflects both principal and interest
payments. Duration takes the length of the time intervals between the present
time and the time that the interest and principal payments are scheduled or, in
the case of a callable security, expected to be received, and weights them by
the present values of the cash to be received at each future point in time. For
any debt security with interest payments occurring prior to the payment of
principal, duration is ordinarily less than maturity. In general, all other
factors being the same, the lower the stated or coupon rate of interest of a
debt security, the longer the duration of the security; conversely, the higher
the stated or coupon rate of interest of a debt security, the shorter the
duration of the security.
There are some situations where the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use more sophisticated
analytical techniques to project the economic life of a security and estimate
its interest rate exposure. Since the computation of duration is based on
predictions of future events rather than known factors, there can be no
assurance that the U.S. Government Funds will at all times achieve its targeted
portfolio duration.
The change in market value of U.S. Government fixed-income securities is
largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case. When interest rates are rising, a portfolio with a shorter
duration will generally outperform longer duration portfolios. With respect to
the composition of a fixed-income portfolio, the longer duration of the
portfolio, generally the greater the anticipated potential for total return,
with, however, greater attendant interest rate risk and price volatility than
for a portfolio with a shorter duration.
While each U.S. Government Fund intends to maintain the average duration
described above under normal market conditions, there is no limit as the
maturity of any one security which a U.S. Government Fund may purchase.
THE MONEY MARKET FUND
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity. The
Fund invests in high-quality money market instruments maturing in 397 days or
less. Although principal is not intended to fluctuate, there can be no assurance
that the Fund will be able to maintain a stable net asset value of $1.00 per
share.
- - MONTHLY INCOME WITH QUICK LIQUIDITY THROUGH CHECK-WRITING PRIVILEGE.
- - HISTORICALLY MAINTAINED A FIXED SHARE PRICE THROUGH HIGH-QUALITY, SHORT-TERM
SECURITIES.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Money Market Fund generally falls on this continuum.
++
ARROW
<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>
PORTFOLIO MANAGEMENT: Emphasis is on a diversified portfolio having a dollar
weighted average maturity of 90 days or less. The portfolio consists of
high-quality money market instruments with a remaining maturity of 397 days or
less including, but not limited to: U.S. government and agency obligations; U.S.
dollar denominated obligations of foreign governments including Canadian
government and provincial obligations; obligations of commercial banks and
savings associations which have assets over $500 million [and are FDIC members],
and the 50 largest foreign banks with U.S. branches; taxable or partly taxable
obligations issued by state, county or municipal governments; commercial paper
rated in one of the two highest rating categories by at least two Nationally
Recognized Statistical Rating Organizations (NRSROs); corporate obligations at
the time of purchase with the two highest rating categories assigned by the
NRSROs; and repurchase agreements collateralized by any of the above. In
addition, the Fund may invest in variable rate demand notes. See "Investment
Techniques, Considerations and Risk Factors" below and "Additional Information
on Portfolio Instruments and Investment Policies" in the Statement of Additional
Information for further information.
PORTFOLIO MANAGER: Patricia A. Mynster, Director of Short-Term
Investments -- began managing the NIF Money Market Fund, the predecessor of the
Money Market Fund in July 1997 and has managed short-term investments for over
20 years. She received a Bachelor of Arts degree in Business Administration from
Otterbein College. She has held her current position as Director of Short-Term
Investments for the Nationwide Enterprise since 1991.
10
<PAGE> 14
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
An investment in the Funds involves certain risks. As a general matter, an
investment in the Funds (except the Money Market Fund) involves the risk that
the net asset value of a Fund's shares will fluctuate in response to changes in
economic conditions, interest rates, and the market's perception of the
securities held by the Fund. In addition, an investment in the Stock Funds is
subject to stock market risk, which means that such an investment is subject to
the risk that stock prices in general will decline over short or extended
periods of time. An investment in the Bond Funds is subject to bond market risk,
i.e., the risk that the market price of bonds in general will fluctuate. Bond
prices fluctuate largely in response to changes in the level of interest rates.
When interest rates rise, bond prices generally fall; conversely, when interest
rates fall, bond prices generally rise. Although the fluctuation in the price of
bonds is normally less than that of common stocks, in the past there have been
extended periods of cyclical increases in interest rates, causing significant
declines in the price of bonds in general.
An investment in the Funds is subject to other risks as well, depending upon
the particular investment techniques employed by a Fund and the types of
securities in which a Fund invests. These risks are described below.
SPECIAL SITUATION COMPANIES -- The Mid Cap Growth Fund may invest in securities
of issuers in special situations. These securities 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, companies involved in an acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer, a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the companies' securities; or change in
corporate control.
Although investing in securities of issuers in "special situations" offers
potential for above-average returns if the companies are successful, the risk
exists that the companies will not succeed, and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in the Mid
Cap Growth 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.
WARRANTS -- Each Stock Fund may invest in warrants. A warrant is an instrument
which gives the holder the right to subscribe to a specified amount of the
issuer's securities at a set price for a specified period of time or on a
specified date. Warrants do not carry the right to dividends or voting rights
with respect to their underlying securities and do not represent any rights in
assets of the issuer. An investment in warrants may be considered speculative.
In addition, the value of a warrant does not necessarily change with the value
of the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
CONVERTIBLE SECURITIES -- The Stock Funds may invest in convertible securities,
which are bonds, debentures, notes, preferred stocks or other securities that
may be converted into or exchanged for a specified amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. 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 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 fixed-income securities, 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
11
<PAGE> 15
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock of the same issuer.
Because of the subordination feature, however, convertible securities typically
are rated below investment grade or are not rated.
U.S. GOVERNMENT SECURITIES -- As discussed above, each of the Funds may invest
in securities which are issued or guaranteed by the U.S. government or its
agencies or instrumentalities. Securities issued by the U.S. 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.
- - the Federal National Mortgage Association.
- - the Student Loan Marketing Association, Federal Home Loan Mortgage Corporation
("FHLMC"), and the International Bank for Reconstruction and Development.
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 Bond Funds (except Tax-Free Income
Fund) may purchase mortgage-backed securities. The Nationwide Bond Fund and the
Nationwide Money Market Fund may also invest in 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 CMOs. Such
securities may be issued or guaranteed by U.S. Government, and its agencies or
instrumentalities or in the case of the Nationwide Bond Fund only, by private
issuers, generally originators of or investors in mortgage loans, including
savings and loan associations, mortgage bankers, commercial banks, investment
banks, and special purpose entities (collectively, "private lenders"). 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. The underlying mortgage assets may have fixed rates or adjustable
rates of interest. Mortgage-backed securities in which the Bond Funds may invest
include both fixed-rate and adjustable-rate mortgage-backed securities.
The Nationwide Bond Fund may purchase mortgage-backed securities issued by
private issuers, and therefore, the purchase of such securities may entail
greater risk than mortgage-backed securities that are guaranteed by the U.S.
Government, its agencies or instrumentalities. Since privately-issued mortgage
certificates are not guaranteed by an entity having the credit status of GNMA or
FHLMC, such securities generally are structured with one or more types of credit
enhancement. Such credit support falls into two categories: (i) liquidity
protection; and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provisions of advances, generally by the entity administering the pool of
assets, to ensure that the pass-through of payments due on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default enhances the likelihood of ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt obligations. Among the 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 a Fund purchases these securities at a premium, a
prepayment rate that is higher than expected will reduce yield, while a
prepayment rate that is lower than expected will have the opposite effect of
increasing the yield. Conversely, if a Fund purchases these securities at a
discount, a prepayment rate that is faster than expected will increase yield,
while a prepayment rate that is slower than expected will reduce yield.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized by the time the principal is prepaid in full.
12
<PAGE> 16
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
Unlike fixed rate mortgage securities, adjustable rate mortgage securities
are collateralized by or represent interest in mortgage loans with variable
rates of interest. These variable rates of interest reset periodically to align
themselves with market rates. The Fund will not benefit from increases in
interest rates to the extent that interest rates rise to the point where they
cause the current coupon of the underlying adjustable rate mortgages to exceed
any maximum allowable annual or lifetime reset limits (or "cap rates") for a
particular mortgage. In this event, the value of the adjustable rate
mortgage-backed securities in the Fund would likely decrease. Also, the Fund's
net asset value could vary to the extent that current yields on adjustable rate
mortgage-backed securities are different than market yields during interim
periods between coupon reset dates or if the timing of changes to the index upon
which the rate for the underlying mortgage is based lags behind charges in
market rates. During periods of declining interest rates, income to the Fund
derived from adjustable rate mortgages which remain in a mortgage pool will
decrease in contrast to the income on fixed rate mortgages, which will remain
constant. Adjustable rate mortgages also have less potential for appreciation in
value as interest rates decline than do fixed rate investments.
The ratings of mortgage securities for which third-party credit enhancement
provides liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the provider of the
credit enhancement. The ratings of such securities could be subject to reduction
in the event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency loss experience on the underlying
pool of assets is better than expected. There can be no assurance that the
private issuers or credit enhancers of mortgage-backed securities can meet their
obligations under the relevant policies or other forms of credit enhancement.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments sometimes funded from a portion of the
payments on the underlying assets are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such security.
COLLATERALIZED MORTGAGE OBLIGATIONS -- The Bond Funds may also acquire CMOs and
stripped mortgage-backed securities. CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA, FNMA or FHLMC certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively referred to as "Mortgage Assets"). Payments of principal
or interest on the Mortgage Assets, and any reinvestment income thereon, priced
the funds to pay debt service on the CMOs. CMOs may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans.
INTEREST ONLY AND PRINCIPAL ONLY SECURITIES -- Stripped mortgage-backed
securities are securities representing interest in a pool of mortgages the cash
flow from which has been separated into interest and principal components. "IOs"
(interest only securities) receive the interest portion of the cash flow while
"POs" (principal only securities) receive the principal portion. Stripped
mortgage-backed securities may be issued by U.S. Government agencies or by
private issuers, such as mortgage banks, commercial banks, investment banks,
savings and loan associations and special purpose subsidiaries of the foregoing.
As interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of other mortgage-backed securities
described herein, like other debt instruments, will tend to move in the opposite
direction compared to interest rates. POs perform best when prepayments on the
underlying mortgages rise since this increases the rate at which the investment
is returned and the yield to maturity on the PO. When payments on mortgages
underlying a PO are slow, the life of the PO is lengthened and the yield to
maturity is reduced.
Each Bond Fund may purchase stripped mortgage-backed securities for hedging
purposes to protect that Fund against interest rate fluctuations. For example,
since an IO will tend to increase in value as interest rates rise, it may be
utilized to hedge against a decrease in value of other fixed-income securities
in a rising interest rate environment. If the Fund purchases a mortgage-related
security at a premium, all or part of the premium may be lost if there is a
decline in the market value of the security, whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. Moreover,
with respect to stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to recoup fully its initial investment in these securities even if
the securities are rated in the highest rating category by an NRSRO. Stripped
13
<PAGE> 17
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
mortgage-backed securities may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on stripped mortgage-backed securities that receive all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be fully
recouped. No more than 10% of a Bond Fund's total assets will be invested in IOs
and in POs.
MUNICIPAL SECURITIES -- The two principal classifications of Municipal
Securities which may be held by the Tax-Free Income Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Tax-Free Income Fund are in most cases revenue securities and are
not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
The Tax-Free Income Fund may also invest in "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
REPURCHASE AGREEMENTS -- Each of the Funds may engage in repurchase agreement
transactions as long as the underlying securities are of the type that the Fund
would be permitted to purchase directly. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying security 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 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
(including interest). 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. NAS,
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. For additional information,
see "Repurchase Agreements" in the Statement of Additional Information.
INVESTMENT COMPANIES -- As permitted by the 1940 Act, each Fund may invest up to
10% of its total assets, calculated at the time of investment, in the securities
of other investment companies. No more than 5% of a Fund's total assets may be
invested in the securities of any one investment company nor may it acquire more
than 3% of the voting securities of any other investment company. Each Fund will
indirectly bear its proportionate share of any management fees paid by an
investment company in which it invests in addition to the advisory fee paid by
the Fund.
WHEN-ISSUED SECURITIES -- Each of the Funds 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
Fund 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 a 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 a 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. The Fund will set aside liquid assets in a segregated
account to secure its outstanding commitments for when-issued securities.
FLOATING AND VARIABLE RATE OBLIGATIONS -- The Bond Funds and the Money Market
Fund may invest in floating and variable rate obligations. Floating or variable
rate obligations bear interest at rates that are not fixed, but vary with
changes in specified market
14
<PAGE> 18
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
rates or indices, such as the prime rate, and at specified intervals. Floating
rate obligations vary with changes to an underlying index while variable rate
obligations change at preset fixed times. Certain of the floating or variable
rate obligations that may be purchased by these Funds may carry a demand feature
that would permit the holder to tender them back to the issuer at par value
prior to maturity. Such obligations include variable rate master demand notes,
which are unsecured instruments issued pursuant to an agreement between the
issuer and the holder that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. The Bond Funds and the
Money Market Fund will limit their purchases of floating and variable rate
obligations to those of the same quality as they otherwise are allowed to
purchase. NAS will monitor on an ongoing basis the ability of an issuer of a
demand instrument to pay principal and interest on demand.
Although there may be no active secondary market with respect to a
particular variable or floating rate obligation purchased by a Fund, the Fund
may attempt to resell the obligation at any time to a third party. The absence
of an active secondary market, however, could make it difficult for a Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations and the Fund could, as a result
or for other reasons, suffer a loss to the extent of the default. Variable or
floating rate obligations may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value.
Variable and floating rate obligations for which no readily available market
exists and which are not subject to a demand feature that will permit the Fund
to receive payment of the principal within seven days after demand by that Fund,
will be considered illiquid and therefore, together with other illiquid
securities held by such Fund, will not exceed 15% of such Fund's net assets.
For a further discussion of floating and variable rate obligations, see
"Additional Information on Portfolio Instruments and Investment
Policies -- Floating and Variable Rate Instruments" in the Statement of
Additional Information.
ZERO COUPON SECURITIES -- The Bond Funds may invest in zero coupon securities.
Zero coupon securities are debt securities that pay no cash income but are sold
at substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Certain
zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. Zero coupon securities may have conversion features.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.
Current federal income tax law requires the holder of a zero coupon security
to accrue income with respect to these securities prior to the receipt of cash
payments. Accordingly, to avoid liability for federal income and excise taxes,
the Bond Funds may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
MONEY MARKET OBLIGATIONS -- Each of the Funds may invest its assets in
high-quality short-term money market obligations.
Money Market Obligations in which the Funds may invest include: 1) U.S.
Government Securities (as described above) with remaining maturities of one year
or less; 2) commercial paper rated in one of the two highest ratings categories
of any NRSRO (e.g., Moody's or Standard & Poor's); 3) 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; 4) repurchase
agreements relating to debt obligations which a Fund could purchase directly; 5)
unrated debt obligations with remaining maturities of one year or less which are
determined by NAS to be of comparable quality; or 6) money market mutual funds.
CANADIAN AND PROVINCIAL OBLIGATIONS -- The Money Market Fund may invest in
Canadian and Provincial obligations. They are unsecured, discounted Bills and
notes are issued in U.S. currency. Obligations have a final maturity of 270 days
or less from date of issue and are exempt from registration under sec-
15
<PAGE> 19
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
tion 3(a)(3) of the Securities Act of 1933, as amended. Canada Bills constitute
direct, unconditional obligations of Her Majesty in right of Canada and are a
direct charge on, and payable out of the Consolidated Revenue Fund of Canada.
Export Development Company and Canadian Wheat Board are crown corporations and
agents of her majesty in right of Canada. Provincial obligations have the full
faith and credit of the provincial governments.
MEDIUM QUALITY OBLIGATIONS -- The Nationwide Bond and Tax-Free Income Funds may
invest in medium-quality obligations. Medium-quality obligations are obligations
rated in the fourth highest rating category by any NRSRO. Medium-quality
securities, although considered investment-grade, may have some speculative
characteristics and may be subject to greater fluctuations in value than
higher-rated securities. In addition, the issuers of medium quality securities
may be more vulnerable to adverse economic conditions or changing circumstances
than that of higher-rated issuers.
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by NAS to consider what action,
if any, a Fund should take consistent with its investment objective; such event
will not automatically require the sale of the downgraded securities.
LENDING PORTFOLIO SECURITIES -- From time to time, the Funds may lend their
portfolio securities to brokers, dealers and other financial institutions who
need to borrow securities to complete certain transactions. In connection with
such loans, a 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. A Fund can increase its income through the investment of
such collateral and 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 Funds may borrow money from banks up to 33 1/3% of their
total assets (including the amount borrowed). However, the Funds currently
intend to borrow money only for temporary or emergency purposes (but not for
leverage or to purchase investments) up to 5% of the value of a Fund's total
assets (including the amount borrowed) valued at the time the borrowing is made.
DERIVATIVE INSTRUMENTS -- NAS may use a variety of derivative instruments,
including options, futures contracts ("futures"), options on futures, stock
index options and forward currency contracts to hedge a Stock Fund's portfolio
or for risk management. Derivatives are financial instruments whose value and
performance are based on the value and performance of another security,
financial instrument or index.
PORTFOLIO TURNOVER
The Funds will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever NAS
believes it to be in the best interests of a Fund. The Funds will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with their investment objective and policies.
The annual portfolio turnover rate for each of the Funds (except the Money
Market Fund) is not expected to exceed 150% of such Fund's portfolio. For
regulatory purposes, the Money Market Fund is expected to have a 0% portfolio
turnover rate. 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 of each Fund may vary greatly from
year to year and within a particular year.
16
<PAGE> 20
NATIONWIDE(R) FAMILY OF FUNDS
MINIMUM INVESTMENT
MID CAP GROWTH FUND;
GROWTH FUND
NATIONWIDE FUND;
A minimum investment of $250 is required, and subsequent investments of $25 or
more may be made at any time.
--OR--
You may establish a systematic Automatic Asset Accumulation(SM) plan for as
little as $25 per month. See page 19. Also available for certain qualified
plans, i.e. Individual Retirement Accounts (IRA), Simplified Employee Pensions
(SEP), Profit Sharing and Money Purchase Plans.
There is an initial sales charge for investments made in the Stock and Bond
Funds. Sales charges decline as the amount invested increases according to the
chart on page 16.
There are no sales charges on the Money Market Fund or on dividends and capital
gains reinvested, or redemptions in any of the Funds.
BOND FUND;
TAX-FREE
INCOME FUND; LONG-TERM
U.S. GOVERNMENT
BOND FUND;
INTERMEDIATE U.S.
GOVERNMENT BOND FUND,
MONEY
MARKET FUND
A minimum investment of $1,000 is required, and subsequent investments of $100
or more may be made at any time.
--OR--
You may establish a systematic Automatic Asset Accumulation(SM) plan for as
little as $100 per month. See page 20. The above Funds (except Tax-Free Income
Fund) are also available for certain qualified plans, i.e. Individual Retirement
Accounts (IRA), Simplified Employee Pensions (SEP), Profit Sharing and Money
Purchase Plans.
17
<PAGE> 21
NATIONWIDE(R) FAMILY OF FUNDS
HOW TO PURCHASE SHARES
YOU MAY INVEST IN THREE CONVENIENT WAYS:
BY MAIL -- Complete the application and mail with your check or other negotiable
bank draft payable to: NATIONWIDE ADVISORY SERVICES, INC., THREE NATIONWIDE
PLAZA, P.O. BOX 1492, COLUMBUS, OHIO 43216-1492. Purchases must be made in U.S.
dollars only. The share price you receive will be determined as of the close of
business on the day the properly completed application is received by NAS in
Columbus, Ohio. Checks or drafts drawn on non-U.S. banks are not accepted. NAS
reserves the right to refuse certain third-party checks.
BY WIRE -- To avoid mail delays on initial and subsequent investments, you can
request that your bank transmit funds (Federal Funds) by wire to the Fund's
custodian bank. In order to use this method, you must call NAS by 11 A.M.
Eastern Time, and the wire must be received by the custodian bank by 2 P.M.
Eastern Time. The bank that wires your money may charge you a fee for this
service. IF YOU CHOOSE THIS METHOD TO OPEN YOUR ACCOUNT, YOU MUST CALL OUR
TOLL-FREE NUMBER BEFORE YOU WIRE YOUR INVESTMENT. If this is an initial
investment, you must then complete and mail the application.
BY TELEPHONE (NAS NOW) -- By calling 1-800-637-0012, 24 hours a day, seven days
a week you will be connected to our new automated voice-response system, NAS
NOW. It gives you quick, easy access to mutual fund information. Select from a
menu of choices to conduct transactions and hear fund price information, mailing
and wiring instructions as well as other mutual fund information.
IN ORDER TO USE NAS NOW TO MAKE A PURCHASE YOU MUST COMPLETE THE APPROPRIATE
SECTION ON THE APPLICATION.
The net asset value per share for each Fund is determined as of the close of
regular trading on the New York Stock Exchange (usually 4 P.M. Eastern Time),
each day that the exchange is open and on such other days as the Board of
Trustees determines and on days in which there is sufficient trading in
portfolio securities to materially affect the net asset value of that Fund.
The Funds will not compute net asset value on customary business holidays,
including Christmas, New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day and Thanksgiving.
The net asset value per share is computed by adding the value of all
securities and other assets in the portfolio, deducting any liabilities and
dividing by the number of shares outstanding.
THE PURCHASE PRICES OF THE FUNDS ARE DETERMINED AS FOLLOWS:
PURCHASE PRICE OF CLASS D SHARES
(EXCEPT MONEY MARKET FUND)
In determining net asset value, portfolio securities listed on national
exchanges are valued at the last sale price on the principal exchange, or if
there is no sale on that day, or if the securities are traded only in the
over-the-counter market, at the quoted bid prices, all obtained from an
independent pricing organization. Securities for which market quotations are not
available are valued at fair value in accordance with procedures adopted by the
Board of Trustees. Expenses and fees are accrued daily. Shares of the non-money
market funds are purchased at the offering price. The offering price is
determined by adding the sales charge (based as a percentage of the offering
price) to the net asset value per share. THE SALES CHARGE IS DETERMINED
ACCORDING TO THE "SALES CHARGE SCHEDULE AND AVAILABLE DISCOUNTS" SECTION BELOW.
SALES CHARGE SCHEDULE AND AVAILABLE DISCOUNTS FOR CLASS D SHARES
For purchases of the Class D Shares, your sales charge percentage is calculated
according to the chart below:
<TABLE>
<CAPTION>
SALES CHARGE SCHEDULE As a percentage of:
- -----------------------------------------------------------
If your investment plus the value Offering Amount
of other shares held is: Price Invested
- -----------------------------------------------------------
<S> <C> <C>
less than $100,000, the sales charge
is: 4.5 % 4.71%
$100,000 but less than $250,000 3.5 % 3.63%
$250,000 but less than $500,000 2.5 % 2.56%
$500,000 but less than $1,000,000 1.5 % 1.52%
$1,000,000 or more 0.5 % 0.5 %
</TABLE>
Shareholders can receive even greater discounts through the cumulative
effect of the discounts below:
LIFETIME ADDITIONAL DISCOUNT
The sales charge is computed at the rate applied to the amount invested plus the
accumulated value of all shares held in any of the Nationwide Investing
Foundation III Funds (except Nationwide Money Market Fund) including shares
acquired by reinvestment of dividends and capital gains distributions.
FAMILY MEMBER DISCOUNT
In addition, all shares held in any Fund accounts (except Nationwide Money
Market Fund) of members of the registrant's family may be included, provided
these family members reside at the registrant's address.
MONEY MARKET PURCHASE PRICE
Shares of the Money Market Fund are purchased at net asset value. In determining
net asset value, portfolio securities are valued at amortized cost, which
approximates market value, in
18
<PAGE> 22
NATIONWIDE(R) FAMILY OF FUNDS
accordance with Rule 2a-7 of the Investment Company Act of 1940 as amended.
NO SALES CHARGE ON MONEY MARKET -- You pay no sales charge when you invest or
redeem in the Money Market Fund.
HOW TO SELL (REDEEM) SHARES
You can sell (redeem) all, or any part of, your shares of any Fund at any time.
Shares are redeemed at net asset value next computed after receipt of the
properly completed request by NAS, at its offices in Columbus, Ohio.
Requests for redemptions may be in writing or by telephone (if authorized).
Payment for shares redeemed is made within 3 business days of receipt. The value
of shares redeemed depends upon the market value of the investments of each Fund
at the time of redemption and may be more or less than the shareholders' cost.
You cannot redeem investments which have been on deposit for a period of
less than 12 days. This is to assure that your check has cleared. To avoid this
possible 12-day delay, you may make your investment by wire (see "How To
Purchase Shares by Wire," page 19). You will receive a confirmation each time a
liquidation of shares is requested. Redemptions may be suspended or the date of
payment postponed when the New York Stock Exchange is closed (other than
customary weekend and holiday closings listed in the "How To Purchase Shares"
section, page 19), or if trading is restricted or if any emergency exists.
YOU CAN REDEEM IN ANY OF THE FOLLOWING WAYS:
BY TELEPHONE
NAS NOW -- By calling 1-800-637-0012, 24 hours a day, seven days a week, you
will automatically have access to NAS NOW to make a redemption (check mailed
to address of record) unless you declined the option in your application.
Additional NAS NOW redemption options are also available, if elected. NAS NOW
also gives you quick, easy access to mutual fund information. Select from a
menu of choices to conduct transactions and hear fund price information,
mailing and wiring instructions as well as other mutual fund information.
(Redemptions through NAS NOW, the automated voice-response system, will be
limited to the following registrations: Individual, Joint, Transfer on Death,
Trust, and Uniform Gift/Transfer to Minor accounts. Western Union redemptions
are not allowed through NAS NOW.)
CUSTOMER SERVICE LINE -- A check payable to the shareholder of record can be
mailed to the address of record, unless you declined the option in the
application. Redemptions of $1,000.00 or more can be wired directly to your
account at a commercial bank (voided check must be attached to the
application) or sent via Western Union, if elected in the application. For
additional information on Western Union, please see below.
Telephone redemptions for IRAs are available upon receipt of the proper
forms. These redemptions will be subject to mandatory 10% federal income tax
withholding, unless you elect out of withholding. For further information, or
to request these forms, please call our customer service line at
1-800-848-0920.
You must call our toll-free number by 4:00 p.m. Eastern Time to receive that
day's closing share price.
The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds will not be liable for any
loss, injury, damage, or expense as a result of acting upon instructions
communicated by telephone reasonably believed to be genuine, and the Funds
will be held harmless from any loss, claims or liability arising from its
compliance with such instructions. These options are subject to the terms and
conditions set forth in this prospectus and all telephone transaction calls
may be tape recorded. The Funds reserve the right to revoke this privilege at
any time and request the redemption in writing, signed by all shareholders.
BY BANK WIRE -- Your funds will be wired to your bank on the next business
day after your redemption order has been processed. A $5 fee will be deducted
from the proceeds for this service. Your financial institution may also
charge you a fee for receipt of the wire. (If elected, this authorization
will remain in effect until written notice of its termination is received by
NAS.)
BY ACH -- Your funds will be sent via ACH to your bank account on the second
business day after your redemption order has been processed. There is no fee
to receive your funds via ACH. (If elected, this authorization will remain in
effect until written notice of its termination is received by NAS.) Funds
sent through the automated clearing house should reach your bank in two
business days.
BY WESTERN UNION -- With Western Union's Quick Cash(R) service, you can
receive your redemptions the next day across the United States or throughout
the world. If you have elected, you can phone in your request to receive
funds, next business day, at 24,000 locations - including major supermarkets
and mail-box type outlets - many open 24 hours a day, seven days a week. The
fee for the Western Union service is $9.50 per $10,000.00. Funds being sent
19
<PAGE> 23
NATIONWIDE(R) FAMILY OF FUNDS
outside of The United States may be subject to a higher fee. This fee is
deducted from your account.
BY MAIL OR FAX (NO MINIMUM) -- Write or fax to Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492 or FAX
(614) 249-8705. Please be sure that your letter or facsimile is signed exactly
as your account is registered and that your account number and the Fund from
which you wish to make the withdrawal are included. For example, if your account
is registered John Doe and Mary Doe, 'Joint Tenants With Right of Survivorship,'
then both John and Mary must sign the redemption request. For an IRA redemption,
you must include date of birth. Also, you must indicate whether or not you wish
Federal income tax (not less than 10%) to be withheld from the distribution. The
distribution will be processed effective the date the signed letter or fax is
received. Fax requests received after 4 P.M. Eastern time will be processed as
of the next business day. NAS reserves the right to require the original
document if you use the fax method.
BY MONEY MARKET CHECK WRITING -- Money Market shareholders receive free check
writing privileges. If you wish to withdraw your money this way, please complete
the appropriate section of the application. You pay no fee for this service, but
the Fund reserves the right to charge for it or to terminate this service.
IF YOU HAVE MONEY MARKET CHECK WRITING PRIVILEGES, YOU SHOULD NOT ATTEMPT TO
REDEEM YOUR ENTIRE ACCOUNT BY WRITING A CHECK. This is because dividends are
accrued daily which will not be credited to your account until the end of the
month. This could result in a small remaining balance, which would be subject to
the $2 per month fee on Money Market accounts below minimum requirements.
ALTERNATE METHODS -- In the event of significant market activity, it may be
difficult to reach Nationwide Advisory Services, Inc. by telephone. If so, an
investor may choose to use alternate methods to contact NAS such as sending
instructions by a special delivery service, or by facsimile (FAX) machine
(614-249-8705). If you use the FAX method, NAS reserves the right to require the
original document.
ACCOUNTS FALLING BELOW MINIMUM INVESTMENT REQUIREMENTS
Because of the high cost of maintaining small accounts, NAS MAY CLOSE ANY
ACCOUNT WHICH, AS A RESULT OF REDEMPTIONS, HAS A VALUE OF LESS THAN $250
(EXCLUDING AUTOMATIC ASSET ACCUMULATION(SM) accounts). However, you will be
notified if your account value is less than the required minimum, and you will
be allowed 90 days to make additional investments before the account is
liquidated.
IN THE CASE OF A MONEY MARKET FUND ACCOUNT BELOW $250 ON AVERAGE FOR ANY
MONTH, A $2 MONTHLY FEE WILL BE ASSESSED. The fee is deposited into the Fund to
offset the expenses of carrying these small accounts. Shares are redeemed in the
first week of the following month to cover the fee.
SIGNATURE GUARANTEE
NAS reserves the right to require that your signature be guaranteed by an
authorized agent of an "eligible guarantor institution," which include, but are
not limited to, certain banks, credit unions, savings associations, and member
firms of national security exchanges. A signature guarantee is designed to
protect the shareholder by helping to prevent an unauthorized person from
redeeming shares and obtaining the proceeds. A notary public is not an
acceptable guarantor. In certain special cases (such as corporate or fiduciary
registrations), additional legal documents may be required to ensure proper
authorizations.
INVESTOR STRATEGIES
1 MONEY MARKET PLUS GROWTH(SM) -- This strategy provides the security of
principal that the Money Market Fund offers plus the opportunity for greater
long-term capital appreciation through reinvestment of dividends into one of the
Stock Funds.
An initial investment of $5,000 or more is made in the Money Market, and
monthly dividends are then automatically invested into one or more of the Stock
Funds chosen at such Stock Fund's current offering price. Money Market Plus
Growth(SM) gives investors stability of principal through the Money Market's
stable share price, and its portfolio of high quality, short-term money market
investments. And the Money Market Fund offers instant liquidity through
unlimited free checking ($500 minimum), telephone redemption, or NAS NOW. NOTE:
Money Market Fund dividends reinvested into one of the Stock Funds are subject
to applicable sales charges.
2 MONEY MARKET PLUS INCOME(SM) -- This strategy provides the security of
principal that the Money Market Fund offers plus the opportunity for greater
income by reinvesting dividends into one or more of the Bond Funds.
An initial investment of $5,000 or more is made in the Money Market Fund and
monthly dividends are then reinvested into a Bond Fund chosen by you at such
Bond Fund's current offering price. Money Market Plus Income(SM) allows
investors the opportunity to capitalize on shifts in interest rates.
When short-term interest rates increase, so do Money Market dividends. At
the same time, Bond Fund share prices
20
<PAGE> 24
NATIONWIDE(R) FAMILY OF FUNDS
generally decrease. So, with Money Market Plus Income(SM), when
you earn higher Money Market dividends, you can generally purchase more Bond
Fund shares at lower prices. Conversely, when interest rates and Money Market
dividends decrease, Bond Fund share prices usually increase -- you will
automatically buy fewer Bond Fund shares at higher prices. Money Market Plus
Income(SM) provides investors with stability of principal, instant liquidity
through Money Market free checking ($500 minimum), telephone redemption, or NAS
NOW, and the opportunity for greater income. NOTE: Money Market Fund dividends
reinvested into one of the Bond Funds are subject to applicable sales charges.
3 AUTOMATIC ASSET ACCUMULATION(SM) -- This is a systematic investment strategy
which combines automatic monthly transfers from your personal checking account
to your mutual fund account with the concept of Dollar Cost Averaging. With this
strategy, you invest a fixed amount monthly over an extended period of time,
during both market highs and lows. Dollar Cost Averaging can allow you to
achieve a favorable average share cost over time since your fixed monthly
investment buys more shares when share prices fall during low markets, and fewer
shares at higher prices during market highs. Although no formula can assure a
profit or protect against loss in a declining market, systematic investing has
proven a valuable investment strategy in the past.
You can get started with Automatic Asset Accumulation(SM) for as little as
$25 a month (Stock Funds), or $100 a month (Bond Funds or Money Market Fund).
Another way to take advantage of the benefits that Dollar Cost Averaging can
offer is through the Money Market Plus Growth(SM) or Money Market Plus
Income(SM) investor strategies.
4 AUTOMATIC ASSET ALLOCATION(SM) -- This strategy is for investors who want to
set up an account in more than one of our Funds. This allows you to diversify
further your portfolio to accommodate your unique needs. If you set up your
account with Automatic Asset Accumulation(SM), additional investments can be
automatically allocated among the Funds based upon your initial percentage. You
must satisfy the account minimum requirements (subsequent investments) of each
Fund in which you invest. Changes to your percentage allocation can be made by
calling toll-free 1-800-848-0920.
5 AUTOMATIC ASSET TRANSFER(SM) -- This systematic investment plan is designed
especially for investors who want to invest $5,000 or more in the Stock or Bond
Funds, but not all at one time. An initial investment of $5,000 or more is made
in the Money Market Fund, then a fixed amount that you predetermine is
transferred systematically monthly or quarterly into another Fund ($50 minimum
transfer, $100 minimum for the Bond Funds). The money is transferred on the 25th
day of the month or on the business day preceding the 25th day. This strategy
can provide investors with the benefits of Dollar Cost Averaging through an
opportunity to achieve a favorable average share cost over time. With this plan,
your fixed monthly or quarterly transfer from the Money Market to any Fund you
select buys more shares when share prices fall during low markets and fewer
shares at higher prices during market highs. Although no formula can assure a
profit or protect against loss in a declining market, systematic investing has
proven a valuable investment strategy in the past.
Those who have a more conservative outlook on investing can transfer smaller
sums monthly and spread the transfer of assets into another Fund over a longer
period of time, while those with a more aggressive outlook can transfer larger
sums over a shorter period. Either way, you receive the added benefits of
current rates paid on the portion of your investment in the Money Market, along
with the stability offered by the Money Market's fixed share price.
6 AUTOMATIC WITHDRAWAL PLAN(SM) ($50 OR MORE) -- You may have checks for any
fixed amount of $50 or more automatically sent bi-monthly, monthly, quarterly,
three times/year, semi-annually or annually, to you (or anyone you designate)
from your account.
NOTE: If your monthly withdrawals exceed the monthly dividends from your
account, you will be depleting principal, which will reduce your future dividend
potential.
INVESTOR PRIVILEGES
The Funds offer the following privileges to shareholders. Additional information
may be obtained by calling Nationwide Advisory Services, Inc. (NAS) toll-free at
1-800-848-0920.
1 NO SALES CHARGE ON REINVESTMENTS(SM) -- All dividends and capital gains may be
reinvested in the form of additional shares free of charge within the same Fund.
The Trust will not mail checks for dividends of less than $5. Dividends will be
reinvested in the form of additional shares, and you will receive a
confirmation.
2 EXCHANGE PRIVILEGE(SM) -- The exchange privilege is a convenient way to
exchange shares from one Fund to another Fund in order to respond to changes in
your goals or in market conditions. There is no administrative fee, exchange fee
or limit to the number of exchanges permitted. HOWEVER, AN EXCHANGE IS A SALE
AND PURCHASE OF SHARES AND, FOR FEDERAL AND STATE INCOME TAX PURPOSES, MAY
RESULT IN A CAPITAL GAIN OR LOSS. The registration of the account to which you
are making an exchange must be
21
<PAGE> 25
NATIONWIDE(R) FAMILY OF FUNDS
exactly the same as that of the Fund account from which the exchange is made,
and the amount you exchange must meet the applicable minimum investment of the
Fund being purchased. (Shares of the Fund exchanged to must be registered in the
shareholder's state of residence).
EXCHANGES AMONG THE FUNDS
Class D Shares of the Funds generally may be exchanged among any of Nationwide's
Family of Funds without sales charge.
Exchanges from the Money Market Fund to any other Fund, however, will be
subject to applicable sales charges, see "Sales Charge Schedule and Available
Discounts" on page 19.
The Trust reserves the right to change the exchange privilege upon at least
60 days written notice to the shareholder.
EXCHANGES MAY BE MADE THREE CONVENIENT WAYS:
BY TELEPHONE
NAS NOW -- You can automatically process exchanges by calling
1-800-637-0012, 24 hours a day, seven days a week. However, if you declined
the option in the application, you will not have this automatic exchange
privilege. NAS NOW also gives you quick, easy access to mutual fund
information. Select from a menu of choices to conduct transactions and hear
fund price information, mailing and wiring instructions as well as other
mutual fund information.
CUSTOMER SERVICE LINE -- By calling 1-800-848-0920, you may exchange shares
by telephone if the shares are not issued in certificate form. Requests may
be made only by the account owner(s). You must call our toll-free number by
4:00 p.m. Eastern Time to receive that day's closing share price.
NAS may record all instructions to exchange. NAS reserves the right at any
time without prior notice to suspend, limit or terminate the telephone
exchange privilege or its use in any manner by any person or class.
The funds will employ the same procedure described under "How to Sell
(Redeem) Shares" on page 18 to confirm that the instructions are genuine.
BY MAIL -- An exchange may be made by writing to Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492. Please
be sure that your letter is signed by all owners of the account and that your
account number and the Fund you wish to exchange to are included.
ALTERNATE METHODS -- In the event of significant market activity, it may be
difficult to reach NAS by telephone. If so, an investor may choose to use
alternate methods to contact NAS such as sending instructions by a special
delivery service or by facsimile (FAX) machine (614-249-8705). If you use the
FAX method, NAS reserves the right to require the original document.
3 INSURANCE PROCEEDS OR BENEFITS DISCOUNT PRIVILEGE (CLASS D SHARES) -- If the
funds used to purchase shares come from proceeds or benefits of an insurance
policy issued by any of the Nationwide Enterprise of insurance companies or
their affiliated companies, the sales charge is one-half the rate established,
provided the purchase is made within 60 days after receipt of the proceeds or
benefits.
4 LETTER OF INTENT (LOI) DISCOUNT -- This discount permits you to purchase Class
D Shares at a reduced cost during a 13-month period if the amount invested, or
the value of shares held by you and other family members of your household, plus
the amount invested (excluding investments in Nationwide Money Market Fund),
equals or exceeds $50,000. LOI is not a binding obligation upon the investor to
buy the shares. It is merely a statement of intent.
By marking the appropriate box and signing the application, you indicate
your intention to complete the appropriate LOI. The LOI will be completed when
your new investments, together with the value of all existing shares held by
you, your spouse, minor children, and other family members of your household,
total an amount equal to the amount checked on the application. You obtain a
reduced sales charge on each share purchased during the 13-month period. The LOI
may be backdated, up to 90 days, to include previous purchases under the reduced
sales charge available under the LOI.
If the intended investment is not completed, the investor will be asked to
pay the difference between the sales charge actually paid and the sales charge
due on the amount invested according to the "Sales Charge Schedule," page 19. If
the difference is not paid within 20 days after written request, the investor
irrevocably constitutes and appoints NAS as their attorney-in-fact, with full
power of substitution, to redeem an appropriate number of shares from their
account to cover the amount due. For more details on the LOI Discount, call
1-800-848-0920.
5 NET ASSET VALUE PURCHASE PRIVILEGE (CLASS D SHARES ONLY) -- The sales charge
applicable to Class D shares may be waived for the following purchases: (1)
shares sold through institutional sales to other registered investment companies
affiliated with Nationwide Advisory Services, Inc., (2) Class D Shares issued on
transfer of investments within Class D to another Fund (see "Exchange
Privilege," page 21), and (3) sales which may be made (a) to any pension, profit
sharing, or other employee benefit plan for the employees of NAS, any of its
affiliated companies, or investment advisory clients and their
22
<PAGE> 26
NATIONWIDE(R) FAMILY OF FUNDS
affiliates, (b) to Trustees and retired Trustees of NIF III (including its
predecessor Trusts); directors, officers, full-time employees, sales
representatives and their employees, and retired directors, officers, employees,
and sales representatives, their spouses, children or immediate relatives, and
immediate relatives of deceased employees (immediate relatives include mother,
father, brothers, sisters, grandparents, grandchildren) of any of the Nationwide
Enterprise Companies or their affiliates, or any investment advisory clients of
NAS and their affiliates, (c) to directors, officers and full-time employees,
their spouses, children or immediate relatives, and immediate relatives of
deceased employees (immediate relatives include mother, father, brothers,
sisters, grandparents, grandchildren) of any sponsor group which may be
affiliated with the Nationwide Enterprise Companies from time to time, which
include but are not limited to Farmland Industries, Inc., Maryland Farm Bureau,
Inc., Ohio Farm Bureau Federation, Inc., Pennsylvania Farmers' Association,
Ruralite Services, Inc., and Southern States Cooperative, (d) any endowment or
non-profit organization, (e) any pension, profit sharing, or deferred
compensation plan which is qualified under section 401(a), 403(b) or 457 of the
Internal Revenue Code of 1986 as amended, dealing directly with the Distributor
with no sales representative involved, at net asset value, upon written
assurance of the purchaser that the shares are acquired for investment purposes
and will not be resold except to the Trust, (f) any life insurance company
separate account registered as a unit investment trust, and (g) any qualified
pension or profit sharing plan established by a Nationwide sales representative
for himself/herself and his/her employees.
6 NO SALES CHARGE ON A REPURCHASE -- If you redeem all or part of your Class D
Shares for which you paid sales charges, you have a one-time privilege to
reinvest all or part of the redemption proceeds in any of the Class D Shares
without a sales charge, within 30 days after the effective date of the
redemption.
If you realize a gain on your redemption, the transaction is taxable and
reinvestment will not alter any capital gains tax payable. If you realize a loss
and you use the reinstatement privilege, some or all of the loss will not be
allowed as a tax deduction depending upon the amount reinvested.
7 FREE CHECKING ACCOUNT PRIVILEGE (MONEY MARKET FUND ONLY) -- You may request a
supply of free checks for your personal use and there is no monthly service fee.
You may use them to make withdrawals of $500 or more from your account at any
time. Your account will continue to earn daily income dividends until your check
clears your account. There is no limit on the number of checks you may write.
Cancelled checks will not be returned to you. However, your monthly statement
will provide the check number, date and amount of each check written. You will
also be able to obtain copies of cancelled checks by contacting one of our
service representatives at 1-800-848-0920.
INVESTOR SERVICES
1 NAS NOW AUTOMATED VOICE RESPONSE SYSTEM -- Our toll-free number 1-800-637-0012
will connect you 24 hours a day, seven days a week to NAS NOW, our new automated
voice response system. Through a selection of menu options, you can conduct
transactions, hear fund price information, mailing and wiring instructions and
other mutual fund information.
2 TOLL-FREE INFORMATION AND ASSISTANCE -- Customer service representatives are
available to answer questions regarding the Funds and your account(s) between
the hours of 8 A.M. and 5 P.M. Eastern Time. Call toll-free: 1-800-848-0920. Or
contact NAS at our FAX telephone number (614) 249-8705.
3 RETIREMENT PLANS (NOT AVAILABLE WITH THE TAX-FREE INCOME FUND) -- Shares of
the Funds may be purchased for Self-Employed Retirement Plans, Individual
Retirement Accounts (IRAs), Simplified Employee Pension Plans, Corporate Pension
Plans, Profit Sharing Plans and Money Purchase Plans. For a free information
kit, call 1-800-848-0920.
4 MUTUAL FUND GIFT CERTIFICATES -- Gift Certificates may be purchased for
special occasions such as birthdays, graduations, weddings and as appreciation
gifts. NOTE: Respective minimum initial and subsequent purchase amounts must be
met when using gift certificates to open new accounts. Contact one of our
service representatives at 1-800-848-0920 for complete details and instructions.
5 SHAREHOLDER CONFIRMATIONS -- You will receive a confirmation statement each
time a requested transaction is processed. However, no confirmations are mailed
on certain pre-authorized, systematic transactions. Instead, these will appear
on your next consolidated statement.
6 CONSOLIDATED STATEMENTS -- Shareholders of the Stock Funds receive quarterly
statements as of the end of March, June, September and December. Shareholders of
the Bond and Money Market Funds receive monthly statements. Please review your
statement carefully and notify us immediately if there is a discrepancy or error
in your account.
For shareholders with multiple accounts, your consolidated statement will
reflect all your current holdings in the Funds. Your
23
<PAGE> 27
NATIONWIDE(R) FAMILY OF FUNDS
accounts are consolidated by social security number and zip
code. Accounts in your household under other social security numbers may be
added to your statement at your request. Depending on which Funds you own, your
consolidated statement will be sent either monthly or quarterly. Only
transactions during the reporting period will be reflected on the statements. An
annual summary statement reflecting all calendar-year transactions in all your
Funds will be sent after year-end.
7 AVERAGE COST STATEMENT -- This statement may aid you in preparing your tax
return and in reporting capital gains and losses to the IRS. If you redeemed any
shares during the calendar year, a statement reflecting your taxable gain or
loss for the calendar year (based on the average cost you paid for the redeemed
shares) will be mailed to you following each year-end. Average cost can only be
calculated on accounts opened on or after January 1, 1984. Fiduciary accounts
and accounts with shares acquired by gift, inheritance, transfer, or by any
means other than a purchase cannot be calculated.
Average cost is one of the IRS approved methods available to compute gains
or losses. You may wish to consult a tax advisor on the other methods available.
The information on your average cost statement will not be provided to the IRS.
If you have any questions, contact one of our service representatives at
1-800-848-0920.
8 SHAREHOLDER REPORTS -- All shareholders will receive reports semi-annually
detailing the financial operations of the funds.
9 PROSPECTUSES -- Updated prospectuses will be mailed to you annually.
10 UNDELIVERABLE MAIL -- If mail from NAS to a shareholder is returned as
undeliverable on two or more consecutive occasions, NAS will not send any future
mail to the shareholder unless it receives notification of a correct mailing
address for the shareholder. Any dividends that would be payable by check to
such shareholders will be reinvested in the shareholder's account until NAS
receives notification of the shareholder's correct mailing address.
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.
INVESTMENT MANAGEMENT
Under the terms of the Investment Management Agreement, NAS, Three Nationwide
Plaza, Columbus, Ohio 43215, manages the investment of the assets 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 owned by
Nationwide Financial Services, Inc. (NFS). NFS, a holding company, has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all outstanding Class B Common Stock) to
control NFS. Nationwide Corporation is also a holding Company in the Nationwide
Enterprise. All of the Common Stock of Nationwide Corporation is held by
Nationwide Mutual Insurance Company (95.3%) and Nationwide Mutual Fire Insurance
Company (4.7%), each of which is a mutual company owned by its policyholders.
The Funds pay NAS fees based on average daily net assets of each Fund at the
following annual rates:
<TABLE>
<CAPTION>
FUND ASSETS FEE
- ------------------------------- ----------------------- ----
<S> <C> <C>
Nationwide Mid Cap Growth, up to $250 Mill. .60%
$250 Mill. up to $1
Nationwide Growth, Nationwide Bill. .575%
Fund $1 Bill. up to $2 Bill. .55%
$2 Bill. up to $5 Bill. .525%
$5 Bill. and more .50%
Nationwide Bond, Nationwide up to $250 Mill. .50%
Tax-Free Income, Nationwide $250 Mill. up to $1 Bill. .475%
Long-Term U.S. Government $1 Bill. up to $2 Bill. .45%
Bond, Nationwide Intermediate $2 Bill. up to $5 Bill. .425%
U.S. Government Bond $5 Bill. and more .40%
Nationwide Money up to $1 Bill. .40%
Market Fund $1 Bill. up to $2 Bill. .38%
$2 Bill. up to $5 Bill. .36%
$5 Bill. and more .34%
</TABLE>
OTHER SERVICES
Under the terms of a Fund Administration Agreement, NAS also provides various
administrative and accounting services, including daily valuation of the Funds'
shares and preparation of financial statements, tax returns, and regulatory
reports. For these services, each Fund pays NAS an annual fee based on each
Fund's average daily net assets in the amount of 0.07% up to $250 million in
assets, 0.05% on the next $750 million and 0.04% on assets of $1 billion and
more.
TRANSFER AND DIVIDEND DISBURSING AGENT
NAS, through its wholly-owned subsidiary, Nationwide Investors Services, Inc.
(NISI), serves as transfer agent and dividend
24
<PAGE> 28
NATIONWIDE(R) FAMILY OF FUNDS
disbursing agent for the Trust. For these services, NAS receives an annual per
account fee from each of the Funds; $16 per Stock Fund account, $18 per Bond
Fund account and $27 per Money Market Fund account.
DISTRIBUTIONS AND TAXES
INCOME DIVIDENDS AND CAPITAL GAINS
Substantially all of the net investment income, if any, will be paid to
shareholders quarterly by the Stock Funds and at the end of each month by the
Bond and Money Market funds. Checks will not be mailed for dividends of less
than $5. These dividends will be reinvested in the form of additional shares and
you will receive a confirmation showing the transaction.
In those years in which sales of a Fund's portfolio securities result in net
realized capital gains, these gains will be declared and cause to be paid to
shareholders in December.
FEDERAL TAXES
Each of the Funds intends to qualify for treatment under subchapter M of the
Internal Revenue Code of 1986, as amended, (the "Code") and, therefore, must
distribute all or substantially all net investment income and capital gains to
shareholders annually. In general, if a Fund distributes all of its net
investment income, it is not required to pay any federal income taxes. In
addition to federal income tax, if a Fund fails to distribute the required
portion of investment income or capital gains in any year, it will be subject to
a non-deductible 4% excise tax on the amount which it failed to distribute. Each
Fund intends to make distributions in sufficient amounts to avoid the imposition
of this excise tax.
Dividends paid by each of the Funds (with the exception of the Tax-Free
Income Fund) are taxable as income to the shareholder for federal income tax
purposes. For corporate shareholders, a portion of each year's distribution may
be eligible for the corporate dividend received deduction.
Dividends paid by the Tax-Free Income Fund will be exempt from federal
income tax to the extent that the income of the Fund is derived from bonds that
qualify for such exemption. Some portion of the income from the Tax-Free Income
Fund may be taxable annually. The taxable portion of each distribution will be
based on the ratio, each year, between the Fund's taxable income and total
income. This ratio shall be determined within 60 days following the close of the
taxable year. The annual ratio may differ significantly from the ratio for the
period actually covered by each distribution.
The Taxpayer Relief Act of 1997 has substantially changed the manner in
which the income tax on net long-term capital gains is computed for individuals.
For corporations, net long-term capital gains are taxed at the same rates as
ordinary income. The following is a summary of the new rules for the taxation of
net long-term capital gains, which are applicable to individuals but not
corporations for sales and exchanges after May 6, 1997.
For investments held for more than 18 months (12 months if the investment
was sold after May 6 and before July 29, 1997), the top net long-term capital
gain rate is 20%. For taxpayers who are in the 15% regular tax bracket for 1997,
the top net long-term capital gain rate is 10%.
Commencing with sales after July 28, 1997, gain from assets that are held
for more than 12 months but not more than 18 months is treated as mid-term gain.
The top tax rate for mid-term gain is 28%.
If the investor's regular tax rate is lower than the top long-term capital
gain rate, the tax is computed using the regular tax rates.
The Funds will annually report to each shareholder that shareholder's
portion of the net income and capital gain of each Fund, for inclusion in the
shareholder's income.
Individual and corporate shareholders may be subject to the Alternative
Minimum Tax ("AMT") if their Alternative Minimum Taxable Income ("AMTI") exceeds
the exemption amounts set forth in Section 55 of the Code. The AMT, at rates as
high as 28% for individuals and 20% for corporations, is reduced by the regular
tax due for the year. AMTI is the taxpayer's taxable income for the year for
regular tax purposes, increased by the tax preferences described in Section 57
of the Code and adjusted as described in Section 56 of the Code. Preferences
include interest from Specified Private Activity Bonds, as defined in Section 57
(a) (5) (C) of the Code. Bonds of this type may be held by one or more of the
Funds from time to time.
A shareholder may be subject to federal backup withholding at a rate of 31%
of each distribution if the shareholder fails to certify that the taxpayer
identification number given is correct and that the shareholder is not subject
to such withholding because of underreporting of income (or if the Internal
Revenue Service gives notice that such certifications are not accurate).
STATE AND LOCAL TAXES
Distributions to shareholders of the Funds may be subject to state and local
taxes, even if not subject to Federal income taxes. These laws vary, and you are
advised to consult a tax adviser regarding such taxes.
REDEMPTIONS OF SHARES
Redeeming shares may result in a capital gain or loss for tax purposes. For your
convenience, NAS provides a year-end statement, reflecting your taxable gain or
loss for the year based
25
<PAGE> 29
NATIONWIDE(R) FAMILY OF FUNDS
on the average cost paid for redeemed shares (see "Average Cost Statement," page
25.)
TAX ADVANTAGES OF THE
TAX-FREE INCOME FUND
The yield on taxable securities is normally higher than on tax-exempt securities
of comparable quality and maturity. However, you can determine whether a
tax-free investment provides a higher after-tax yield or return than an
investment subject to tax by using the following formula:
<TABLE>
<C> <C> <S>
Tax-Free Yield What you must earn
- ----------------------- = on a taxable investment
100%--[Your Tax Rate] to equal this tax-free yield
</TABLE>
By using current tax-free yields and your own tax rate in the formula above,
you can make an informed investment decision. This formula will not be
applicable if you are subject to the Alternative Minimum Tax.
The tables on the following page show the advantages of investing in
tax-exempt obligations for those individuals in higher tax brackets. Taxable
yields are compared to equivalent tax-free yields. The first table is based on
the maximum marginal tax rates currently in effect under the Internal Revenue
Code for the 1997 tax year at various levels of taxable income.
For example, if you file a joint return with an adjusted gross income of
$50,000, you are in the 28% tax bracket. A 5% tax-free yield would be equivalent
to an 6.9% taxable yield for you.
Over the long term, the effect of tax-free investing is significant. With
the Tax-Free Income Fund, dividends can be automatically reinvested and allowed
to accumulate on a tax-free basis. You can see this advantage in the "How a
$20,000 Investment Grows at 5% Tax-Free vs. 5% Taxable" table below:
TAX-EQUIVALENT YIELDS BASED ON INCOME, TAX RATE, AND TAX-FREE YIELD
<TABLE>
<CAPTION>
TAX-FREE YIELD
TAXABLE INCOME* 1997 MARGINAL FEDERAL ---------------------------------------------------------
JOINT RETURN SINGLE RETURN INCOME TAX RATE 4% 4.5% 5% 5.5% 6% 6.5% 7% 7.5% 8%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - 41,200 $0 - 24,650 15% 4.7 5.3 5.9 6.5 7.1 7.6 8.2 8.8 9.4
$41,200 - 99,600 $24,650 - 59,750 28% 5.6 6.3 6.9 7.6 8.3 9.0 9.7 10.4 11.1
$99,600 - 151,750 $59,750 - 124,650 31% 5.8 6.5 7.2 8.0 8.7 9.4 10.1 10.9 11.6
$151,750 - 271,050 $124,650 - 271,050 36% 6.3 7.0 7.8 8.6 9.4 10.2 10.9 11.7 12.5
Over $271,050 Over $271,050 39.6% 6.6 7.5 8.3 9.1 9.9 10.8 11.6 12.4 13.2
</TABLE>
* Net amount after exemptions and deductions.
HOW A $20,000 INVESTMENT GROWS AT 5% TAX-FREE VS. 5% TAXABLE**
<TABLE>
<CAPTION>
1997 5 YEARS 10 YEARS 20 YEARS 30 YEARS
TAX -------------------- -------------------- -------------------- --------------------
BRACKET TAXABLE TAX-FREE TAXABLE TAX-FREE TAXABLE TAX-FREE TAXABLE TAX-FREE
- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15% $24,627 $25,525 $30,324 $32,578 $45,978 $53,066 $69,713 $86,439
28% $23,869 $25,525 $28,486 $32,578 $40,572 $53,066 $57,786 $86,439
31% $23,696 $25,525 $28,076 $32,578 $39,413 $53,066 $55,328 $86,439
36% $23,412 $25,525 $27,405 $32,578 $37,551 $53,066 $51,454 $86,439
39.6% $23,208 $25,525 $26,931 $32,578 $36,263 $53,066 $48,829 $86,439
</TABLE>
** Rates are compounded daily, and taxes are assumed to be paid once a year. The
information contained in the above chart is not a projection or guarantee of the
Fund's performance. It is only a general comparison of two investments: one
taxable and one tax-exempt. The Fund's performance may not duplicate the chart
results. The percentage return figures were chosen arbitrarily and are not a
forecast of future results.
26
<PAGE> 30
NATIONWIDE(R) FAMILY OF FUNDS
PERFORMANCE ADVERTISING
FOR THE FUNDS
FUND PERFORMANCE ADVERTISING
The Funds may use historical performance in advertisements, sales literature,
semi-annual and annual reports and the prospectus. Such figures will include
quotations of average annual (compound) total return for the most recent one,
five, and ten-year periods (or the life of the Fund if less). Average annual
(compound) total return represents the average annual percentage change in the
value of an investment for the specified periods assuming a redemption of the
investment at the end of such periods. It reflects the changes in share price
and assumes reinvestment of all dividends and distributions at net asset value.
Average annual (compound) total return reflects the effect of maximum sales
charges.
The Funds may also choose to show nonstandard returns including total return
and simple average total return. Nonstandard returns may or may not reflect
reinvestment of all dividends and capital gains. In addition, sales charge
assumptions will vary. Initial sales charge percentages decrease as amounts
invested increase, as outlined on page 19 of this prospectus, therefore, returns
increase as sales charges decrease.
Total return represents the cumulative percentage change in the value of an
investment over time, calculated by subtracting the original investment from the
redeemable value and dividing the result by the original amount of the
investment. The simple average total return is calculated by dividing total
return by the number of years in the period, and unlike average annual
(compound) total return, does not reflect compounding.
The Bond Funds may advertise their SEC yields. The SEC yield is based on a
30-day period. This yield takes into account the yields to maturity on all debt
instruments and all dividends accrued on equity securities, since equity
securities do not have maturity dates. The SEC yield is computed by dividing the
net investment income per share earned during the 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). 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 Money Market's effective
yield represents a compounding on an annualized basis of the current yield
quotations.
RANKINGS AND RATINGS IN FINANCIAL PUBLICATIONS
The Funds may report their performance relative to other mutual funds or
investments. The performance comparisons are made to: other mutual funds with
similar objectives; other mutual funds with different objectives; or, to other
sectors of the economy. Other investments which the Funds may be compared to
include, but are not limited to: precious metals; real estate; stocks and bonds;
closed-end funds; market indexes; fixed-rate, insured bank CDs, bank money
market deposit accounts and passbook savings; and the Consumer Price Index.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's,
Schabaker Investment Management, Kanon Bloch Carre & Co.; magazines such as
Money, Fortune, Forbes, Kiplinger's Personal Finance Magazine, Smart Money,
Mutual Funds, Worth, Financial World, Consumer Reports, Business Week, Time,
Newsweek, U.S. News and World Report; and other publications such as the Wall
Street Journal, Barron's, Columbus Dispatch, Investor's Business Daily, and
Standard & Poor's Outlook.
The rankings may or may not include the effects of sales charges.
ADDITIONAL INFORMATION
STATEMENTS OF ADDITIONAL
INFORMATION
This document containing more information on the Funds, is filed with the
Securities and Exchange Commission. Free copies may be obtained from NAS upon
request (see "Shareholder Inquiries," page 29).
DESCRIPTION OF SHARES
The assets of each Fund are segregated, and you have an interest only in the
assets of the class in which you own shares. Shares of a particular class are
equal in all respects to the other shares of that class and in the event of
liquidation of the Fund will share pro rata in the distribution of the net
assets of such Fund. All shares are without par value and fully paid,
nonassessable, transferable, and redeemable. There are no preemptive rights.
VOTING RIGHTS
Shareholders of each class of shares have one vote for each share held. Voting
rights cover to the extent provided in the Declaration of Trust and by
applicable law, the Investment Management Agreement, election of Trustees,
reorganization of
27
<PAGE> 31
NATIONWIDE(R) FAMILY OF FUNDS
the Trust, or any Series or Class, merger, consolidation or sale of assets as a
whole, change of fundamental investment objectives, investment policies,
investment restrictions, amendment of the Declaration of Trust, and to the same
extent as shareholders of an Ohio business corporation as to whether or not
court action, proceeding or claim should or should not be brought or maintained,
and other business matters. In regard to termination, sale of assets, or change
of investment objectives, policies and restrictions (NIF only), the right to
vote is limited to the holders of shares of the particular class affected by the
proposal.
SHAREHOLDER INQUIRIES
Inquiries regarding the Funds should be directed to Nationwide Advisory
Services, Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio
43216-1492, or call 1-800-848-0920.
28
<PAGE> 32
NATIONWIDE INVESTING
FOUNDATION III FUNDS:
Mid Cap Growth Fund
Growth Fund
Nationwide Fund
Bond Fund
Tax-Free Income Fund
Long-Term U.S. Government Bond Fund
Intermediate U.S. Government Bond Fund
Money Market Fund
NATIONAL DISTRIBUTOR AND
INVESTMENT MANAGER
Nationwide Advisory Services, Inc.
P.O. Box 1492
Three Nationwide Plaza
Columbus, Ohio 43216-1492
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215-2537
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Nationwide Advisory Services, Inc.
(Through its wholly owned subsidiary,
Nationwide Investors Services, Inc.)
LEGAL COUNSEL
Druen, Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215-2220
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263-0001
29
<PAGE> 33
Nationwide(R) and LOGO are registered Federal
Service marks of the Nationwide Mutual Insurance
Company.
30
<PAGE> 34
PROSPECTUS
December ______, 1997
LOCAL FUND SHARES
NATIONWIDE S&P 500 INDEX FUND
Nationwide S&P 500 Index Fund (the "Fund") is a non-diversified portfolio of
Nationwide Investing Foundation III (the "Trust"). The Trust is an open-end
management investment company organized as a business trust under the laws of
the State of Ohio, by a Declaration of Trust dated October 30, 1997. The Trust
currently offers shares in nine additional separate portfolios or series, each
with its own investment objective. This Prospectus relates only to the
Nationwide S&P 500 Index Fund. The shares of the Fund are sold to other open-end
investment companies created by Nationwide Advisory Services, Inc., ("NAS" or
the "Adviser"), 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. Certain annuity contracts are offered to
governmental entities as an investment option under their deferred compensation
plans.
The Fund's investment objective is to provide investment results that correspond
to the price and yield performance of publicly traded common stocks as
represented by the Standard and Poor's 500 Composite Stock Price Index (the
"Index"). The Fund attempts to be fully invested at all times in the stocks that
comprise the Index.
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 December ____, 1997 has been filed
with the Securities and Exchange Commission. You may obtain a copy without
charge by calling (800) ___-____, or writing Nationwide Advisory Services, Three
Nationwide Plaza, Columbus, Ohio 43215.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION FOR THE TRUST DATED
DECEMBER 1, 1997, IS INCORPORATED HEREIN BY REFERENCE.
1
<PAGE> 35
SALE OF FUND SHARES
Shares of the Fund may be sold to to other open-end investment companies (each a
"Fund of Funds") created by NAS, as well as well as 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. The Accounts purchase shares of the Fund in accordance with variable
account allocation instructions received from the owners of the Contracts. The
Fund then uses the proceeds to buy securities for its portfolio. Each Fund of
Funds and Account, as a shareholder, has an ownership interest in the Fund's
investments. The Fund also offers to buy back (redeem) its shares from the Fund
of Funds or the Accounts at any time at net asset value.
SUMMARY OF EXPENSES
Shareholder Transaction Expenses None
Estimated Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .13%
12b-1 Fees .07%
Other Expenses(1) .10%
Administrative Fees 0.05%
-----
Estimated Total Operating Expenses(2) .35%
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.
Example:
1 YEAR 3 YEARS
------ -------
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. $ 4 $ 11
- ----------------------------------
(1) "Other Expenses" are based upon estimates for the current fiscal year.
(2) Until further written notice to Shareholders, the Adviser has agreed with
the Trust to waive management fees or to reimburse expenses incurred by the Fund
to the extent necessary to limit the total expense ratio of the Fund to a
maximum of .35% of the average net assets of the Fund.
2
<PAGE> 36
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
For more information on Fund expenses, see"MANAGEMENT OF THE TRUST" below.
FINANCIAL HIGHLIGHTS
Financial highlights are not available for the Fund, because the Fund has not
yet commenced operations.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide investment results that correspond
to the price and yield performance of publicly traded common stocks, as
represented by the Standard & Poor's 500 Composite Stock Price Index.***
The Fund attempts to duplicate the investment results of the Index, which is
composed of 500 selected common stocks, most of which are listed on the New York
Stock Exchange. Standard & Poor's ("S&P") chooses the stocks to be included in
the Index solely on a statistical basis. The Fund attempts to be fully invested
at all times in the stocks that comprise the Index and stock index futures as
described below, and in any event, at least 80% of the Fund's net assets will be
so invested. Inclusion of a stock in the Index in no way implies an opinion by
S&P as to its attractiveness as an investment. The Fund uses the Index as the
standard performance comparison because it represents approximately 70% of the
total market value of all common stocks and is well known to investors. An
investment in the Fund involves risks similar to those of investing in stocks,
i.e., the possibility that stock prices in general will decline over short or
even extended periods of time.
The weightings of stocks in the Index are based on each stock's relative total
market capitalization; that is, its market price per share times the number of
shares outstanding. Because of this weighting, as of _____________________,
approximately ____% of the Index was composed of the 50 largest companies. The
Fund's subadviser generally select stocks for the Fund's portfolio in the order
of their weightings in the Index beginning with the heaviest weighted stocks.
With respect to the Fund's assets invested in the stocks in the Index, the
percentage of such assets invested in each stock is approximately the same as
the percentage it represents in the Index.
No attempt is made to manage the Fund in the traditional sense using economic,
financial and market analysis. The Fund is managed using a computer program to
determine which stocks are to be purchased or sold to replicate the Index to the
extent feasible. From time to time, administrative
- ------------------------------
*** "Standard & Poor's 500," "S&P 500(R)" are trademarks of The
McGraw-Hill Companies. The Fund is not sponsored, endorsed,
sold or promoted by S&P or The McGraw-Hill Companies, Inc.
3
<PAGE> 37
adjustments may be made in the Fund's portfolio because of changes in the
composition of the Index, but such changes should be infrequent.
The Fund believes that the indexing approach described above is an effective
method of substantially duplicating percentage changes in the Index. It is a
reasonable expectation that there will be a close correlation between the Fund's
performance and that of the Index in both rising and falling markets. The Fund
will attempt to achieve a correlation between the performance of its portfolio
and that of the Index of at least 0.95, without taking into account expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the Fund's net asset value, including the value of its dividends and
capital gains distributions, increases or decreases in exact proportion to
changes in the Index. The Fund's ability to correlate its performance with the
Index, however may be affected by, among other things, changes in securities
markets, the manner in which the Index is calculated by S&P and the timing of
purchases and redemptions. In the future, the Trust's Board of Trustees may
select another index if such a standard of comparison is deemed to be more
representative of the performance of common stocks.
The Fund's ability to duplicate the performance of the Index also depends to
some extent on the size of the Fund's portfolio and the size of cash flows into
and out of the Fund. Investment changes to accommodate these cash flows are made
to maintain the similarity of the Fund's portfolio to the Index to the maximum
practicable extent.
From time to time to increase its income, the Fund may lend securities from its
portfolio. When the Fund has cash reserves, the Fund may invest in money market
instruments consisting of U.S. government securities, time deposits,
certificates of deposit, bankers' acceptances, high-grade commercial paper, and
repurchase agreements. See the Statement of Additional Information for a
description of these instruments. The Fund also may purchase stock index futures
in anticipation of taking a market position when, in the opinion of the Fund's
subadviser, available cash balances do not permit an economically efficient
trade in the cash market. The Fund also may sell (write) stock index futures to
terminate existing positions it may have as a result of its purchases of stock
index futures. See also "INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS"
below.
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
The Adviser provides investment management evaluation services to the Fund in
initially selecting and monitoring on an ongoing basis the performance of a
subadviser to manage the Fund's portfolio. The Adviser has selected The Dreyful
Corporation to be the subadviser (the "Subadviser") of the Fund. See "MANAGEMENT
OF THE TRUST - MANAGEMENT OF THE FUND-THE SUBADIVSER" below for further
information.
4
<PAGE> 38
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
GENERAL - The Fund's net asset value per share should be expected to fluctuate.
Investors should consider the Fund as a supplement to an overall investment
program and should invest only if they are willing to undertake the risks
involved.
EQUITY SECURITIES - Equity securities fluctuate in value, often based on factors
unrelated to the value of the issuer of the securities, and such fluctuations
can be pronounced. Changes in the value of the Fund's investments will result in
changes in the value of its shares and thus the Fund's total return to
investors.
FOREIGN SECURITIES - Since the stocks of some foreign issuers are included in
the Index, the Fund's portfolio may contain securities of such foreign issuers
which may subject the Fund to additional investment risks with respect to those
securities that are different in some respects from those incurred by a fund
which invests only in securities of domestic issuers. Such risks include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits or adoption of governmental restrictions which might
adversely affect the payment of principle and interest on the foreign securities
or restrict the payment of principal and interest to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
USE OF DERIVATIVES - The Fund may invest, to a limited extent, in derivatives
("Derivatives"). These are financial instruments which derive their performance,
at least in part, from the performance of an underlying asset or index. The
Derivatives the Fund may use include stock index futures. While Derivatives can
be used effectively in furtherance of the Fund's investment objective, under
certain market conditions, they can increase the volatility of the Fund's net
asset value, can decrease the liquidity of the Fund's portfolio and make more
difficult the accurate pricing of the Fund's portfolio.
Although the Fund will not be a commodity pool, Derivatives subject the Fund to
the rules of the Commodity Futures Trading Commission which limit the extent to
which the Fund can invest in certain derivatives. The Fund may invest in stock
index futures contracts for hedging purposes without limit. However, the Fund
may not invest in such contracts for other purposes if the sum of the amount of
initial margin deposits, other than for bona fide hedging purposes, exceeds 5%
of the liquidation value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on such contracts.
BORROWING MONEY- The Fund is permitted to borrow money only for temporary or
emergency (not leveraging) purposes, in an amount up to 5% of the value of its
total assets (including the amount borrowed) valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made.
LENDING PORTFOLIO SECURITIES - the fund may lend securities from its portfolio
to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Fund
5
<PAGE> 39
continues to be entitled to payments in amounts equal to the interest, dividends
or other distributions payable on the loaned securities which affords the Fund
an opportunity to earn interest on the amount of the loaned and income on the
loaned securities' collateral. Loans of portfolio securities may not exceed 30%
of the value of the Fund's total assets, and the Fund will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of credit
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Such loans are terminable by the
Fund 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.
NON-DIVERSIFIED STATUS - The classification of the Fund as a "non-diversified"
portfolio means that the proportion of the Fund's assets that may be invested in
the securities of a single issuer is not limited by the Investment Company Act
of 1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer. The Fund is not so limited.
Since a relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, some of which may be within the same
economic sector, the Fund's portfolio may be more sensitive to the changes in
market value of a single issuer or industry. However, to meet Federal tax
requirements, at the close of each quarter the Fund may not have more than 25%
of its total assets invested in any one issuer and, with respect to 50% of total
assets, not more than 5% of its total assets invested in any one issuer. These
limitations do not apply to U.S. Government securities.
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. Unless so
required by the Trust's Declaration of Trust or By-Laws or by Ohio law, at any
given time, all of the Trustees may not have been elected by the Shareholders of
the Trust. The Trust will be managed by the Trustees in accordance with the laws
of Ohio governing business trusts. The Trustees, in turn, elect the officers of
the Trust to supervise its day-to-day operations.
MANAGEMENT OF THE FUND
THE ADVISER - Under the terms of the Investment Advisory Agreement, NAS, Three
Nationwide Plaza, Columbus, Ohio 43215, 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 evaluates and
monitors the performance of the subadviser. 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.
6
<PAGE> 40
The Adviser has applied to the Securities and Exchange Commission for an
exemptive order which, if granted, will allow the Adviser to appoint, replace or
terminate the subadviser without approval of shareholders, subject to receipt of
such an order, any change in the Subadviser will be communicated to shareholders
within 60 days of such change and all changes will be approved by the Trust's
Board of Trustees, including a majority of the Trustees who are not interested
persons of the Trust or the Adviser. The order, if granted, is intended to
facilitate the efficient operation of the Fund and afford the Trust increased
management flexibility. Prior to receiving the exemptive order, the Adviser will
not appoint, replace or terminate the Subadviser or materially amend any
subadvisory agreement without obtaining the approval of shareholders.
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 Subadviser through
quantitative and qualitative analysis as well as periodic in-person, telephonic
and written consultations with the Subadviser. The Adviser has responsibility
for communicating performance expectations and evaluations to the Subadviser and
ultimately recommending to the Trust's Board of Trustees whether the
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 Subadviser, there is no certainty
that the 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 the
Adviser a fee at the annual rate of .13% of the Fund's average daily net assets.
The Adviser may from time to time waive some or all of its investment advisory
fee or other fees. The waiver of such fees will cause the total return and yield
of the Fund to be higher than they would otherwise be in the absence of such a
waiver.
THE SUBADVISER - Subject to the supervision of the Adviser and the Board of
Trustees, the Subadviser manages the Fund's assets in accordance with the Fund's
investment objective and policies. The Subadviser shall make investment
decisions for the Fund, and in connection with such investment decisions shall
place purchase and sell orders for securities. For the investment management
services it provides to the Fund, the Subadviser receives an annual fee from the
Adviser
7
<PAGE> 41
in the following amounts:
.07% on assets up to $250 million
.06% on assets of $250 million up to $500 million
.05% on assets of $500 million up to $1 billion
.04% on assets of $1 billion and more.
Below is a brief description of the Subadviser.
THE DREYFUS CORPORATION ("DREYFUS"), 200 Park Avenue, New York, N.Y. 10166, was
formed in 1947 and registered under the Investment Advisers Act of 1940, serves
as subadviser to the Fund pursuant to a Subadvisory Agreement dated
_______________. Draftees is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation.
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan (the "Plan") under Rule 12b-1 of the
Investment Company Act of 1940 which permits the Fund to compensate the
Distributor, Nationwide Advisory Services, Inc. ("NAS") for expenses associated
with distribution of its shares. Under the Plan, the Fund pays NAS compensation
accrued daily and paid monthly at a maximum rate of .07% of the Fund's average
daily net assets. Distribution expenses paid by NAS may include the costs of
printing and mailing prospectuses and sales literature to prospective investors,
advertising, and compensation to sales personnel and broker-dealers.
OTHER SERVICES
Under the terms of the Fund Administration Agreement, the Adviser also provides
various administrative and accounting services, including daily valuation of the
Fund's shares, preparation of financial statements, tax returns and regulatory
reports. For these services, the Fund pays NAS an annual fee based on the
Fund's average daily net assets in the amount of 0.05% on assets up to $1
billion and 0.04% on assets of $1 billion and more.
The Distributor, Nationwide Advisory Services, Inc. is located at Three
Nationwide Plaza, Columbus, Ohio 43215.
The Transfer and Dividend Disbursing Agent, Nationwide Investment Services, Inc.
("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215, serves as transfer agent
and dividend disbursing agent for the Trust. The Fund pays NIS a fee for such
services at the annual rate of 0.01% of the Fund's average daily net assets. NIS
is a wholly owned subsidiary of the Adviser.
INVESTMENT IN FUND SHARES
An insurance company may purchase shares of the Fund 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, and all shares are
8
<PAGE> 42
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 addresses for each of these entities is One
Nationwide Plaza, Columbus, Ohio 43215.
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 for the Fund is determined once daily, as of the close of regular
trading on the New York Stock Exchange (generally 4:00 P.M. Eastern Time), on
each business day the New York Stock Exchange is open for regular trading, 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's Birthday, Presidents' Day, Good Friday, Memorial Day,
independence Day, Labor Day, and Thanksgiving Day. The net asset value per share
is calculated by adding the value of all securities and other assets of the
Fund, deducting its liabilities, and dividing by the number of shares
outstanding.
In determining net asset value, portfolio securities listed on national
exchanges are valued at the last sales price on the principal exchange. If the
securities are traded only in the over-the-counter market, they are valued at
the last quoted bid price. 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, if any 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:
- - when the New York Stock Exchange is closed (other than weekends and
holidays) or trading is restricted;
9
<PAGE> 43
- - 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 shareholder.
NET INCOME AND DISTRIBUTIONS
Substantially all of the net investment income, if any, of the Fund will be
declared and paid as dividends quarterly. Net realized capital gains, of the
Fund, if any, will be distributed at least annually.
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 the
Fund with each other share. The Trust reserves the right to create and issue
shares of a number of different portfolios or series. In that case, the shares
of each fund would participate equally in the earnings, dividends, and assets of
the particular portfolio or series, but shares of all funds would vote together
in the election of Trustees. Upon liquidation of a portfolio or series, its
shareholders are entitled to share pro rata in the net assets of such portfolio
or series 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 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 rights. Shares are fully paid and nonassessable. In
regard to changes in fundamental investment restrictions, the right to vote is
limited to the holders of shares of the particular portfolio or series 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
10
<PAGE> 44
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 cause each fund 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 or substantially all, of its
taxable net investment income and capital gains to shareholders; therefore it is
expected that the Fund will not be required to pay any federal income taxes on
its investment income..
Because each portfolio or series 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.
CONTENTS
Sale of Fund Shares-----------------------------------------------------------2
Summary of Expenses-----------------------------------------------------------2
Financial Highlights----------------------------------------------------------3
Investment Objective and Policies---------------------------------------------3
Investment Techniques, Considerations and Risk Factors------------------------4
Management of the Trust-------------------------------------------------------5
Investment in Fund Shares-----------------------------------------------------7
Share Redemption--------------------------------------------------------------8
Net Income and Distributions--------------------------------------------------9
11
<PAGE> 45
Additional Information--------------------------------------------------------9
Performance Advertising for the Fund-----------------------------------------10
Tax Status-------------------------------------------------------------------10
Appendix---------------------------------------------------------------------12
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 43216
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Druen, Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215
12
<PAGE> 46
PART B:
STATEMENT OF ADDITIONAL INFORMATION DECEMBER ___, 1997
NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX FUND
(together referred to as the "Stock Funds")
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
(together referred to as the "Bond Funds")
NATIONWIDE MONEY MARKET FUND
(all together the "Funds")
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 December __, 1997. The prospectuses may be obtained from
Nationwide Advisory Services, Inc. (NAS), P.O. Box 1492, Three Nationwide Plaza,
Columbus, Ohio 43216.
TABLE OF CONTENTS
General Information and History 1
Additional Information on Portfolio Instruments and Investment Policies 2
Investment Restrictions 16
Trustees and Officers of the Trust 23
Investment Advisory and Other Services 26
Brokerage Allocation 27
Purchases, Redemptions, Pricing of Shares 28
Calculating Money Market Fund Yield 30
Calculating Yield and Total Return--
Non-Money Market Funds 30
Additional Information 31
Tax Status 32
Special Meeting 33
Appendix 45
GENERAL INFORMATION AND HISTORY
Nationwide Investing Foundation III (NIF III) is an open-end investment
management company, created under the laws of Ohio by a Declaration of Trust
dated October 30, 1997.
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
The following information supplements the discussion of the Funds' investment
objectives and policies discussed in the prospectuses. The investment objectives
of each Fund are fundamental and may not be changed without shareholder
approval. The investment policy and types of permitted investments described
here may be changed without prior approval by the shareholders. There is no
guarantee that any of the Funds' investment objectives will be realized.
1
<PAGE> 47
DEBT OBLIGATIONS. Each of the Funds (except S&P 500 Index Fund) may invest in
debt obligations. Debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and
general market liquidity ("market risk"). Lower-rated securities are more likely
to react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates.
RATINGS AS INVESTMENT CRITERIA. High-quality and investment grade debt
obligations are characterized as such based on their ratings by nationally
recognized statistical rating organizations ("NRSROs"). In general, the ratings
of NRSROs represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market risk of
the securities. These ratings are used by a Fund as initial criteria for the
selection of portfolio securities. Among the factors that will be considered by
NAS are the long-term ability of the issuer to pay principal and interest and
general economic trends. The Appendix to this Statement of Additional
Information contains further information about the rating categories of NRSROs
and their significance.
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by such Fund. In addition, it is possible that an NRSRO might not change its
rating of a particular issue to reflect subsequent events. None of these events
generally will require sale of such securities, but NAS will consider such
events in determining whether the Fund should continue to hold the securities.
In addition, to the extent that the ratings change as a result of changes in
such NRSROs or their rating systems, or due to a corporate reorganization, a
Fund will attempt to use comparable ratings as standards for its investments in
accordance with its investment objective and policies.
DURATION. Duration is a measure of the expected life of a fixed income
security that was developed as a more precise alternative to the concept of the
"term of maturity." Duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure.
Most debt obligations provide interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments, the market
values of debt obligations may respond differently to changes in the level and
structure of interest rates.
Traditionally, a debt security's "term to maturity" has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any fixed income security with interest payments
occurring prior to the payment of principal,
2
<PAGE> 48
duration is always less than maturity. In general, all other things being the
same, the lower the stated or coupon rate of interest of a fixed income
security, the longer the duration of the security; conversely, the higher the
stated or coupon rate of interest of a fixed income security, the shorter the
duration of the security.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure is not properly captured by
duration in the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
MONEY MARKET INSTRUMENTS. Each Fund may invest in certain types of money market
instruments which may include the following types of instruments:
-- obligations with remaining maturities of 13 months or less issued or
guaranteed as to interest and principal by the U.S. Government, its
agencies, or instrumentalities, or any federally chartered corporation,
and for the Money Market and Bond Fund, obligations of the Canadian
government and their provinces, their agencies and instrumentalities;
-- repurchase agreements;
-- certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside the
United States (Eurodollars) and subsidiaries located in Canada),
domestic branches of foreign banks (Yankees dollars), savings and loan
associations and similar institutions;
-- commercial paper, which are short-term unsecured promissory notes
issued by corporations in order to finance their current operations.
Generally the commercial paper will be rated within the top two rating
categories by an NRSRO, or if not rated, is issued and guaranteed as to
payment of principal and interest by companies which at the date of
investment have outstanding debt issue with a high quality rating;
-- short-term (maturity in 397 days or less) corporate obligations rated
within the top two categories by an NRSRO;
-- bank loan participation agreements representing obligations of
corporations and banks having a high quality short-term rating, at the
date of investment, and under which the Fund will look to the
creditworthiness of the lender bank, which is obligated to make payments
of principal and interest on the loan, as well as to creditworthiness of
the borrower.
MORTGAGE AND ASSET-BACKED SECURITIES - The Bond Funds may each purchase
mortgage-backed securities. In addition, the Bond Fund may invest in
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, in the case of the
Nationwide Bond Fund only, by
3
<PAGE> 49
private issuers, generally originators in mortgage loans, including savings and
loan associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities (collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. Government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement. These credit
enhancements may include letters of credit, reserve funds,
overcollateralization, or guarantees by third parties.
Private lenders or government-related entities may also create mortgage
loan pools offering mortgage-backed securities where the mortgages underlying
these securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may be shorter than was previously customary. As new types of
mortgage-backed securities are developed and offered to investors, a Fund,
consistent with its investment objective and policies, may consider making
investments in such new types of securities.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interest therein, rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
The yield characteristics of mortgage and asset-backed securities
differ from those of traditional debt obligations. Among the principal
differences are that interest and principal payments are made more frequently on
mortgage and asset-backed securities, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is lower than expected
will have the opposite effect of increasing the yield to maturity. Conversely,
if a Fund purchases these securities at a discount, a prepayment rate that is
faster than expected will increase yield to maturity, while a prepayment rate
that is slower than expected will reduce yield to maturity. Accelerated
prepayments on securities purchased by the Fund at a premium also pose a risk of
loss of principal because the premium may not have been fully amortized at the
time the principal is prepaid in full. The market for privately issued mortgage
and asset-backed securities is smaller and less liquid than the market for
government sponsored mortgage-backed securities.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA certificates also are supported by the authority of GNMA to borrow
funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States. Fannie Maes are guaranteed as to timely payment of
the principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate
4
<PAGE> 50
collection or timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities ("SMBS") are derivative multiclass mortgage securities. SMBS may be
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing. SMBS are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of SMBS will have one class
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Fund's yield
to maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in these securities even if the security is in one
of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
Each of the Bond Funds may invest in stripped mortgage-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 a Fund
failing to recover all or a portion of its investment, even though the
securities are rated investment grade.
REPURCHASE AGREEMENTS. All of the Funds may enter into repurchase agreements
with certain banks or non-bank dealers. In connection with the purchase of a
repurchase agreement by a Fund, the Fund's custodian, or a subcustodian, 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 a Fund. Repurchase agreements may be entered into with respect to
securities of the type in which the fund may invest or government securities
regardless of their remaining maturities. A Fund will require that additional
securities be deposited with its custodian if the value of the securities
purchased should decrease below resale price. Repurchase agreements involve
certain risks in the event of default or insolvency by the other party,
including possible delays or restrictions upon a Fund's ability to dispose of
the underlying securities, the risk of a possible decline in the value of
5
<PAGE> 51
the underlying securities during the period in which a Fund seeks to assert its
rights to the securities, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or part of the income from the
repurchase agreement.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each of the Funds
(except the S&P 500 Index Fund) may purchase securities on a "when-issued" or
"delayed delivery" basis (i.e., payment or delivery occurs beyond the normal
settlement date at a stated price and yield). When-issued transactions normally
settle within 45 days. The payment obligation and the interest rate, if
applicable, that will be received on when-issued securities are fixed at the
time the fund enters into the commitment to buy such securities. 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 a Fund agrees to purchase when-issued or delayed-delivery
securities, to the extent required by the SEC, the Funds custodian will set
aside permissible liquid assets equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of such Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, such Fund's liquidity and the ability of NAS to
manage it might be affected in the event its commitments to purchase
"when-issued" securities ever exceeded 25% of the value of its total assets.
Under normal market conditions, however, a Fund's commitment to purchase
"when-issued" or "delayed-delivery" securities will not exceed 25% of the value
of its total assets. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in a Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The Funds will engage in "when-issued" or "delayed delivery" transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives and policies and not for investment leverage. If the
Tax-Free Income Fund sells a "when-issued" or "delayed-delivery" security before
delivery, any gain would not be tax-exempt.
LENDING PORTFOLIO SECURITIES. Each 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 U.S. Government
securities or letters of credit issued by banks whose securities meet the
standards for investment by the Fund to be the equivalent of cash. From time to
time, the Fund may return to the borrower or a third party which is unaffiliated
with it, and which is acting as a "placing broker," a part of the interest
earned from the investment of collateral received for securities loaned.
The SEC currently requires that the following conditions must be met
whenever portfolio securities are loaned: (1) a Fund must receive from the
borrower at least
6
<PAGE> 52
100% cash collateral of the type discussed in the preceding paragraph; (2) the
borrower must increase such collateral whenever the market value of the
securities loaned rises above the level of such collateral; (3) a Fund must be
able to terminate the loan at any time; (4) a 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) a 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, a
Fund's board of 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.
SPECIAL SITUATION COMPANIES. The Mid Cap Growth Fund may invest in the
securities of "special situation companies," which include those involved in an
actual or prospective acquisition or consolidation; reorganization;
recapitalization; merger, liquidation or distribution of cash, securities or
other assets; a tender or exchange offer; a breakup or workout of a holding
company; or litigation which, if resolved favorably, would improve the value of
the company's stock. If the actual or prospective situation does not materialize
as anticipated, the market price of the securities of a "special situation
company" may decline significantly. The Mid Cap Growth Fund believes, however,
that if NAS analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, such Fund may achieve
capital growth. There can be no assurance however, that a special situation that
exists at the time the Mid Cap Growth Fund makes its investment will be
consummated under the terms and within the time period contemplated, if it is
consummated at all.
FOREIGN SECURITIES. The Mid Cap Growth Fund, Growth Fund and Nationwide Fund may
invest, directly or indirectly through the use of depository receipts, in
foreign securities. Investors in such Funds should recognize that investing in
foreign securities involves certain special considerations which are not
typically associated with investing in domestic securities. Since investments in
foreign companies will frequently involve currencies of foreign countries, and
since a Fund may hold securities and funds in foreign currencies, a 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. As non-U.S. companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and practices comparable to those applicable to domestic issuers,
there may be less publicly available information about certain foreign
securities than about domestic securities. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on United
States exchanges, although each such Fund endeavors to achieve the most
favorable net results on its 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 a Fund, may be subject
to foreign government
7
<PAGE> 53
taxes, higher custodian fees and dividend collection fees which could reduce the
yield on such securities.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. However, these foreign
withholding taxes are not expected to have a significant impact on those Funds
for which the investment objective is to seek long-term capital appreciation and
any income should be considered incidental.
Depository Receipts. As indicated in the Funds' Prospectus, the Stock
Funds may invest in foreign securities by purchasing depository receipts,
including American Depository Receipts ("ADRs") and European Depository 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
Depository 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 a 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 Stock Funds may invest in depository receipts through "sponsored"
or "unsponsored" facilities. While ADRs and EDRs issued under these two types of
facilities are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR and EDR holders and the practices
of market participants.
A depository may establish an unsponsored facility without
participation by (or even necessarily the acquiescence of) the issuer of the
deposited securities, although typically the depository requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs and EDRs generally bear all the costs of such
facilities. The depository usually charges fees upon the deposit and withdrawal
of the deposited securities, the conversion of dividends into U.S. dollars, the
disposition of non-cash distributions, and the performance of other services.
The depository of an unsponsored facility frequently is under no obligation to
pass through voting rights to ADR and EDR holders in respect of the deposited
securities. In addition, an unsponsored facility is generally not obligated to
distribute communications received from the issuer of the deposited securities
or to disclose material information about such issuer in the U.S. and thus there
may not be a correlation between such information and the market value of the
depository receipts. Unsponsored ADRs and EDRs tend to be less liquid than
sponsored ADRs and EDRs, respectively.
Sponsored ADR and EDR facilities are created in generally the same
manner as unsponsored facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the depository. The deposit
agreement sets out the rights and responsibilities of the issuer, the
depository, and the ADR and EDR holders. With sponsored facilities, the issuer
of the deposited securities generally will bear some of the costs relating to
the facility (such as dividend payment fees of the depository), although ADR and
EDR holders continue to bear
8
<PAGE> 54
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.
EURODOLLAR AND YANKEE OBLIGATIONS. Eurodollar bank obligations are
dollar-denominated certificates of deposit and time deposits issued outside the
U.S. capital markets by foreign branches of U.S. banks and by foreign banks.
Yankee bank obligations are dollar-denominated obligations issued in the U.S.
capital markets by foreign banks.
Eurodollar and Yankee bank obligations are subject to the same risks
that pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Eurodollar (and to a limited extent, Yankee) bank
obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of
dollars, from flowing across their borders. Other risks include: adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign
withholding taxes, and the expropriation or nationalization of foreign issuers.
However, Eurodollar and Yankee bank obligations held in the Money Market Fund
will undergo the same credit analysis as domestic issues in which the Money
Market Fund invests, and will have at least the same financial strength as the
domestic issuers approved for the Money Market Fund.
MUNICIPAL SECURITIES. As stated in the prospectus, the assets of the
Tax-Free Income Fund will be primarily invested in municipal securities.
Municipal securities include debt obligations issued by governmental entities to
obtain funds for various public purposes, such as the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term municipal securities if the interest paid thereon
is exempt from federal taxes including the federal alternative minimum tax.
Among other types of municipal securities, the Tax-Free Income Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Tax-Free Income Fund may invest in other types
of tax-exempt instruments, such as municipal bonds, private activity bonds, and
pollution control bonds.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing
9
<PAGE> 55
authority which provide that, if required, the federal government will lend the
issuer an amount equal to the principal of and interest on the Project Notes.
As described in the prospectus, the two principal classifications of
municipal securities consist of "general obligation" and "revenue" issues. The
Tax-Free Income Fund may also acquire "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of municipal securities, both within a particular classification
and between classifications, and the yields on municipal securities depend upon
a variety of factors, including the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Ratings represent the
opinions of an NRSRO as to the quality of municipal securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and municipal securities with the same maturity, interest rate and
rating may have different yields, while municipal securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase, an issue of municipal securities may cease to be rated
or its rating may be reduced below the minimum rating required for purchase. NAS
will consider such an event in determining whether the Tax-Free Income Fund
should continue to hold the obligation.
An issuer's obligations under its municipal securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal bankruptcy code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its municipal securities may be
materially adversely affected by litigation or other conditions.
The Tax-Free Income Fund may invest in AMT bonds. An AMT bond is an
otherwise tax-exempt municipal bond whose interest is treated as a preference
item for purposes of computing the alternative minimum tax imposed on
individuals and corporations. Specifically, private activity bonds, other than
501(c)(3) bonds issued after August 7, 1986 that are not current refundings of
pre-1986 industrial development bonds are AMT bonds. A municipal bond is
considered to be a private activity bond if more than either 5% or $5 million of
the proceeds is used to finance a loan to any person other than a governmental
unit, or 10% or more of the proceeds of the issue is used in a trade or business
of any person other than a governmental entity and more than 10% of the issue is
secured by property or payments used in a private business.
Municipal bonds that are private activity bonds will not be tax-exempt
unless they fall within the category of "qualified bonds" defined in the Tax
Code. Qualified bonds include issues for certain facilities such as airport
bonds, water and sewer service bonds, qualified single and multifamily housing
bonds, certain "small" industrial development bonds and bonds for local
furnishing of gas and electricity. Qualified bonds are also bonds for water,
solid waste facility bonds, docks and wharves issues and "enterprise zone"
bonds.
In addition to the normal risks associated with bonds, there is a
slight risk of less active secondary market for AMT bonds. In general, a larger
secondary market will exist for AM bonds when the supply of municipal bonds is
tight.
CONVERTIBLE SECURITIES. The Mid Cap Growth Fund, Growth Fund and Nationwide Fund
may invest in convertible securities to the extent described in its Prospectus.
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into or exchanged for a specified amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest normally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common stocks
but lower yields than comparable non-convertible securities, (ii) are less
subject to fluctuation in value than the underlying stock since they have fixed
income characteristics, and (iii) provide the potential for capital appreciation
if the market price of the underlying common stock increases. Most convertible
securities currently are issued by U.S. companies, although a substantial
Eurodollar convertible securities market has developed, and the markets for
convertible securities denominated in local currencies are increasing.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates
decline. The credit standing of the issuer and other factors also may have an
effect on the convertible security's
10
<PAGE> 56
investment value. The conversion value of a convertible security is determined
by the market price of the underlying common stock. If the conversion value is
low relative to the investment value, the price of the convertible security is
governed principally by its investment value. Generally, the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. A convertible security generally will sell at a premium
over its conversion value by the extent to which investors place value on the
right to acquire the underlying common stock while holding a fixed income
security.
A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption, a
Fund will be required to permit the issuer to redeem the security, convert it
into the underlying common stock, or sell it to a third party.
WARRANTS. The Mid Cap Growth Fund, Growth Fund, and Nationwide 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.
Warrants do not carry with them the right to dividends or voting rights
with respect to the securities that they entitle their holder to purchase, and
they do not represent any rights in the assets of the issuer. As a result,
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have value
if it is not exercised prior to its expiration date.
RESTRICTED, NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Each Fund may not
invest more than 15% (10% for the Money Market Fund) of its net assets, in the
aggregate, in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits maturing in more than seven
days and securities that are illiquid because of the absence of a readily
available market or legal or contractual restrictions on resale. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities, and a Fund
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. A Fund 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.
11
<PAGE> 57
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including 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.
Any such restricted securities will be considered to be illiquid for
purposes of such a Fund's limitations on investments in illiquid securities
unless, pursuant to procedures adopted by the Board of Trustees of the Trust or
NAS has determined such securities to be liquid because such securities are
eligible for resale pursuant to Rule 144A and are readily saleable.
A Fund may buy or 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 a 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.
NAS will monitor the liquidity of restricted securities in a Fund. In
reaching liquidity decisions, NAS 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).
BORROWING. Each Fund may borrow money from banks, limited by the Fund's
fundamental investment restriction to 33-1/3% of its total assets (including the
amount borrowed), and may engage in mortgage dollar roll and reverse repurchase
agreements which may be considered a form of borrowing. In addition, a Fund may
borrow up to an additional 5% of its total assets from banks for temporary or
emergency purposes. The Money Market Fund will not purchase securities when bank
borrowings exceed 5% of such Fund's total assets.
Each Fund expects that its borrowings will 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
12
<PAGE> 58
include the lender. The Funds have established a line-of-credit ("LOC") with
their custodian by which they may borrow for temporary or emergency purposes.
The Funds intend to use the LOC to meet large or unexpected redemptions that
would otherwise force a Fund to liquidate securities under circumstances which
are unfavorable to a Fund's remaining shareholders.
DERIVATIVE INSTRUMENTS. As discussed in the Prospectuses, NAS or a Subadviser
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 a Fund's portfolio
or for risk management. Derivations are financial instruments whose value and
performance are based on the value and performance of another security,
financial instrument or index.
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, and the Commodity Futures Trading Commission ("CFTC").
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 NAS's
ability to predict movements of the overall securities and currency markets,
which requires different skills than predicting changes in the prices of
individual securities. 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, as well as how similar the index is
to the portion of the Fund's assets being hedged in terms of securities
composition.
(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 a Fund entered into a short
hedge because NAS or the 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, a Fund could
suffer a loss.
(4) As described below, a 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
13
<PAGE> 59
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 a Fund's
derivative instruments, see "Additional General Tax Information" on page __.
OPTIONS. Each of the Stock Funds may purchase or write put and call
options on securities and indices, and may purchase options on foreign
currencies, and enter into closing transactions with respect to such options to
terminate an existing position. A call option gives the purchaser the right to
buy, and the writer the obligation to sell, the underlying security at the
agreed upon exercise (or "strike") price during the option period. A put option
gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the strike price during the option period. Purchasers of
options pay an amount, known as a premium, to the option writer in exchange for
the right under the option contract. Option contracts may be written with terms
which would permit the holder of the option to purchase or sell the underlying
security only upon the expiration date of the option. The initial purchase
(sale) of an option contract is an "opening transaction". In order to close out
an option position, a Fund may enter into a "closing transaction", the sale
(purchase) of an option contract on the same security with the same exercise
price and expiration date as the option contract originally opened. The purchase
of call options serves as a long hedge, and the purchase of put options serves
as a short hedge. Writing put or call options can enable a 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 of the
option, the relationship of the exercise price to the market price of the
underlying investment, and general market conditions. Options that expire
unexercised have no value. Options used by the Fund may include European-style
options, which can only be exercised at expiration. This is in contrast to
American-style options which can be exercised at any time prior to the
expiration date of the option.
14
<PAGE> 60
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a 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, a 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.
A 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 counterparty (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.
Each Stock Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Each of the
Stock Funds 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
counterparty, or by a transaction in the secondary market if any such market
exists. Although a Fund will enter into OTC options only with counterparties
that are expected to be capable of entering into closing transactions with a
Fund, there is no assurance that such 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, a Fund might be unable to close out an OTC option position
at any time prior to its expiration.
If a Fund is 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 a 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.
Each Stock 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. Unlike options on securities, index options settle in cash.
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 OTC options (other than purchased options) expose a
Fund to counter party risk. To the extent required by SEC guidelines, a Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or (2)
cash and liquid obligations with a value sufficient at all times to cover its
potential obligations to the
15
<PAGE> 61
extent not covered as provided in (1) above. A 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.
PUTS. The Tax-Free Income Fund may also acquire "puts" with respect to
municipal securities held in its portfolio. A put is a right to sell a specified
security (or securities) within a specified period of time at a specified
exercise price. The Tax-Free Income Fund may sell, transfer, or assign a put
only in conjunction with the sale, transfer, or assignment of the underlying
security or securities.
The amount payable to the Tax-Free Income Fund upon its exercise of a
"put" is normally (i) the Tax-Free Income Fund's acquisition cost of the
municipal securities (excluding any accrued interest which the Tax-Free Income
Fund paid on the acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period the Tax-Free
Income Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by the Tax-Free Income Fund to facilitate the
liquidity of its portfolio assets. Puts may also be used to facilitate the
reinvestment of the Tax-Free Income Fund's assets at a rate of return more
favorable than that of the underlying security. Puts may, under certain
circumstances, also be used to shorten the maturity of underlying variable rate
or floating rate securities for purposes of calculating the remaining maturity
of those securities.
The Tax-Free Income Fund expects that it will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Tax-Free Income Fund may
pay for puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
The Tax-Free Income Fund intends to enter into puts only with dealers,
banks, and broker-dealers which, in NAS's opinion, present minimal credit risks.
FUTURES CONTRACTS. The Stock Funds may enter into futures contracts,
including interest rate, index, and currency futures and purchase and write
(sell) related options. The purchase of futures or call options thereon can
serve as a long hedge, and the sale of futures or the purchase of put options
thereon can serve as a short hedge. Writing covered call options on futures
contracts can serve as a limited short hedge, and writing covered put options on
futures contracts can serve as a limited long hedge, using a strategy similar to
that used for writing covered options in securities. A 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. A 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. A Fund will engage in this
strategy only when NAS or a Subadviser believes it is more advantageous to a
Fund than is purchasing the futures contract.
16
<PAGE> 62
To the extent required by regulatory authorities, a 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 a Fund to trade in
futures contracts may be limited by the requirements of the Code applicable to a
regulated investment company.
A 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 a 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 a Fund's exposure to market, currency, or interest rate
fluctuations, such 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, a Fund
realizes a gain; if it is more, a Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, a Fund realizes
a gain; if it is less, a Fund realizes a loss. The transaction costs must also
be included in these calculations. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular futures contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, that Fund will continue to be required to
maintain the margin deposits on the futures contract.
No price is paid by a 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 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 a Fund at
the termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances,
17
<PAGE> 63
such as periods of high volatility, a 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 a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a 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 a 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 Funds intend 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 a 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, because it 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.
18
<PAGE> 64
FORWARD CURRENCY CONTRACTS. The Mid Cap Growth Fund, Growth Fund and Nationwide
Fund may enter into 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, a 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 a 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.
SECURITIES OF OTHER NON-AFFILIATED INVESTMENT COMPANIES. Some of the countries
in which a 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. The Funds may also invest in shares of other
non-affiliated investment companies registered under the 1940 Act. 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.
BANK OBLIGATIONS. As stated in a Fund's Prospectus, bank obligations that may be
purchased by a Fund include certificates of deposit, banker's acceptances and
fixed time deposits. A certificate of deposit is a short-term negotiable
certificate issued by a commercial bank against funds deposited in the bank and
is either interest-bearing or purchased on a discount basis. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. The borrower
is liable for payment as is the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date. Fixed time deposits are
obligations of branches of U.S. banks or foreign banks which are payable at a
stated maturity date and bear a fixed rate of interest. Although fixed time
deposits do not have a market, there are no contractual restrictions on the
right to transfer a beneficial interest in the deposit to a third party.
Bank obligations may be general obligations of the parent bank or may
be limited to the issuing branch by the terms of the specific obligations or by
government regulation.
19
<PAGE> 65
FLOATING AND VARIABLE RATE INSTRUMENTS. The Nationwide Bond, Tax-Free Income and
Money Market Fund may invest in floating and variable rate instruments. Certain
of the floating or variable rate obligations that may be purchased by these
Funds may carry a demand feature that would permit the holder to tender them
back to the issuer of the instrument or to a third party at par value prior to
maturity. Some of the demand instruments purchased by a Fund are not traded in a
secondary market and derive their liquidity solely from the ability of the
holder to demand repayment from the issuer or third party providing credit
support. If a demand instrument is not traded in a secondary market, the Fund
will nonetheless treat the instrument as "readily marketable" for the purposes
of its investment restriction limiting investments in illiquid securities unless
the demand feature has a notice period of more than seven days in which case the
instrument will be characterized as "not readily marketable" and therefore
illiquid.
The Fund's right to obtain payment at par on a demand instrument could
be affected by events occurring between the date the Fund elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument or third party providing credit support to make payment when due,
except when such demand instruments permit same day settlement. To facilitate
settlement, these same day demand instruments may be held in book entry form at
a bank other than a Fund's custodian subject to a subcustodian agreement
approved by the Fund between that bank and the Fund's custodian.
ZERO COUPON SECURITIES. The Bond Funds may invest in zero coupon securities in
accordance with investment policies described in the Prospectus.
Zero coupon securities are debt securities that pay no cash income but
are sold at substantial discounts from their value at maturity. When a zero
coupon security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Zero
coupon securities may have conversion features.
Zero coupon securities tend to be subject to greater price fluctuations
in response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.
Current federal income tax law requires the holder of a zero coupon
security acquired at a discount to accrue income with respect to these
securities prior to the receipt of cash payments. Accordingly, to avoid
liability for federal income and excise taxes, the Fund may be required to
distribute income accrued with respect to these securities and may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
20
<PAGE> 66
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of each Fund which cannot
be changed without the authorization of the majority of the outstanding shares
of the Fund for which a change is proposed.
EACH OF THE FUNDS:
- May not purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if, immediately after such purchase, more than 5%
of the Fund's total assets would be invested in such issuer or the
Fund would hold more than 10% of the outstanding voting securities of
the issuer, except that 25% or less of the Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Money Market Fund
will be deemed to be in compliance with this restriction so long as it
is in compliance with Rule 2a-7 under the 1940 Act, as such Rule may
be amended from time to time.
- 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.
- May not issue senior securities, except as permitted under the 1940
Act.
- 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.
- 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.
- May not purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of such Fund.
- 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,
21
<PAGE> 67
including loan participations, assignments and structured securities,
or (ii) by engaging in repurchase agreements.
- 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. Captive borrowing conduit, equipment
finance, premium finance, leasing finance, consumer sales finance and
other finance are considered separate industries for purposes of this
restriction. Electric, natural gas distribution, natural gas pipeline,
combined electric and natural gas, and telephone utilities are
considered separate industries for purposes of this restriction. This
limitation does not apply to securities issued by the U.S. Government
or its agencies or instrumentalities and obligations issued by state,
county or municipal governments.
The following are the non-fundamental operating policies of the Funds which may
be changed by the Board of Trustees of the Trust without shareholder approval:
Each Fund may not:
- Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
or unless it covers such short sales as required by the current 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.
- 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.
- Purchase or otherwise acquire any security if, as a result, more than
15% (10% with respect to the Money Market Fund) of its net assets
would be invested in securities that are illiquid.
- 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.
- Pledge, mortgage or hypothecate any assets owned by the Fund in excess
of 33 1/3% of the Fund's total assets at the time of such pledging,
mortgaging or hypothecating.
TRUSTEES AND OFFICERS
OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupation of the Trustees and Officers during the last five years
and their affiliations are:
22
<PAGE> 68
JOHN C. BRYANT, Trustee*, Age__
44 Faculty Place, Wilmington, Ohio
Dr. Bryant is Executive Director, Cincinnati Youth Collaborative, a partnership
of business, government, schools and social service agencies to address the
educational needs of students. He was formerly Professor of Education,
Wilmington College.
C. BRENT DEVORE, Trustee, Age__
North Walnut and West College Avenue, Westerville, Ohio
Dr. DeVore is President of Otterbein College.
SUE A. DOODY, Trustee, Age__
169 East Beck Street, Columbus, Ohio
Ms. Doody is President of Lindey's Restaurant, Columbus, Ohio. She is an active
member of the Greater Columbus Area Chamber of Commerce Board of Trustees.
ROBERT M. DUNCAN, Trustee*, Age__
1397 Haddon Road, Columbus, Ohio
Mr. Duncan is Vice President & Secretary Emeritus 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 the U.S. District Court Judge, Southern District
of Ohio.
CHARLES L. FUELLGRAF, JR., Trustee*+, Age__
600 South Washington Street, Butler, Pennsylvania
Mr. Fuellgraf is Chief Executive Officer of Fuellgraf Electric Company, an
electrical construction and engineering company. He is a Director of the
Nationwide Insurance Companies and associated companies.
THOMAS J. KERR, IV, Trustee*, Age__
4890 Smoketalk Lane, Westerville, Ohio
Dr. Kerr is President Emeritus of Kendall College. He was formerly President of
Grant Hospital Development Foundation.
DOUGLAS F. KRIDLER, Trustee, Age__
55 E. State Street, Columbus, Ohio
Mr. Kridler is President of the Columbus Association of Performing Arts.
DIMON R. MCFERSON, Trustee*+, Age__
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise.
NANCY C. THOMAS, Trustee+, Age__
10835 Georgetown Road, NE, Louisville, Ohio
Ms. Thomas is a farm owner and operator. She is also a Director of the
Nationwide Insurance Companies and associated companies.
HAROLD W. WEIHL, Trustee+, Age__
14282 King Road, Bowling Green, Ohio
Mr. Weihl is a owner and operator of Weihl Farms. He is also a Director of the
Nationwide Insurance Companies and associated companies.
DAVID C. WETMORE, Trustee, Age__
11495 Sunset Hills Rd - Suite #210, Reston, Virginia
Mr. Wetmore is the Managing Director of The Updata Group.
23
<PAGE> 69
JAMES F. LAIRD, JR., Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Laird is Vice President and General Manager of Nationwide Advisory Services,
Inc., the Distributor and Investment Manager.
CHRISTOPHER A. CRAY, Assistant Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Cray is Treasurer of Nationwide Advisory Services, Inc., the Distributor and
Investment Manager. Prior to that he was Director - Corporate Accounting of
Nationwide Insurance Enterprise.
DAVID E. SIMAITIS, Secretary
Three Nationwide Plaza, Columbus, Ohio
Mr. Simaitis is Counsel of Druen, Dietrich, Reynolds & Koogler, the Trust's
legal counsel.
+ A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act.
*Members of the Executive Committee. Mr. McFerson is Chairman. Mr. Fuellgraf is
the Alternate Member. The Executive Committee has the authority to act for the
Board of Trustees except as provided by law and except as specified in the
Trust's Code of Regulations.
All Trustees and Officers of the Trust own less than 1% of its outstanding
shares.
The Trustees receive fees and reimbursement for expenses of attending board
meetings from the Trust. The Compensation Table below sets forth the estimated
total compensation to be paid to the Trustees of the Trust for the fiscal period
ending October 31, 1998. In addition, the table sets forth the estimated total
compensation to be paid to the Trustees from all funds in the Nationwide Fund
Complex, including the predecessor investment companies to the Trust, for the
fiscal year ending October 31, 1998. Trust officers receive no compensation from
the Trust in their capacity as officers.
<TABLE>
<CAPTION>
COMPENSATION TABLE
PENSION
ESTIMATED RETIREMENT ESTIMATED ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL
COMPENSATION ACCRUED AS BENEFITS COMPENSATION
NAME OF PERSON, FROM PART OF FUND UPON FROM THE FUND
POSITION THE TRUST EXPENSES RETIREMENT COMPLEX**
<S> <C> <C> <C> <C>
John C. Bryant, Trustee $9,500 --0-- --0-- $16,500
C. Brent DeVore, Trustee 9,500 --0-- --0-- 9,500
Sue A. Doody, Trustee 9,500 --0-- --0-- 9,500
Robert M Duncan, Trustee 9,500 --0-- --0-- 16,500
Charles L. Fuellgraf, Jr, Trustee 9,500 --0-- --0-- 9,500
Thomas J. Kerr, IV, Trustee 9,500 --0-- --0-- 16,500
Douglas F. Kridler, Trustee 9,500 --0-- --0-- 9,500
Dimon R. McFerson, Trustee --0-- --0-- --0-- --0--
</TABLE>
24
<PAGE> 70
<TABLE>
<S> <C> <C> <C> <C>
Nancy C. Thomas, Trustee 9,500 --0-- --0-- 9,500
Harold W. Weihl, Trustee 9,500 --0-- --0-- 9,500
David C. Wetmore, Trustee 9,500 --0-- --0-- 9,500
<FN>
**The Fund Complex includes Trusts comprised of twenty nine investment company
portfolios.
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Under the terms of the Investment Management Agreement dated _________1997,
Nationwide Advisory Services, Inc. ("NAS") manages the investment of the assets
of the Funds in accordance with the policies and procedures established by the
Trustees.
The Adviser pays the compensation of the Trustees, and officers affiliated with
the Adviser. 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 investment advisory
facilities, and executive and supervisory personnel for managing the investments
and effecting the portfolio transactions of the Trust.
The Investment Advisory 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 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 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 in the event of its "assignment",
as defined under the 1940 Act. It may be terminated without penalty by vote of a
majority of the out standing voting securities, or by either party, on not less
than 60 days written notice. The Agreement further provides that the Adviser may
render services to others.
The Trust pays the compensation of the 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.
NAS, 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 of
the outstanding Class B common stock) to control NFS. Nationwide Corporation, is
also a holding company in the Nationwide Insurance Enterprise.
25
<PAGE> 71
For services provided under the Investment Management Agreement, NAS receives an
annual fee paid monthly based on average daily net assets of each Fund (except
the S&P 500 Index Fund) according to the following schedule:
<TABLE>
<CAPTION>
FUND ASSETS FEE
---- ------ ---
<S> <C> <C>
Nationwide Mid Cap Growth, Nationwide $0 up to $250 million .60%
Growth and Nationwide Fund $250 million up to $1 billion .575%
$1 billion up to $2 billion .55%
$2 billion up to $5 billion .525%
$5 Billion and more .50%
Nationwide Bond, Nationwide Tax-Free, $0 up to $250 million .50%
Nationwide Intermediate U.S. Government, $250 million up to $1 billion .475%
and Nationwide Long-Term U.S. Government $1 billion up to $2 billion .45%
$2 billion up to $5 billion .425%
$5 Billion and more .40%
Nationwide Money Market Fund $0 up to $1 billion .40%
$1 billion up to $2 billion .38%
$2 billion up to $5 billion .36%
$5 Billion and more .34%
</TABLE>
ADVISORY SERVICES FOR THE S&P 500 INDEX FUND
Under the terms of the Investment Advisory Agreement, NAS oversees the
investment of the assets for the S&P 500 Index Fund. Subject to the supervision
and direction of the Trustees, the Adviser also evaluates and monitors the
performance of the subadviser. 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 Subadviser through
quantitative and qualitative analysis as well as periodic in-person, telephonic
and written consultations with the Subadviser. The Adviser has responsibility
for communicating performance expectations and evaluations to the Subadviser and
ultimately recommending to the Trust's Board of Trustees whether the
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 Subadviser, there is no certainty
that the Subadviser or the Fund will obtain favorable results at any given time.
The S&P 500 Index Fund pays the Adviser a fee at the annual rate of .13% of the
Fund's average daily net assets for investment advisory services.
The Adviser may from time to time waive some or all of its investment advisory
fee or other fees. The waiver of such fees will cause the total return and yield
of the Fund to be higher than they would otherwise be in the absence of such a
waiver.
The Subadviser - Subject to the supervision of the Adviser and the Board of
Trustees, The Dreyfus Corporation manages the S&P 500 Index Fund's assets in
accordance with such Fund's investment objective and policies. The Subadviser
shall make investment decisions for the S&P 500 Index Fund, and in connection
with such investment
26
<PAGE> 72
decisions shall place purchase and sell orders for securities. For the
investment management services it provides to the Fund, the Subadviser receives
an annual fee from the Adviser in the following amounts:
.07% on assets up to $250 million
.06% on assets of $250 million up to $500 million
.05% on assets of $500 million up to $1 billion
.04% on assets of $1 billion and more.
Below is a brief description of the Subadviser.
The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New York, N.Y. 10166, was
formed in 1947 and registered under the Investment Advisers Act of 1940, serves
as subadviser to the Fund pursuant to a Subadvisory Agreement
dated_____________. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation.
DISTRIBUTION PLAN FOR THE S&P 500 INDEX FUND
The S&P 500 Index Fund has adopted a Distribution Plan (the "Plan") under Rule
12b-1 of the Investment Company Act of 1940 which permits the Fund to compensate
NAS as such Fund's Distributor, for expenses associated with distribution of its
shares. Under the Plan, the S&P 500 Index Fund pays NAS compensation accrued
daily and paid monthly at a maximum rate of .07% of the Fund's average daily net
assets. Distribution expenses paid by NAS may include the costs of marketing,
printing and mailing prospectuses and sales literature to prospective investors,
advertising, and compensation to sales personnel and broker-dealers.
OTHER SERVICES FOR ALL THE FUNDS
Under a separate Fund Administration Agreement dated ____________ 1997, NAS also
provides various administrative and accounting services, including daily
valuation of each Fund's shares and preparation of financial statements, tax
returns and regulatory reports. For these services, each Fund (except the S&P
500 Index Fund) pays NAS an annual fee in the amount of 0.07% on assets up to
$250 million of average daily net assets, 0.05% on the next $750 million and
0.04% on assets of $1 billion and more. The S&P 500 Index Fund pays NAS an
annual fee in the amount of 0.05% on assets up to $1 billion and 0.04% on assets
of $1 billion and more. The S&P 500 Index Fund pays NAS an annual fee in the
amount of 0.05% on assets up to $1 billion and 0.04% on assets of $1 billion
and more.
Nationwide Investors Services, Inc. (NIS) is the Transfer and Dividend
Disbursing Agent for all Nationwide Funds. NIS, a wholly-owned subsidiary of NAS
will receive fees for transfer agent services in the following amounts: $16 per
Stock Fund account in Class D shares per annum; $18 per Bond Fund account in
Class D shares per annum; $27 per Money Market Fund account per annum and
.01% annually of average daily net assets of the S&P 500 Index Fund. Management
believes the charges for the services performed are comparable to fees charged
by other companies performing similar services.
The Fifth Third Bank ("Fifth Third"), 38 Fountain Square Plaza, Cincinnati, OH
45263, is the custodian for the Funds and makes all receipts and disbursements
under a Mutual Fund Custody Agreement. Fifth Third performs no managerial or
policy-making functions for the Funds.
BROKERAGE ALLOCATION
ALLOCATION OF PORTFOLIO BROKERAGE--There is no commitment by NAS to place
orders with any particular broker/dealer or group of broker/dealers. Orders for
the purchases and sales of portfolio securities of the Funds are placed where,
in the judgment of NAS or the Subadviser, the best executions can be obtained.
None of the firms with whom orders are placed are engaged in the sale of shares
of the Funds. In allocating orders among brokers for execution on an agency
basis, in addition to price considerations, the usefulness of the brokers'
overall services is also considered. Services provided by brokerage firms
include efficient handling of
27
<PAGE> 73
orders, useful analyses of corporations, industries and the economy, statistical
reports and other related services for which no charge is made by the broker
above the negotiated brokerage commissions. The Funds and NAS believe that these
services and information, which in many cases would be otherwise unavailable to
the Investment Manager, are of significant value to the Investment Manager, but
it is not possible to place an exact dollar value thereon. The Investment
Manager does not believe that the receipt of such services and information tends
to reduce materially the Investment Manager's expense.
In the case of securities traded in the over-the-counter market, the Funds will
normally deal with the market makers for such securities unless better prices
can be obtained through brokers.
CALCULATION OF NET ASSET VALUE OF THE
MONEY MARKET FUND
The Nationwide Money Market Fund's net asset value per share is
calculated by adding the value of all securities and other assets of the Fund,
deducting its liabilities, and dividing by the number of shares outstanding.
The value of portfolio securities is determined on the basis of the
amortized cost, method of valuation in accordance with Rule 2a-7 of the 1940
Act. This involves valuing a security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.
The Trustees have adopted procedures whereby the extent of deviation,
if any, of the current net asset value per share calculated using available
market quotations from the Money Market Fund's amortized cost price per share,
will be determined at such intervals as the Trustees deem appropriate and are
reasonable in light of current market conditions. In the event such deviation
from the Money Market Fund's amortized cost price per share exceeds 1/2 of 1
percent, the Trustees will consider appropriate action which might include a
revaluation of all or an appropriate portion of the Money Market Fund's assets
based upon current market factors.
The Trustees, in supervising the Fund's operations and delegating
special responsibilities involving portfolio management to NAS, have undertaken
as a particular responsibility within their overall duty of care owed to the
Fund's shareholders to assure to the extent reasonably practicable, taking into
account current market conditions affecting the Fund's investment objectives,
that the Fund's net asset value per share, rounded to the nearest one cent, will
not deviate from $1.
Pursuant to its objective of maintaining a stable net asset value per
share, the Money Market Fund will only purchase investments with a remaining
maturity of 397 days or less and will maintain a dollar weighted average
portfolio maturity of 90 days or less.
CALCULATING MONEY MARKET FUND YIELD
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 change, excluding realized and unrealized gains and losses, in
the value of a
28
<PAGE> 74
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 declared on both the
original share and any such additional shares. The Fund's effective yield
represents an annualization of the current seven day return with all dividends
reinvested.
The Money Market Fund's yield will fluctuate daily. Actual yields will
depend on factors such as the type of instruments in the Money Market Fund's
portfolio, portfolio quality and average maturity, changes in interest rates,
and the Money Market Fund's expenses.
Although the Fund determines its yield on the basis of a seven calendar
day period, it may use a different time span on occasion.
There is no assurance that the yields quoted on any given occasion will
remain in effect for any period of time and there is no guarantee that the net
asset values 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 (compound) 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 (compound) total return represents
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 minus the maximum sales charge, 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.
NONSTANDARD RETURNS
The Funds may also choose to show nonstandard returns including total return,
and simple average total return. Nonstandard returns may or may not reflect
reinvestment of all dividends and capital gains; in addition, sales charge
assumptions will vary. Sales charge percentages decrease as amounts invested
increase as outlined in the prospectus; therefore, returns increase as sales
charges decrease.
Total return represents the cumulative percentage change in the value of an
investment over time, calculated by subtracting the initial investment from the
redeemable value and dividing the result by the amount of the initial
investment. The simple average total return is calculated by dividing total
return by the number of
29
<PAGE> 75
years in the period, and unlike average annual (compound) total return, does not
reflect compounding.
The Nationwide Bond Fund, Nationwide Tax-Free Income Fund, Nationwide
Intermediate U.S. Government Bond Fund and Nationwide Long-Term U.S. 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.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES--The assets of each Fund are segregated and a shareholder
has an interest in only the assets of the Fund in which he owns shares. Shares
of a particular Fund are equal in all respects to the other shares of that class
and in the event of liquidation of a Fund will share pro rata in the
distribution of the net assets of such Fund. All shares are without par value
and fully paid, nonassessable, transferable and redeemable. There are no
pre-emptive rights.
VOTING RIGHTS--Shareholders of each class of shares have one vote for each share
held. Voting rights cover the Investment Management Agreement, election of
Trustees, termination or reorganization of the Trust or any Series or Class,
merger, consolidation or sale of assets as a whole, change of investment
objectives, investment policies, investment restrictions, amendment of the
Declaration of Trust, and to the same extent as shareholders of an Ohio business
corporation as to whether or not court action, proceeding or claim should or
should not be brought or maintained and other business matters. In regard to
termination, sale of assets, or change of investment objectives, policies and
restrictions, the right to vote is limited to the holders of shares of the
particular class affected by the proposal.
Except as otherwise provided in the Declaration or as required by
the 1940 Act or other applicable law, matters voted on by Shareholders must be
approved by the affirmative vote of the holders of a majority of the Shares
voting at any meeting of Shareholders and Trustees must be elected by a
plurality of the Shares voting, or by an instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by the holders of
a majority of Shares outstanding and entitled to vote, or by such other vote as
may be established by the Trustees with respect to any Series or Class of
Shares, provided that the election of Trustees (after the election by the
initial Shareholder) must be approved by the Shareholders at a meeting of
Shareholders.
Each whole Share shall be entitled to one vote as to any matter
on which it is entitled to vote and each fractional Share shall be entitled to
proportionate fractional vote, except that Shares held in the treasury of the
Trust shall not be voted, that on matter relating to the Trust and governed by
the 1940 Act shall be voted in accordance with the 1940 Act and that the
Trustees may in conjunction with the establishment of any Series of Shares,
establish conditions under which several Series shall have separate voting
rights or no voting rights. There shall be no cumulative Shareholders voting in
the election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, the Declaration
or the Bylaws to be taken by Shareholders. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters.
30
<PAGE> 76
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS--Substantially all of the net
investment income, if any, of each Fund will be paid to shareholders of the
Stock Funds as dividends in March, June, September and December and to
shareholders of the Bond and Money Market Funds at each month end.
In those years in which sales of a Fund's portfolio securities result in net
realized capital gains, the Fund will declare and cause to be paid such gains to
its shareholders in December.
ADDITIONAL GENERAL TAX INFORMATION
Each of the nine Funds of the Trust is treated as a separate entity for
federal income tax purposes and intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), for
so long as such qualification is in the best interest of that Fund's
shareholders. In order to qualify as a regulated investment company, a Fund
must, among other things: diversify its investments within certain prescribed
limits; derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of securities or foreign currencies, or other income derived with
respect to its business of investing in such stock, securities, or currencies;
and, in taxable years beginning on or before August 5, 1997, derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, future contracts or foreign currencies held less than three months. In
addition, to utilize the tax provisions specially applicable to regulated
investment companies, a Fund must distribute to its shareholders at least 90% of
its investment company taxable income for the year. In general, the Fund's
investment company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net mid-term or net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its shareholders). In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital
31
<PAGE> 77
gains will be taxable income to shareholders for federal income tax purposes,
even if paid in additional shares of that Fund and not in cash.
Distribution by a Fund of the excess of net mid-term or net long-term
capital gain over net short-term capital loss, if any, is taxable to
shareholders as mid-term or long-term capital gain, respectively, in the year in
which it is received, regardless of how long the shareholder has held the
shares. Such distributions are not eligible for the dividends-received
deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the effective marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
and deducted in future years. The holding period for mid-term capital gains is
more than one year but not more than eighteen months; the holding period for
long-term capital gains is more than eighteen months.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Money Market Fund's and each of the Bond Fund's net
investment income is expected to be derived from earned interest and short term
capital gains, it is anticipated that no distributions from such Funds will
qualify for the 70% dividends received deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
any Fund's total assets at the end of its fiscal year are expected to be
invested in stocks or securities of foreign corporations, such Fund will not be
entitled under the Code to pass through to its Shareholders their pro rata share
of the foreign taxes paid by that Fund. These taxes will be taken as a deduction
by the Fund.
32
<PAGE> 78
Under Section 1256 of the Code, gain or loss realized by a Fund from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss will arise upon exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures and options remaining
unexercised at the end of a Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to such Fund
characterized in the manner described above.
Offsetting positions held by a Fund involving certain futures contracts
or options transactions may be considered, for tax purposes, to constitute
"straddles." Straddles are defined to include "offsetting positions" in actively
traded personal property. The tax treatment of straddles is governed by Sections
1092 and 1258 of the Code, which, in certain circumstances, overrides or
modifies the provisions of Section 1256. As such, all or a portion of any short
or long-term capital gain from certain straddle and/or conversion transactions
may be recharacterized as ordinary income.
If a Fund were treated as entering into straddles by reason of its
engaging in futures or options transactions, such straddles would be
characterized as "mixed straddles" if the futures or options comprising a part
of such straddles were governed by Section 1256 of the Code. A Fund may make one
or more elections with respect to mixed straddles. If no election is made, to
the extent the straddle rules apply to positions established by a Fund, losses
realized by such Fund will be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and conversion
transaction rules, short-term capital losses on straddle positions may be
recharacterized as long-term capital losses and long-term capital gains may be
recharacterized as short-term capital gain or ordinary income.
Investment by a Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to Shareholders. For example, a Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion in
order to maintain its qualification as a regulated investment company. In that
case, that Fund may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of the Fund, if such Shareholder (1) fails to furnish the
Fund with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.
Information set forth in the prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of the Funds or their
shareholders and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential purchasers of shares of a Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the
33
<PAGE> 79
prospectuses and this Statement of Additional Information is based on tax laws
and regulations which are in effect on the date of the prospectuses and this
Statement of Additional Information; such laws and regulations may be changed by
legislative or administrative action.
Information as to the federal income tax status of all distributions
will be mailed annually to each shareholder.
ADDITIONAL TAX INFORMATION WITH RESPECT TO THE TAX-FREE INCOME FUND
The Tax-Free Income Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Free Income Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans, and individual retirement
accounts, since such plans and accounts are generally tax-exempt and, therefore,
would not gain any additional benefit from all or a portion of the Tax-Free
Income Fund's dividends being tax-exempt and such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the Tax-Free
Income Fund may not be an appropriate investment for entities which are
"substantial users," or "related persons" thereof, of facilities financed by
private activity bonds held by the Tax-Free Income Fund.
The Code permits a regulated investment company which invests in
municipal securities to pay to its shareholders "exempt-interest dividends,"
which are excluded from gross income for federal income tax purposes, if at the
close of each quarter of its taxable year at least 50% of its total assets
consist of municipal securities.
An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by the Tax-Free Income Fund that is derived from
interest received by the Tax-Free Income Fund that is excluded from gross income
for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice mailed
to shareholders not later than sixty days after the close of the Tax-Free Income
Fund's taxable year. The percentage of the total dividends paid by the Tax-Free
Income Fund during any taxable year that qualifies as exempt-interest dividends
will be the same for all shareholders of the Tax-Free Income Fund receiving
dividends during such year. Exempt-interest dividends shall be treated by the
Tax-Free Income Fund's shareholders as items of interest excludable from their
gross income for Federal income tax purposes under Section 103(a) of the Code.
However, a shareholder is advised to consult his tax adviser with respect to
whether exempt-interest dividends retain the exclusion under Section 103(a) of
the Code if such shareholder is a "substantial user" or a "related person" to
such user under Section 147(a) of the Code with respect to any of the municipal
securities held by the Tax-Free Income Fund. If a shareholder receives an
exempt-interest dividend with respect to any share and such share is held by the
shareholder for six months or less, any loss on the sale or exchange of such
share shall be disallowed to the extent of the amount of such exempt-interest
dividend.
In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible for federal income tax
purposes if the Tax-Free Income Fund distributes exempt-interest dividends
during the shareholder's taxable year. A shareholder of the Tax-Free Income Fund
that is a financial institution may not deduct interest expense attributable to
indebtedness incurred or
34
<PAGE> 80
continued to purchase or carry shares of the Tax-Free Income Fund if the
Tax-Free Income Fund distributes exempt-interest dividends during the
shareholder's taxable year. Certain federal income tax deductions of property
and casualty insurance companies holding shares of the Tax-Free Income Fund and
receiving exempt-interest dividends may also be adversely affected. In certain
limited instances, the portion of Social Security benefits received by a
shareholder which may be subject to federal income tax may be affected by the
amount of tax-exempt interest income, including exempt-interest dividends
received by shareholders of the Tax-Free Income Fund.
In the event the Tax-Free Income Fund realizes mid-term or long-term
capital gains, the Tax-Free Income Fund intends to distribute any realized net
mid-term or net long-term capital gains annually. If the Tax-Free Income Fund
distributes such gains, the Tax-Free Income Fund will have no tax liability with
respect to such gains, and the distributions will be taxable to shareholders as
mid-term or long-term capital gains, respectively, regardless of how long the
shareholders have held their shares. Any such distributions will be designated
as a capital gain dividend in a written notice mailed by the Tax-Free Income
Fund to the shareholders not later than sixty days after the close of the
Tax-Free Income Fund's taxable year. It should be noted, however, that long-term
capital gains of individuals are subject to a maximum tax rate of 20% (or 10%
for individuals in the 15% ordinary income tax bracket) and mid-term capital
gains are taxed like ordinary income except that net capital gains of
individuals are subject to a maximum federal income tax rate of 28%. Any net
short-term capital gains are taxed at ordinary income tax rates. If a
shareholder receives a capital gain dividend with respect to any share and then
sells the share before he has held it for more than six months, any loss on the
sale of the share is treated as long-term capital loss to the extent of the
capital gain dividend received.
Interest earned on certain municipal obligations issued on or after
August 8, 1986, to finance certain private activities will be treated as a tax
preference item in computing the alternative minimum tax. Since the Tax-Free
Income Fund may invest up to 20% of its net assets in municipal securities the
interest on which may be treated as a tax preference item, a portion of the
exempt-interest dividends received by shareholders from the Tax-Free Income Fund
may be treated as tax preference items in computing the alternative minimum tax
to the extent that distributions by the Tax-Free Income Fund are attributable to
such obligations. Also, a portion of all other interest excluded from gross
income for federal income tax purposes earned by a corporation may be subject to
the alternative minimum tax as a result of the inclusion in alternative minimum
taxable income of 75% of the excess of adjusted current earnings and profits
over pre-book alternative minimum taxable income. Adjusted current earnings and
profits would include exempt-interest dividends distributed by the Tax-Free
Income Fund to corporate shareholders. For individuals the alternative minimum
tax rate is 26% on alternative minimum taxable income up to $175,000 and 28% on
the excess of $175,000; for corporations the alternative minimum tax rate is
20%.
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income", which would include a portion of the exempt-interest dividends
distributed by the Tax-Free Income Fund to such corporation. In addition,
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.
35
<PAGE> 81
Distributions of exempt-interest dividends by the Tax-Free Income Fund
may be subject to state and local taxes even though a substantial portion of
such distributions may be derived from interest on obligations which, if
received directly, would be exempt from such taxes. The Tax-Free Income Fund
will report to its shareholders annually after the close of its taxable year the
percentage and source, on a state-by-state basis, of interest income earned on
municipal obligations held by the Tax-Free Income Fund during the preceding
year. Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.
As indicated in the Prospectus, the Tax-Free Income Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of the Tax-Free
Income Fund is to limit its acquisition of puts to those under which it will be
treated for federal income tax purposes as the owner of the Exempt Securities
acquired subject to the put and the interest on the Exempt Securities will be
tax-exempt to it. Although the Internal Revenue Service has issued a published
ruling that provides some guidance regarding the tax consequences of the
purchase of puts, there is currently no guidance available from the Internal
Revenue Service that definitively establishes the tax consequences of many of
the types of puts that the Tax-Free Income Fund could acquire under the 1940
Act. Therefore, although the Tax-Free Income Fund will only acquire a put after
concluding that it will have the tax consequences described above, the Internal
Revenue Service could reach a different conclusion.
Under Section 1256 of the Code, gain or loss realized by the Tax-Free
Income Fund from certain financial futures and options transactions will be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. Gain or loss will arise upon exercise or lapse of such futures and options
as well as from closing transactions. In addition, any such futures and options
remaining unexercised at the end of the Tax-Free Income Fund's taxable year will
be treated as sold for their then fair market value, resulting in additional
gain or loss to the Tax-Free Income Fund characterized in the manner described
above.
Offsetting positions held by the Tax-Free Income Fund involving certain
futures contracts or options transactions may be considered, for tax purposes,
to constitute "straddles." Straddles are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of straddles
is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Section 1256. As such,
all or a portion of any short or long-term capital gain from certain straddle
and/or conversion transactions may be recharacterized as ordinary income.
If the Tax-Free Income Fund were treated as entering into straddles by
reason of its engaging in futures or options transactions, such straddles would
be characterized as "mixed straddles" if the futures or options comprising a
part of such straddles were governed by Section 1256 of the Code. The Tax-Free
Income Fund may make one or more elections with respect to mixed straddles. If
no election is made, to the extent the straddle rules apply to positions
established by the Tax-Free Income Fund, losses realized by the Tax-Free Income
Fund will be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and conversion transaction
rules, short-term capital losses on straddle positions may be recharacterized as
long-term capital losses and long-term capital gains may be recharacterized as
short-term capital gain or ordinary income.
36
<PAGE> 82
Investment by the Tax-Free Income Fund in securities issued at a
discount or providing for deferred interest or for payment of interest in the
form of additional obligations could, under special tax rules, affect the
amount, timing and character of distributions to shareholders. For example, the
Tax-Free Income Fund could be required to take into account annually a portion
of the discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a regulated
investment company. In that case, the Tax-Free Income Fund may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
Income itself exempt from Federal income taxation may be considered in
addition to taxable income when determining whether Social Security payments
received by a shareholder are subject to federal income taxation.
SPECIAL MEETING
The Declaration of Trust Indenture provides for a Special Meeting of
Shareholders which may be called by the Trustees or shareholders for the purpose
of taking action on any matter requiring the vote of shareholders as provided
for in the Declaration of Trust.
37
<PAGE> 83
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 debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. 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
45
<PAGE> 84
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
BB - Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B - Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'BB' or 'BB-' rating.
CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The 'CCC' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'B' or 'B-' rating.
CC - Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
C - Debt rated 'C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI - The rating 'CI' is reserved for income bonds on which no interest
is being paid.
D - Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grade period. The 'D'
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are 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.
46
<PAGE> 85
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
MUNICIPAL BOND
Excerpts from Moody's Investors Service Inc., description of its three highest
bond ratings: Aaa--judged to be the best quality. They carry the smallest degree
of investment risk; Aa--judged to be of high quality by all standards;
A--possess favorable attributes and are considered "upper medium" grade
obligations. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbol Aa 1, A 1, Ba 1 and B 1.
Excerpts from Standard & Poor's Corporation description of its three highest
bond ratings: AAA--highest grade obligations; AA--also qualify as highgrade
obligations, and, in the majority of instances, differ from AAA issues only in
small degree; A--strong ability to pay interest and repay principle although
more susceptible to change in circumstances.
STATE AND MUNICIPAL NOTES
Excerpts from Moody's Investors Service, Inc., description of state and
municipal note ratings:
MIG-1--Notes bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing from
established and board-based access to the market for refinancing, or both.
47
<PAGE> 86
MIG-2--Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
MIG-3--Notes bearing this designation are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding grade.
Market access for refinancing, in particular, is likely to be less well
established.
FITCH INVESTORS SERVICE, INC. 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
48
<PAGE> 87
more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher
ratings.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.
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
are extremely speculative,
DD and should be valued on the basis of their ultimate recovery value in
liquidation or reorganization of &D the obligor. `DDD' represents the
highest potential for recovery of these bonds, and 'D' represents the
lowest potential for recovery.
DUFF & PHELPS, INC. 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,
49
<PAGE> 88
regulation, technological obsolescence, demand shifts, cost structure, and
management depth and expertise. The projected viability of the obligor at the
trough of the cycle is a critical determination.
Each rating also takes into account the legal form of the security,
(e.g., first mortgage bonds, subordinated debt, preferred stock, etc.). The
extent of rating dispersion among the various classes of securities is
determined by several factors including relative weightings of the different
security classes in the capital structure, the overall credit strength of the
issuer, and the nature of covenant protection. Review of indenture restrictions
is important to the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per
quarter (more frequently, if necessary). Ratings of 'BBB-' and higher fall
within the definition of investment grade securities, as defined by bank and
insurance supervisory authorities.
RATING
SCALE DEFINITION
- ----- ----------
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are
AA strong. Risk is modest, but may vary slightly
AA- from time to time because of economic conditions.
A+ Protection factors are average but adequate.
A However, risk factors are more variable and
A- greater in periods of economic stress.
BBB+ Below average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according to
industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent Changes in the rating within this
category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest
or preferred dividends. Protection factors are narrow and
risk can be substantial with unfavorable economic/industry
conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
50
<PAGE> 89
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.
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.
STANDARD & POOR'S NOTE RATINGS
An S&P note rating reflects the liquidity factors and market-access
risks unique to notes. Notes maturing in three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.
The following criteria will be used in making the assessment:
1. Amortization schedule - the larger the final maturity relative to
other maturities, the more likely the issue is to be treated as a
note.
2. Source of payment - the more the issue depends on the market for
its refinancing, the more likely it is to be considered a note.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
51
<PAGE> 90
MOODY'S SHORT-TERM RATINGS
Moody's short-term debt ratings are opinions on the ability of issuers
to repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. 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 supporting institutions) have a superior
capacity for repayment of senior short-term debt 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 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 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 may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the prime rating
categories.
MOODY'S NOTE RATINGS
MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
52
<PAGE> 91
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 is defined as 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.
53
<PAGE> 92
RATING SCALE DEFINITION
- ------------ ----------
HIGH GRADE
----------
D-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.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.
GOOD GRADE
----------
D-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
------------------
D-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
--------------------
D-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
-------
D-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
specific debt instruments of the rated entities with a maturity of one year or
less. 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.
54
<PAGE> 93
TBW-4 the lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA SHORT-TERM RATINGS
IBCA short-term ratings assess the borrowing characteristics of banks
and corporations, and the capacity for timely repayment of debt obligations. The
short-term ratings relate to debt which has a maturity of less than one year.
IBCA issues ratings and reports on the largest U.S. and international
bank holding companies, as well as major investment banks. IBCA's short-term
rating system utilizes a dual system--Individual Ratings and Legal Ratings. The
Individual Rating addresses 1) the current strength of consolidated banking
companies and their principal bank subsidiaries. A consolidated bank holding
company/bank with an "A" rating has a strong balance sheet, and a favorable
credit profile without significant problems. A "B" rating indicates sound credit
profile without significant problems. Performance is generally in line with or
better than that of its peers. The legal rating addresses the question of
whether an institution would receive support if it ran into difficulties. Issues
rated "A-1" are obligations supported by a very strong capacity for timely
repayment. Issues rated "A-2" have a very strong capacity for timely repayment
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
A1+ Obligations supported by the highest capacity for timely
repayment and possess a particularly strong credit feature.
A1 Obligations supported by the highest capacity for timely
repayment.
A2 Obligations supported by a good capacity for timely
repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
C Obligations for which there is a high risk of default or
which are currently in default.
D Obligations which are currently in default.
BOND RATINGS
Bonds rated AA or AAA by D&P are deemed to be high quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
Bonds rated AA or AAA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong.
Moody's three highest bond ratings are: Aaa - judged to be the best quality -
carry the smallest degree of investment risk; Aa - judged to be high quality by
all standards; A possess favorable attributes and are considered "upper medium"
grade obligations.
S&P's three highest bond ratings are: AAA - highest grade obligations - possess
the ultimate degree of protection and indicates an extremely strong capacity to
pay
55
<PAGE> 94
principal and interest; AA - also qualify as high grade obligations, and in
the majority of instances differ only in small degrees from issues rated AAA; A
- - strong ability to pay interest and repay principal although more susceptible
to change in circumstances.
Bonds rated AA or AAA by IBCA indicates a very strong capacity for timely
repayment of debt. Margins of protection may not be as large as for AAA issues.
Bonds rated AA or AAA by Thomson indicates ability to repay principal and
interest on a timely basis. Bonds rated AA may have limited incremental risk
versus AAA issues.
Bonds BBB are 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 repay principal for debt in this category than in higher
rated categories.
56
<PAGE> 95
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
(a) Not Applicable
(b) Exhibits
(1) Declaration of Trust.
(2) Bylaws.
(3) Not applicable.
(4) Not applicable.
(5) (a) Proposed Investment Advisory Agreement.
(b) Subadvisory Agreements.
(1) Proposed Subadvisory Agreement with The
Dreyfus Corporation for S&P 500 Index
Fund.
(6) Proposed Underwriting Agreement.
(7) Not applicable.
(8) Proposed Custody Agreement.
(9) (a) Proposed Fund Administration Agreement.
(b) Proposed Transfer and Dividend Disbursing Agent
Agreement.
(10) Opinion of counsel.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Proposed Distribution Plan.
(16) Not applicable.
(17) Not applicable.
(18) Not applicable.
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. NONE
ITEM 27. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of
Registrant are set forth in Article V, Section 2 of the Declaration
of Trust. In addition, Section 1743.13 of the Ohio Revised Code
provides that no liability to third persons for any act, omission or
obligation shall attach to the trustees, officers, employees or
agents of a business trust organized under Ohio statutes. The
trustees are also covered by an errors and omissions policy provided
by the Trust for undertaken by the trustees in their capacity as
trustee. See Item 24(b)1 above.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Nationwide Advisory Services, Inc. (NAS), the investment adviser
of the Trust, also serves as investment adviser to the
Nationwide Investing Foundation, Nationwide Investing Foundation
II, Nationwide Separate Account Trust, Financial Horizons
Investment Trust, and Nationwide Asset Allocation Trust and
serves as general distributor to the Nationwide Multi-Flex
Variable Account, Nationwide Variable Account-II, Nationwide
Variable Account-5, Nationwide Variable Account-8, Nationwide
Variable Account-9, Nationwide DC Variable Account, Nationwide
DCVA II,
C-1
<PAGE> 96
Nationwide VA Separate Account-A, Nationwide VA Separate
Account-C, NACo Variable Account, Nationwide VLI Separate
Account-2, Nationwide VLI Separate Account-3, Nationwide VL
Separate Account-A, Nationwide VL Separate Account-B, Nationwide
VA Separate Account-B and Nationwide Variable Account, separate
accounts of Nationwide Life Insurance Company, or its subsidiary
Nationwide Life and Annuity Insurance Company, registered as
unit investment trusts under the Investment Company Act of 1940.
Joseph J. Gasper DIRECTOR AND PRESIDENT AND CHIEF OPERATING OFFICER
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Financial Services, Inc.
DIRECTOR AND CHAIRMAN OF THE BOARD
Nationwide Investment Services Corporation
DIRECTOR AND VICE CHAIRMAN
Nationwide Financial Institution
Distributors Agency, Inc.
Nationwide Global Holdings, Inc.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
Public Employees Benefit Services Corporation
DIRECTOR AND PRESIDENT
Nationwide Advisory Services, Inc.
Nationwide Investor Services, Inc.
DIRECTOR
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Alabama,
Inc.
Financial Horizons Distributors Agency of Ohio,
Inc.
Financial Horizons Distributors Agency of Oklahoma,
Inc.
Financial Horizons Securities Corporation
Landmark Financial Services of New York, Inc.
Nationwide Indemnity Company
TRUSTEE AND CHAIRMAN
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
TRUSTEE AND PRESIDENT
Nationwide Insurance Golf Charities, Inc.
Gordon E. McCutchan EXECUTIVE VICE PRESIDENT-LAW AND
CORPORATE SERVICES AND SECRETARY
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Life Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Financial Services, Inc.
C-2
<PAGE> 97
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Colonial County Mutual Insurance Company
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York, Inc.
Farmland Mutual Insurance Company
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Communications Inc.
Employers Insurance of Wausau A Mutual Company
National Premium and Benefit Administration Company
Nationwide Corporation
Nationwide Insurance Enterprise Foundation
Nationwide Investment Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Underwriters Insurance Company
Wausau Service Corporation
Wausau Business Insurance Company
Wausau General Insurance Company
EXECUTIVE VICE PRESIDENT-LAW AND CORPORATE SERVICES
American Marine Underwriters, Inc.
Employers Life Insurance Company of Wausau
Pension Associations of Wausau, Inc.
Public Employees Benefit Services Corporation
Wausau Preferred Health Insurance Company
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency Insurance Services of California
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Wausau International Underwriters
EXECUTIVE VICE PRESIDENT-LAW AND CORPORATE SERVICES
AND DIRECTOR
Nationwide Advisory Services, Inc.
Nationwide Investor Services, Inc.
EXECUTIVE VICE PRESIDENT-LAW AND CORPORATE
SERVICES, SECRETARY AND DIRECTOR
California Cash Management Company
Colonial Insurance Company of Wisconsin
Gates, McDonald & Company
GatesMcDonald Health Plus Inc.
C-3
<PAGE> 98
Nationwide Global Holdings, Inc.
National Casualty Company
Nationwide Cash Management Company
Nationwide Indemnity Company
Nationwide Community Urban Redevelopment Corporation
VICE CHAIRMAN AND DIRECTOR
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
SECRETARY
The Beak and Wire Corporation
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Alabama, Inc.
Financial Horizons Distributors Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma, Inc.
Financial Horizons Securities Corporation
Landmark Financial Services of New York, Inc.
NEA Valuebuilder Investor Services of Alabama, Inc.
NEA Valuebuilder Investor Services of Montana, Inc.
NEA Valuebuilder Investor Services of Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma, Inc.
NEA Valuebuilder Investor Services of Wyoming, Inc.
SECRETARY AND DIRECTOR
Nationwide Agency, Inc.
Nationwide HMO, Inc.
Nationwide Management Systems, Inc.
DIRECTOR
MRM Investments, Inc.
NWE, Inc.
CLERK
NEA Valuebuilder Services Insurance Agency, Inc.
Dimon R. McFerson CHAIRMAN AND CHIEF EXECUTIVE OFFICER- NATIONWIDE INSURANCE
ENTERPRISE AND DIRECTOR
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Colonial Insurance Company of Wisconsin
Nationwide Communications Inc.
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
National Casualty Company
C-4
<PAGE> 99
Nationwide Financial Services, Inc.
Nationwide Global Holdings, Inc.
Nationwide Indemnity Company
Nationwide Investment Services Corporation
California Cash Management Company
Nationwide Cash Management Company
Employers Insurance of Wausau A Mutual Company
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Service Corporation
Wausau General Insurance Company
Wausau Business Insurance Company
Wausau Underwriters Insurance Company
CHAIRMAN AND CHIEF EXECUTIVE OFFICER - NATIONWIDE INSURANCE
ENTERPRISE, PRESIDENT AND DIRECTOR
Nationwide Corporation
CHAIRMAN OF THE BOARD, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER-NATIONWIDE INSURANCE ENTERPRISE AND DIRECTOR
American Marine Underwriters, Inc.
Gates, McDonald and Company
GatesMcDonald Health Plus, Inc.
Nationwide Investor Services, Inc.
Public Employees Benefit Services Corporation
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency Insurance Services of California
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Employers Life Insurance Company of Wausau
Nationwide Advisory Services, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Wausau International Underwriters
Wausau Preferred Health Insurance Company
CHAIRMAN AND DIRECTOR
NEA Valuebuilder Investor Services of Arizona, Inc.
TRUSTEE AND CHAIRMAN
Financial Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
CHAIRMAN OF THE BOARD
Nationwide Insurance Golf Charities, Inc.
C-5
<PAGE> 100
CHAIRMAN OF THE BOARD AND DIRECTOR
Lone Star General Agency, Inc.
Nationwide Community Urban Redevelopment Corporation
NEA Valuebuilder Investor Services, Inc.
Colonial County Mutual Insurance Company
DIRECTOR
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York
CHAIRMAN OF THE BOARD, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER-NATIONWIDE INSURANCE ENTERPRISE AND TRUSTEE
Nationwide Insurance Enterprise Foundation
MEMBER-BOARD OF MANAGERS, CHAIRMAN OF THE BOARD,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER-NATIONWIDE INSURANCE
ENTERPRISE
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Robert A. Oakley EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL OFFICER
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
American Marine Underwriters, Inc.
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Employers Life Insurance Company of Wausau
National Casualty Company
National Premium and Benefit Administration Company
The Beak and Wire Corporation
Employers Insurance of Wausau A Mutual Company
Farmland Mutual Insurance Company
Nationwide Financial Institution Distributors Agency, Inc.
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Financial Services, Inc.
Nationwide Investment Services Corporation
Nationwide Investor Services, Inc.
C-6
<PAGE> 101
Nationwide Insurance Enterprise Foundation
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc
Colonial County Mutual Insurance Company
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
DIRECTOR, CHAIRMAN OF THE BOARD
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL
OFFICER AND DIRECTOR
California Cash Management Company
Colonial Insurance Company of Wisconsin
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment
Corporation
Nationwide Global Holdings, Inc.
MRM Investments, Inc.
Nationwide Advisory Services, Inc.
Nationwide Indemnity Company
EXECUTIVE VICE PRESIDENT
Companies Agency Insurance Services of
California
Wausau International Underwriters
DIRECTOR AND VICE CHAIRMAN
Leben Direkt Insurance Company
Neckura General Insurance Company
Auto Direkt Insurance Company
DIRECTOR
NWE, Inc.
Gates, McDonald & Company
GatesMcDonald Health Plus Inc.
Robert J. Woodward, Jr. EXECUTIVE VICE PRESIDENT-CHIEF INVESTMENT OFFICER
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance
Company
C-7
<PAGE> 102
Nationwide Life Insurance
Company Nationwide Life and
Annuity Insurance Company
Colonial County Mutual
Insurance Company Colonial
Insurance Company of
Wisconsin Employers
Insurance of Wausau A
Mutual Company Employers
Life Insurance Company of
Wausau Farmland Mutual
Insurance Company Gates,
McDonald & Company
GatesMcDonald Health Plus,
Inc. Lone Star General
Agency, Inc. National
Casualty Company Nationwide
Financial Services, Inc.
Nationwide Agribusiness
Insurance Company
Nationwide Corporation
Nationwide Insurance
Enterprise Foundation
Nationwide Investment
Services Corporation
Pension Associates of
Wausau, Inc. Public
Employees Benefit Services
Corporation Scottsdale
Indemnity Company
Scottsdale Insurance
Company Scottsdale Surplus
Lines Insurance Company
Wausau Business Insurance
Company Wausau General
Insurance Company Wausau
Preferred Health Insurance
Company Wausau Service
Corporation Wausau
Underwriters Insurance
Company
VICE CHAIRMAN AND DIRECTOR
Nationwide Communications Inc.
DIRECTOR
Nationwide Global Holdings, Inc.
MEMBER-BOARD OF MANAGERS AND VICE CHAIRMAN
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
DIRECTOR AND PRESIDENT
California Cash Management Company
MRM Investments, Inc.
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment
Corporation
NWE, Inc.
DIRECTOR, EXECUTIVE VICE PRESIDENT-CHIEF
INVESTMENT OFFICER
Nationwide Indemnity Company
Nationwide Advisory Services, Inc.
VICE CHAIRMAN AND DIRECTOR
Nationwide Communications Inc.
DIRECTOR
Nationwide Global Holdings, Inc.
C-8
<PAGE> 103
TRUSTEE AND VICE CHAIRMAN
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
James F. Laird, Jr. VICE PRESIDENT AND GENERAL MANAGER
AND ACTING TREASURER
Nationwide Advisory Services, Inc.
VICE PRESIDENT AND GENERAL MANAGER
AND ACTING TREASURER AND DIRECTOR
Nationwide Investors Services, Inc.
TREASURER
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust.
Nationwide Asset Allocation Trust
Christopher A. Cray TREASURER
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
ASSISTANT TREASURER
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
W. Sidney Druen SENIOR VICE PRESIDENT AND GENERAL
COUNSEL AND ASSISTANT SECRETARY
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance
Company
Nationwide General Insurance Company
Nationwide Property and Casualty
Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance
Company
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Employers Insurance of Wausau A Mutual
Company
Employers Life Insurance Company of Wausau
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Underwriters Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
American Marine Underwriters, Inc.
The Beak and Wire Corporation
C-9
<PAGE> 104
California Cash Management Company
Colonial County Mutual Insurance Company
Colonial Insurance Company of California
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
Nationwide Financial Services, Inc.
Nationwide Financial Institution Distributors
Agency, Inc.
Financial Horizons Distributors Agency of
Alabama, Inc.
Financial Horizons Distributors Agency of
Ohio, Inc.
Financial Horizons Distributors Agency of
Oklahoma, Inc.
Financial Horizons Securities Corporation
Gates, McDonald & Company
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York, Inc.
GatesMcDonald Health Plus, Inc.
Landmark Financial Services of New York, Inc.
National Casualty Company
Nationwide Cash Management Company
Nationwide Communications Inc.
Nationwide Corporation
Nationwide Global Holdings, Inc.
Nationwide Investment Services Corporation
Companies Agency, Inc.
Companies Agency Insurance Services of California
Companies Agency of Alabama, Inc.
Companies Agency of Idaho, Inc.
Companies Agency of Illinois, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Lone Star General Agency Inc.
Nationwide Insurance Enterprise Foundation
Nationwide Indemnity Company
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
NEA Valuebuilder Investor Services of Montana, Inc.
NEA Valuebuilder Investor Services of Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma, Inc.
NEA Valuebuilder Investor Services of Wyoming, Inc.
NEA Valuebuilder Services Insurance Agency, Inc.
MRM Investments, Inc.
NWE, Inc.
PEBSCO of Massachusetts Insurance Agency, Inc.
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Public Employees Benefit Services Corporation of
Alabama
Public Employees Benefit Services Corporation of
Arkansas
C-10
<PAGE> 105
Public Employees Benefit Services Corporation of
Montana
Public Employees Benefit Services Corporation of
New Mexico Scottsdale Indemnity
Company Scottsdale
Insurance Company
Scottsdale Surplus Lines
insurance Company Wausau
International Underwriters
SENIOR VICE PRESIDENT AND GENERAL COUNSEL AND DIRECTOR
Nationwide Community Urban Redevelopment Corporation
GENERAL COUNSEL
Nationwide Insurance Golf Charities, Inc.
Rae Mercer Pollina SECRETARY
NationwideAdvisory Services, Inc.
Nationwide Investors Services, Inc.
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
Peter J. Neckermann VICE PRESIDENT - ECONOMIC AND INVESTMENT SERVICES
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Indemnity Company
VICE PRESIDENT
Nationwide Advisory Services, Inc.
DIRECTOR
Leben Direkt Insurance Company
Nationwide Investors Services, Inc.
Neckura Holding Company
ASSISTANT TREASURER
Financial Horizons Investment Trust
National Casualty Company
National Premium and Benefit Administration Company
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Separate Account Trust
Nationwide Asset Allocation Trust
Edwin P. McCausland, Jr. VICE PRESIDENT-FIXED INCOME SECURITIES
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
C-11
<PAGE> 106
Nationwide Property and Casualty Insurance
Company
Nationwide Life Insurance
Company Nationwide Life and
Annuity Insurance Company
California Cash Management
Company Colonial Insurance
Company of Wisconsin
Employers Insurance of
Wausau A Mutual Company
Employers Life Insurance
Company of Wausau Farmland
Mutual Insurance Company
Financial Horizons
Investment Trust Gates,
McDonald & Company
GatesMcDonald Health Plus,
Inc. National Casualty
Company Nationwide
Agribusiness Insurance
Company Nationwide Cash
Management Company
Nationwide Indemnity
Company Nationwide
Insurance Enterprise
Foundation Scottsdale
Indemnity Company
Scottsdale Insurance
Company Scottsdale Surplus
Lines Insurance Company
Wausau Business Insurance
Company Wausau General
Insurance Company Wausau
Preferred Health Insurance
Company Wausau Service
Corporation Wausau
Underwriters Insurance
Company
VICE PRESIDENT-FIXED INCOME
Nationwide Advisory
Services, Inc.
ASSISTANT TREASURER
Nationwide Asset Allocation Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Separate Account Trust
Joseph P. Rath VICE PRESIDENT-PRODUCT AND MARKET COMPLIANCE
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
VICE PRESIDENT-COMPLIANCE
Nationwide Advisory Services, Inc.
Nationwide Investment Services Corporation
VICE PRESIDENT-CHIEF COMPLIANCE OFFICER
Nationwide Financial Services, Inc.
William G. Goslee VICE PRESIDENT
Nationwide Advisory Services, Inc.
C-12
<PAGE> 107
ASSISTANT TREASURER
Nationwide Asset Allocation 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
Nationwide Agribusiness Insurance Company
1963 Bell Avenue
Des Moines, Iowa 50315-1000
Colonial Insurance Company of Wisconsin
3455 Mill Run Drive, 5th Floor
Hilliard, Ohio 43026
Employers Insurance of Wausau A Mutual Company
2000 Westwood Drive
Wausau, Wisconsin 54401-7881
Scottsdale Insurance Company
8877 North Gainey Center Drive
P.O. Box 4110
Scottsdale, Arizona 85261-4110
National Casualty Company
8877 North Gainey Center Drive
P.O. Box 4110
Scottsdale, Arizona 85261-4110
Lone Star General Agency, Inc.
P.O. Box 14700
Austin, Texas 78761
Auto Direkt Insurance Company
Columbus Insurance Brokerage and Service, GMBH
Leben Direkt Insurance Company
Neckura General Insurance Company
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
John E. Fisher Str. 1
61440 Oberursel/Ts.
Germany
Public Employees Benefit Services Corporation
Two Nationwide Plaza
Columbus, Ohio 43215
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Three Nationwide Plaza, Columbus, Ohio 43215
C-13
<PAGE> 108
(b) Information for the Subadviser of the S&P 500 Index Fund
(1) The Dreyfus Corporation
The Dreyfus Corporation ("Dreyfus") acts as subadvisor to the S&P 500
Index Fund and as adviser or subadviser to a number of other
registered investment companies. The list required by this Item 28 of
officers and directors of Dreyfus, 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 Schedule A and D of Form ADV filed by Dreyfus (SEC File
No. 801-8147).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) See Item 28 above.
(b) Nationwide Advisory Services, Inc.
<TABLE>
<CAPTION>
Position with Position
Name Business Address Underwriter With Registrant
---- ---------------- ----------- ---------------
<S> <C> <C> <C>
Dimon R. McFerson One Nationwide Plaza Chairman and CEO Chairman of Board of
Columbus OH 43215 Trustees
Joseph J. Gasper One Nationwide Plaza President and Director Vice Chairman of Board
Columbus OH 43215 of Trustees
Gordon E. McCuthan One Nationwide Plaza Exec. VP - Law and N/A
Columbus OH 43215 Corporate Services and
Director
Robert A. Oakley One Nationwide Plaza Exec. VP - Chief Financial N/A
Columbus OH 43215 Officer and Director
Robert J. Woodward, Jr. One Nationwide Plaza Exec. VP - Chief Investment Trustee
Columbus OH 43215 Officer and Director
William S. Druen One Nationwide Plaza Sr. VP - General Counsel N/A
Columbus OH 43215 and Assistant Secretary
James F. Laird, Jr. Three Nationwide Plaza VP - General Manager Treasurer
Columbus OH 43215
Edwin P. McCausland One Nationwide Plaza VP - Fix Income Securities Assistant Treasurer
Columbus OH 43215
Joseph P. Rath One Nationwide Plaza VP - Compliance N/A
Columbus OH 43215
Peter J. Neckermann One Nationwide Plaza Vice President Assistant Treasurer
Columbus OH 43215
William G. Goslee One Nationwide Plaza Vice President N/A
Columbus OH 43215
Christopher A. Cray Three Nationwide Plaza Treasurer Assistant Treasurer
Columbus OH 43215
</TABLE>
C-14
<PAGE> 109
<TABLE>
<S> <C> <C> <C>
Rae M. Pollina Three Nationwide Plaza Secretary N/A
Columbus OH 43215
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Christopher A. Cray
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, OH 43215
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
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.
C-15
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Columbus, and State of Ohio, on this 14th day of November 1997.
NATIONWIDE INVESTING FOUNDATION III
By: JAMES F. LAIRD, JR.
------------------------------
James F. Laird, Jr., Treasurer
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED ON THE 14TH DAY OF NOVEMBER 1997.
<TABLE>
<S> <C>
Signature & Title
- ------------------
Principal Executive Officer
DIMON R. McFERSON*
- -------------------
Dimon R. McFerson, Trustee and Chairman
Principal Accounting and Financial Officer
JAMES F. LAIRD, JR. DAVID C. WETMORE*
- ------------------ --------------------------
James F. Laird, Jr., Treasurer David C. Wetmore, Trustee
JOHN C. BRYANT* *By: JAMES F. LAIRD, JR.
- --------------- -----------------------
John C. Bryant, Trustee James F. Laird, Jr., Attorney-In-Fact
C. BRENT DEVORE
- ---------------
C. Brent Devore, Trustee
SUE A. DOODY*
- -------------
Sue A. Doody, Trustee
ROBERT M. DUNCAN*
- -----------------
Robert M. Duncan, Trustee
CHARLES L. FUELLGRAF, JR.*
- ------------------------
Charles L. Fuellgraf, Jr., Trustee
THOMAS J. KERR, IV*
- --------------------
Thomas J. Kerr, IV, Trustee
DOUGLAS F. KRIDLER*
- --------------------
Douglas F. Kridler, Trustee
NANCY C. THOMAS*
- ----------------
Nancy C. Thomas, Trustee
HAROLD W. WEIHL*
- ----------------
Harold W. Weihl, Trustee
</TABLE>
C-16
<PAGE> 111
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as
Trustees and as Officer of NATIONWIDE INVESTING FOUNDATION III, an open-end
investment company created for the laws of the State of Ohio, which has filed
with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933, as amended, and of the Investment Company Act of 1940,
as amended, a Registration Statement on Form N-1A for the registration under
said Acts of the sale of shares of Nationwide Investing Foundation III, hereby
constitute and appoint Dimon Richard McFerson, Joseph J. Gasper, James F.
Laird, Jr., W. Sidney Druen, and Joseph P. Rath his/her attorneys, and each of
them, with power to act without the others, his/her attorneys, with full power
of substitution and resubstitution, for and in his/her name, place and stead,
in any and all capacities, to approve and sign any and all amendments to such
Registration Statement, containing a combined Part A (Prospectus) for
Nationwide Investing Foundation III, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys, and each of them,
full power and authority to do and perform all and every act and thing
requisite to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming that said attorneys, or any one of them, may
lawfully do or cause to be done by virtue hereof. This instrument may be
executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigneds have herewith set their names and
seals of this 7th day of November, 1997.
/s/ Sue A. Doody /s/ Douglas F. Kridler
- ----------------------------------- -------------------------------------
Sue A. Doody, Trustee Douglas F. Kridler, Trustee
Nationwide Investing Foundation III Nationwide Investing Foundation III
/s/ Robert M. Duncan /s/ John C. Bryant
- ----------------------------------- -------------------------------------
Robert M. Duncan, Trustee John C. Bryant
Nationwide Investing Foundation III Nationwide Investing Foundation III
/s/ Dimon R. McFerson /s/ C. Brent DeVore
- ----------------------------------- -------------------------------------
Dimon R. McFerson C. Brent DeVore
Nationwide Investing Foundation III Nationwide Investing Foundation III
/s/ Nancy C. Thomas /s/ Charles L. Fuellgraf, Jr.
- ----------------------------------- -------------------------------------
Nancy C. Thomas Charles L. Fuellgraf, Jr.
Nationwide Investing Foundation III Nationwide Investing Foundation III
/s/ Harold W. Weihl /s/ Thomas J. Kerr, IV
- ----------------------------------- -------------------------------------
Harold W. Weihl Thomas J. Kerr, IV
Nationwide Investing Foundation III Nationwide Investing Foundation III
/s/ David C. Wetmore
- -----------------------------------
David C. Wetmore
Nationwide Investing Foundation III
<PAGE> 1
Exhibit 1
NATIONWIDE INVESTING FOUNDATION III
-----------------------------------------
DECLARATION OF TRUST
for an Ohio Business Trust
(Established October 30, 1997)
<PAGE> 2
INDEX
PAGE
----
ARTICLE I - Name, Principal Office, Definitions and Purposes of Trust 1
Section 1.1. Name and Principal Office
Section 1.2. Definitions
Section 1.3. Purposes of Trust
ARTICLE II - Trustees 3
Section 2.1. Initial Trustees
Section 2.2 Number of Trustees
Section 2.3. Election and Term
Section 2.4. Resignation and Removal
Section 2.5. Vacancies
Section 2.6. Delegation of Power to Other Trustees
ARTICLE III - Powers of Trustees 4
Section 3.1. General
Section 3.2. Investments
Section 3.3 Legal Title
Section 3.4. Issuance and Repurchase of Securities
Section 3.5. Borrowing Money; Lending Trust Assets
Section 3.6. Delegation; Committees
Section 3.7. Collection and Payment
Section 3.8. Expenses
Section 3.9. Manner of Acting; Bylaws
Section 3.10. Miscellaneous Powers
Section 3.11. Litigation
ARTICLE IV - Investment Advisor, Distributor,
Administrator and Transfer Agent 9
Section 4.1. Investment Advisor
Section 4.2. Distributor
Section 4.3 Administrator
Section 4.4. Transfer Agent
Section 4.5. Parties to Contract
Section 4.6. Compliance with 1940 Act
ARTICLE V - Limitations of Liability of Shareholders,
Trustees and Others 11
Section 5.1. No Personal Liability of Shareholders, Trustees, etc.
Section 5.2 Mandatory Indemnification
Section 5.3 No Bond Required of Trustees
Section 5.4 No Duty of Investigation; Notice in Trust Instruments, etc.
Section 5.5 Reliance on Experts, etc.
Section 5.6 Indemnification not Exclusive, etc.
Section 5.7 Liability of Series
i
<PAGE> 3
ARTICLE VI - Shares of Beneficial Interest 14
Section 6.1. Beneficial Interest
Section 6.2. Establishment and Designation of Series
Section 6.3 Rights of Shareholders
Section 6.4. Trust Only
Section 6.5 Issuance of Shares
Section 6.6. Register of Shares; Share Certificates
Section 6.7. Transfer of Shares
Section 6.8. Notices
Section 6.9. Treasury Shares
Section 6.10. Voting Powers
Section 6.11 Investments in Trust
Section 6.12. Series or Class Designation
Section 6.13. Meetings of Shareholders
Section 6.14. Inspection of Records
Section 6.15. Additional Provisions
ARTICLE VII - Redemptions 20
Section 7.1. Redemption of Shares
Section 7.2. Price
Section 7.3. Payment
Section 7.4. Effect of Suspension of Determination of Net Asset Value
Section 7.5. Repurchase by Agreement
Section 7.6. Redemption of Shareholder's Interest
Section 7.7. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula
Section 7.8. Suspension of Right of Redemption
Section 7.9. Redemption of Shares; Disclosure of Holding
ARTICLE VIII - Determination of Net Asset Value, Net 22
Income and Distributions
Section 8.1. Net Asset Value
Section 8.2. Distribution to Shareholders
Section 8.3. Determination of Net Income
Section 8.4. Power to Modify Foregoing Procedures
ARTICLE IX - Duration; Termination and Trust; Amendment; 24
Mergers, etc.
Section 9.1. Duration
Section 9.2. Termination of Trust
Section 9.3. Amendment Procedure
Section 9.4. Merger, Consolidation and Sale or Disposition of Assets
Section 9.5. Incorporation
Section 9.6. Absence of Dissenters' Rights
ARTICLE X - Miscellaneous 27
Section 10.1. Filing
Section 10.2. Governing Law
Section 10.3. Counterparts
Section 10.4. Reliance by Third Parties
Section 10.5. Provisions in Conflict with Law or Regulations
Section 10.6. Index and Heading for Reference Only
ii
<PAGE> 4
DECLARATION OF TRUST
NATIONWIDE INVESTING FOUNDATION III
DECLARATION OF TRUST made at Columbus, Ohio as of the 30th day of October,
1997 by the Trustees hereunder, and by the holders of Shares of beneficial
interest to be issued hereunder as hereinafter provided.
WHEREAS, the Trustees desire to establish a trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest; and:
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of an Ohio business trust in accordance with the provisions of
Chapter 1746, Ohio Revised Code, and as hereinafter set forth.
NOW THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of beneficial
interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME, PRINCIPAL OFFICE, DEFINITIONS AND PURPOSES OF TRUST
Section 1.1. Name and Principal Office. The name of the trust created
hereby is "Nationwide Investing Foundation III" and the Trustees shall conduct
the business of the Trust under that name or any other name as the Trustees may
from time to time determine. The principal office of the Trust is located in
Columbus, Ohio.
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means the party other than the Trust, to the contract
described in Section 4.3 hereof.
(b) "Bylaws" means the Bylaws referred to in Section 3.9 hereof, as from
time to time amended.
(c) "Class" refers to one or more classes or sub-series of Shares
established and designated under or in accordance with the provisions of
Article VI.
1
<PAGE> 5
(d) The terms "Commission" and "Interested Person" shall have the meanings
given them in the 1940 Act. The term "Majority Shareholder Vote" shall
refer to the 67% or 50% requirement in Section 2(a)(42) of the 1940 Act,
whichever may be applicable and as may be amended, except to the extent
that the Trustees have otherwise defined "Majority Shareholder Vote" in
conjunction with the establishment of any Series of Shares.
(e) "Declaration" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "Declaration", "hereof",
"herein" and "hereunder" shall be deemed to refer to this Declaration
rather than the article or section in which such words appear.
(f) "Distributor" means the party, other than the Trust, to the contract
described in Section 4.2 hereof.
(g) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 4.1 hereof.
(h) The "1940 Act" means the Investment Company Act of 1940 and the rules
and regulations thereunder, as amended from time to time.
(i) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.
(j) "Series" refers to a series of Shares established and designated under
or in accordance with the provisions of Article VI.
(k) "Shares" or "Shares" means the units of interest into which the
beneficial interest in the Trust shall be divided from time to time,
including the Shares of any Series or Class which may be established by
the Trustees, and includes fractions of Shares as well as whole Shares.
(l) "Shareholder" means a record owner of outstanding Shares.
(m) "Transfer Agent" means the party, other than the Trust, to the
contract described in Section 4.4 hereof.
(n) The "Trust" means Nationwide Investing Foundation III and refers to
the Ohio business trust established by this Declaration of Trust, as
amended from time to time.
(o) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of
the Trust or the Trustees.
2
<PAGE> 6
(p) The "Trustee" or "Trustees" means the person or persons who have
signed this Declaration, so long as such person or persons shall continue
in office in accordance with the terms hereof, and all other persons who
may from time to time be duly elected, qualified and serving as Trustees
in accordance with the provisions hereof, and reference herein to a
Trustee or the Trustees shall refer to such person or persons in their
capacity as trustee or trustees hereunder.
Section 1.3. Purposes of Trust. The purposes of the Trust are to operate
as an investment company as defined in the 1940 Act and to engage in any lawful
activity for which business trusts may be formed under Chapter 1746, Ohio
Revised Code.
ARTICLE II
TRUSTEES
Section 2.1. Initial Trustees. Upon the execution of this Declaration of
Trust or a counterpart hereof or some other writing in which each of the
Trustees accepts such trusteeship and agrees to the provisions hereof, each of
the Trustees listed at the end of this Declaration of Trust shall become the
initial Trustees of the Trust.
Section 2.2. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees. The Trustees serving as such, whether described in
Section 2.1 above or hereafter becoming a Trustee, may increase or decrease the
number of Trustees to a number other than the number theretofore determined. A
Trustee shall qualify by accepting in writing his election or appointment and
agreeing to be bound by the Declaration of Trust. No decrease in the number of
Trustees shall have the effect of removing any Trustee from office prior to the
expiration of his or her term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to Section 2.4.
Section 2.3. Election and Term. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.5 hereof, the Trustees shall
be elected by the Shareholders, who shall vote as a single class and not by
Series and shall vote at such times as the Trustees shall determine that such
election is required by the 1940 Act or is otherwise advisable. There is no
requirement that the Trustees have an annual meeting of the Shareholders. In the
event the Trustees determine to have an annual or special meeting of the
Shareholders at which Trustees will be elected, it shall be held at such time
and place and in such manner as the Bylaws shall provide notwithstanding
anything in this section to the contrary. Except in the event of death,
resignation or removal, each of the Trustees shall hold office until the next
meeting of Shareholders called for the purpose of electing Trustees and until
his successor is elected and qualified to serve as Trustee.
Section 2.4. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting except to the extent required
by the 1940 Act or under circumstances that would justify the Trustee's removal
for cause and then only if required by the remaining Trustees) by an instrument
in writing signed by him and delivered to the other Trustees or to any officer
of the Trust or at a meeting of the Trustees, and such resignation shall be
effective upon
3
<PAGE> 7
such delivery, or at a later date according to the terms of the instrument. Any
of the Trustees may be removed with or without cause, by the written action of
two-thirds of the number of Trustees prior to such removal or by Shareholders at
any meeting called for that purpose. No Trustee shall be entitled to any damages
on account of such removal. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust Property held in the name of the
resigning or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
Section 2.5. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency or contract created or entered into
pursuant to the terms of the Declaration. In the case of an existing vacancy,
including a vacancy existing by reason of an increase in the number of Trustees
as set forth in Section 2.2. hereof, subject to the provisions of Section 16(a)
of the 1940 Act, the remaining Trustees may fill such vacancy by the appointment
of such other person or persons as they in their discretion shall see fit, made
by a written instrument signed by a majority of the remaining Trustees. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.5., the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Notwithstanding the foregoing, to the extent the Trust adopts and
implements a written plan pursuant to Rule 12b-1 under the 1940 Act, and so long
as required by the 1940 Act, the selection and nomination of Trustees who are
"interested persons" of the Trust as defined in the 1940 Act, shall be committed
to the discretion of the Trustees who are not "interested persons," as so
defined.
Section 2.6. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under the Declaration except as herein otherwise expressly provided and
except to the extent that the exercise of such power would be prohibited by the
1940 Act.
4
<PAGE> 8
ARTICLE III
POWERS OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations and maintain offices both
within and without the State of Ohio, in any and all states of the United States
of America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interest of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of the Declaration, the presumption shall be in favor
of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. Investments. The Trustees shall have the power to:
(a) Conduct, operate and carry on the business of an investment company
and exercise all the powers necessary and appropriate for the conduct of
such operations;
(b) Invest in, hold for investment, or reinvest in, securities, including
common and preferred stocks; shares of other investment companies;
warrants; bonds; debentures; bills; time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments; government
securities, including securities of any state, municipality or other
political subdivision, or any governmental or quasi-governmental agency or
instrumentality; and money market instruments including bank certificates
of deposit, finance paper, commercial paper, bankers' acceptances and all
kinds of repurchase agreements, of any corporation, company, trust,
association, firm or other business organization however established, and
of any country, state, municipality or other political subdivisions, or
any governmental or quasi-governmental agency or instrumentality;
(c) Acquire (by purchase, subscription or otherwise), to hold, to trade in
and deal in, to acquire or write any rights or options to purchase or
sell, to sell or otherwise dispose of, to lend, and to pledge any such
securities and repurchase agreements and forward foreign currency exchange
contracts, to purchase and sell futures contracts on securities,
securities indices and foreign currencies, to purchase or sell options on
such contracts, foreign currency contracts and foreign currencies and to
engage in all types of hedging and risk management transactions;
5
<PAGE> 9
(d) Exercise all rights, powers and privileges of ownership or interest in
all securities included in the Trust Property, including the right to vote
thereon and otherwise act with respect thereto, to exercise the powers and
rights of subscription, and to do all acts for the preservation,
protection, improvements and enhancement in value of all such securities;
(e) Join with other holders of any securities or debt instruments in
acting through a committee, depository, voting trustee or otherwise, and
in that connection to deposit any security or debt instrument with, or
transfer any security or debt instrument to, any such committee,
depository or trustee, and to delegate to them such power and authority
with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to agree
to pay, and to pay, such committee, depository or trustee as the Trustees
shall deem proper;
(f) Acquire (by purchase, lease or otherwise) and to hold, use, maintain,
develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein;
(g) Act as a distributor of shares and as underwriter of, or broker or
dealer in, securities or other property;
(h) Allocate assets, liabilities and expenses of the Trust to a particular
Series or Class of Shares or to apportion the same among two or more
Series or Classes, provided that any liabilities or expenses incurred by a
particular Series or Class of Shares shall be payable solely out of the
assets of that Series;
(i) Consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer the security or debt
instrument of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect to
any security or debt instrument held in the Trust;
(j) Aid by further investment any corporation, company, trust, association
or firm, any obligation of or interest in which is included in the Trust
Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect,
preserve, improve or enhance the value of such obligation or interest; to
guarantee or become surety on any or all of the contracts, stocks, bonds,
notes, debentures and other obligations of any such corporation, company,
trust, association or firm; and
(k) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the attainment
of any object or the furtherance of any power hereinbefore set forth,
either alone or in association with others, to do every other act or thing
incidental or appurtenant to or growing out of or connected with the
aforesaid business or purposes, objects or powers, and to engage in any
other lawful act or activity in which corporations organized under Chapter
1701, Ohio Revised Code, may engage.
6
<PAGE> 10
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 3.3. Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees except that the Trustees shall have power to cause legal
title to any Trust Property to be held by or in the name of one or more of the
Trustees, or in the name of the Trust, or in the name of any other Person as
nominee, on such terms as the Trustees may determine, provided that the interest
of the Trust therein is appropriately protected. The right, title and interest
of the Trustees in the Trust Property shall vest automatically in each Person
who may hereafter become a Trustee. Upon the resignation, removal or death of a
Trustee, he shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee in
the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
Section 3.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VI, VII, VIII, and IX hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the of Ohio governing business corporations.
Section 3.5. Borrowing Money; Lending Trust Assets. The Trustees shall
have power to borrow money or otherwise obtain credit to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust assets.
Section 3.6. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the extent such delegation is
permitted by the 1940 Act, including without implied limitation the power and
authority to act in the name of the Trust and of the Trustees, to sign documents
and to act as attorney-in-fact for the Trustees.
Section 3.7. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
7
<PAGE> 11
Section 3.8. Expenses. The Trustees are authorized to pay or cause to be
paid out of the principal or income of the Trust, or partly out of principal and
partly out of income, and to charge or allocate the same to, between or among
such one or more of the Series or Classes that may be established pursuant to
Article VI, as the Trustees deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, Investment Adviser, Distributor, Administrator, Transfer
Agent, auditor, counsel and such other agents, consultants and independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur. Without limiting the generality of any other
provision hereof, the Trustees shall be entitled to reasonable compensation from
the Trust for their services as Trustees and may fix the amount of such
compensation.
Section 3.9. Manner of Action; Bylaws. Except as otherwise provided herein
or in the Bylaws or in the 1940 Act, any action to be taken by the Trustees may
be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum being present), including any meeting held by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, or by written consents of a
majority of the Trustees (unless a higher proportion is required by the 1940 Act
or other applicable law). The Trustees may adopt Bylaws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such Bylaws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 3.9 and in
addition to such provisions or any other provision of this Declaration or of the
Bylaws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 3.10. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, any
one or more of the foregoing of whom may be a Trustee, and appoint from their
own number, and terminate, any one or more committee which may exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
(d) purchase, and pay for out of Trust Property, insurance policies insuring the
assets of the Trust and the payment of distributions and principal on its
portfolio investments and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding or having held any such position or by reason of
any action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability; (e) establish
8
<PAGE> 12
pension, profit-sharing, Share purchase, and other retirement, incentive and
benefit plans for any Trustees, officers, employees and agents of the Trust; (f)
to the extent permitted by law, indemnify any person with whom the Trust has
dealings, including the Investment Adviser, Distributor, Administrator, Transfer
Agent and selected dealers, to such extent the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
Section 3.11. Litigation. The Trustees shall have the power to engage in
and to prosecute, defend, compromise, abandon, or adjust, by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust to pay or to satisfy
any debts, claims or expenses incurred in connection therewith, including those
of litigation, and such power shall include without limitation the power of the
Trustees or any appropriate committee thereof, in the exercise of their or its
good faith business judgment, to dismiss any action, suit, proceeding, dispute,
claim, or demand, derivative or otherwise, brought by any person, including a
Shareholder in its own name or the name of the Trust, whether or not the Trust
or any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR
AND TRANSFER AGENT
Section 4.1. Investment Adviser. Subject to a Majority Shareholder Vote
unless such vote is not required pursuant to the 1940 Act or Commission rule or
exemption, the Trustees may, in their discretion, from time to time enter into
one or more investment advisory or management contracts whereby the other party
to such contract shall undertake to furnish the Trust such management,
investment advisory, statistical and research facilities and services,
promotional activities, and such other facilities and services, if any, as the
Trustees shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may, in their discretion, determine. Notwithstanding
any provisions of the Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Investment Adviser (and all without further
action by the Trustees). Any such purchases, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees.
Section 4.2. Distributor. The Trustees may, in their discretion, from time
to time enter into a contract, providing for the sale of Shares to the Trust at
not less than the net asset value per Share (as described in Article VIII
hereof), whereby the Trust may either agree to sell the Shares to the other
party to the contract or appoint such other party its sales agent for such
Shares. In either case, the contract shall be on such terms and conditions as
the Trustees may in their discretion determine
9
<PAGE> 13
not inconsistent with the provisions of this Article IV or the Bylaws; and such
contract may also provide for the repurchase or sale of Shares of the Trust by
such other party as principal or as agent of the Trust and may provide that such
other party may enter into selected dealer agreements with registered securities
dealers or other qualified distributors to further the purpose of the
distribution or repurchase of the Shares.
Section 4.3. Administrator. The Trustees may, in their discretion, from
time to time enter into an administrative services agreement whereby the other
party to such contract shall provide facilities, equipment, and personnel to
carry out certain administrative services for the operation of the business and
affairs of the Trust and each of its separate Series, including the fund
accounting responsibilities with respect to the Trust, the Series and any
Classes. The contract shall have such terms and conditions as the Trustees may,
in their discretion, determine not inconsistent with the Declaration or the
Bylaws. Such services may be provided by one or more Persons.
Section 4.4. Transfer Agent. The Trustees may, in their discretion, from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may, in their discretion, determine not
inconsistent with the Declaration or the Bylaws. Such services may be provided
by one or more Persons.
Section 4.5. Parties to Contract. Subject to compliance with the
provisions of the 1940 Act, but not withstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and without limiting the generality of their
powers and authority otherwise set forth herein, enter into one or more
exclusive or non-exclusive contracts with any one or more corporations, trusts,
associations, partnerships, limited partnerships, other types of organizations
or individuals ("Contracting Party") to provide for the performance and
assumption of the services, duties and responsibilities to, for or of the Trust
and /or the Trustees as described in Sections 4.1, 4.2, 4.3, and 4.4 above and
to provide for the performance and assumption of such other services, duties and
responsibilities in addition to those set forth above as the Trustees may
determine appropriate (collectively, such services, duties and responsibilities
are referred to as "Services").
The same person may be the Contracting Party for some or all of the
Services and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the Services for, including
provisions (to the extent consistent with the 1940 Act) relating to the standard
of duty of and the rights to indemnification of the Contacting Party and others,
as the Trustees may determine. Subject to the 1940 Act, nothing herein shall
preclude, prevent or limit the Trust or a Contracting Party from entering into
sub-contractual arrangements for any of the Services.
Subject to the provisions of the 1940 Act, the fact that:
(a) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
investment adviser, distributor or agent of or for any Contracting Party,
or of or for any parent or affiliate of any Contracting Party or that the
10
<PAGE> 14
Contracting Party or any parent or affiliate thereof is a Shareholder or
has an interest in the Trust; or
(b) any Contracting Party may have a contract providing for the rendering
of any similar Services to one or more other corporations, trusts,
associations, partnerships, limited partnerships or other organizations,
or has other business or interests
shall not affect the validity of any contract for the performance and assumption
of Services or disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or accountability to
the Trust or its Shareholders, provided in the case of any relationship or
interest referred to in the preceding clause (a) on the part of on the part of
any Trustee or officer of the Trust either (i) the material facts as to such
relationship of interest have been disclosed to or are known by the Trustees not
having any such relationship or interest and the contract involved is approved
in good faith by a majority of such Trustees not having any such relationship or
interest (even though such unrelated or disinterested Trustees are less than a
quorum of all of the Trustees); or (ii) the material facts as to such
relationship or interest and as to the contract have been disclosed to or are
known by the Shareholders entitled to vote thereon and the contract involved is
specifically approved in good faith by vote of the Shareholders; or (iii) the
specific contract involved is fair to the Trust as of the time it is authorized,
approved or ratified by the Trustees or by the Shareholders.
Section 4.6. Compliance with 1940 Act. Any contract entered into pursuant
to Sections 4.1 or 4.2 shall be consistent with and subject to the requirements
of Section 15 of the 1940 Act (including any amendment thereof or other
applicable Act of Congress hereafter enacted) with respect to its continuance in
effect, its termination and the method of authorization and approval of such
contract or renewal thereof.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders, Trustees, etc. No
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
except that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust.
No Shareholder as such shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
obligations or affairs of the Trust. If any Shareholder or former Shareholder
shall be charged or held personally liable for any obligation or liability of
the Trust solely by reason of being or having been a Shareholder and not because
of such Shareholder's acts or omissions or for some other reason, the Trust
(upon proper and timely request by the Shareholder) shall assume the defense
against such charge and satisfy any judgment or settlement thereon, and the
11
<PAGE> 15
Shareholder or former Shareholder (or his heirs, executors, administrators or
other legal representatives or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the assets of the
Trust Property to be held harmless from and indemnified against all loss and
expense arising from such liability.
The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent, employee,
consultant, Investment Adviser, Distributor, Administrator, or Transfer Agent of
the Trust, nor shall any Trustee be responsible for the act or omission of any
other Trustee; and (b) the Trustees may rely on the advice of counsel or experts
as described in Section 5.6 below.
Section 5.2. Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) Every person who is, or has been a Trustee or officer of the
Trust shall be indemnified by the Trust against all liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof.
(ii) The words "claim", "action", "suit" or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith or in the
reasonable belief that his action was in or not opposed to the best
interest of the Trust; or
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraphs (b)(i) or
(b)(ii) resulting in a payment by a
12
<PAGE> 16
Trustee or officer, unless there has been either a determination
that such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office by the court or other body
approving the settlement or other disposition or by a reasonable
determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such
conduct:
(A) by vote of a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect
any other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a Person who has ceased to be such Trustee
or officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any
rights to indemnification to which personnel other than Trustees and
officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of
this Section 5.2 shall be advanced by the Trust prior to final disposition
thereof upon receipt of an undertaking by or on behalf of the recipient to
repay such amount if it is ultimately determined that he is not entitled
to indemnification under this Section 5.2, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses
arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in
office act on the matter) or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient ultimately will be
found entitled to indemnification.
As used in this Section 5.2, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same similar
grounds is then or had been pending.
13
<PAGE> 17
Agents and employees of the Trust who are not Trustees or officers of the
Trust may be indemnified under the same standards and procedures set forth in
this Section 5.2., in the discretion of the Board.
Section 5.4. No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
Section 5.5. No Duty of Investigation; Notice in Trust Instruments, etc.
All Persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Trust for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under the Declaration or in their capacity as
officers, employees or agents of the Trust and not personally. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees or by any officer, employee
or agent may give notice that this Declaration of Trust is on file with the
Secretary of State of Ohio and recite that the same is executed or made by them
not individually, but as Trustee, officer, employee or agent, and that the
obligations of any such instrument are not binding upon any of the them or
Shareholders, individually, but bind only the estate of the applicable Trust,
Series or Class, as set forth in Section 1746.13(A), Ohio Revised Code, and may
contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to bind the Trustees individually.
The Trustees may at all times maintain insurance for the protection of the Trust
Property, its Shareholders, Trustees, officers, employees and agents in such
amount as the Trustees shall deem adequate to cover possible tort liability, and
such other insurance as the Trustees in their sole judgment shall deem
advisable.
Section 5.6. Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
the Administrator, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or expert
may also be a Trustee.
Section 5.7. Indemnification not Exclusive, etc. The right of
indemnification provided by this Article V shall not be exclusive of or affect
any other rights to which any Trustee or officer may be entitled. As used in
this Article V, Trustee or officer shall include such person's heirs, executors
and administrators. Nothing contained in this Article V shall affect any rights
to indemnification to which personnel of the Trust, other than any Trustee or
officer, may be entitled, by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on behalf of any such
person.
14
<PAGE> 18
Section 5.8. Liability of Series. Liabilities belonging to any Series or
Class of the Trust, including, without limitation, expenses, fees, charges,
taxes, and liabilities incurred or arising in connection with the management
thereof, shall be paid only from the assets belonging to that Series or Class.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the Shareholders
hereunder shall be divided into transferable shares of beneficial interest,
without par value. The number of shares of beneficial interest authorized
hereunder, and the number of Shares of each Series or Class thereof that may be
issued hereunder is unlimited. The Trustees shall have the exclusive authority
without the requirement of Shareholder authorization or approval to establish
and designate one or more Series of Shares and one or more Classes thereof as
the Trustees deem necessary, appropriate or desirable. Each Share of any Series
shall represent a beneficial interest only in the assets of that Series. Subject
to the provisions of Section 6.12 hereof, the Trustees may also authorize the
creation of additional Series of Shares (the proceeds of which may be invested
in separate and independent investment portfolios) and additional Classes of
Shares within any Series. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and non-assessable.
Section 6.2. Establishment and Designation of Series. Without limiting the
authority of the Trustees set forth above to establish and designate any further
Series or Class or to classify all or any part of the issued Shares of any
Series to make them part of an existing or newly created Class or to amend
rights and preferences of new or existing Series or Class, including the
following Series, all without Shareholder approval, there are hereby established
and designated (i) initial Series of Shares designated Series A, which shall
represent interests in the Nationwide Mid Cap Growth Fund, Series B, which shall
represent interests in the Nationwide Growth Fund, Series C, which shall
represent interests in the Nationwide Fund, Series D, which shall represent
interests in the Nationwide Bond Fund, Series E, which shall represent interests
in the Nationwide Tax-Free Income Fund, Series F, which shall represent
interests in the Nationwide Long-Term U.S. Government Bond Fund, Series G, which
shall represent interests in the Nationwide Intermediate U.S. Government Bond
Fund, Series H, which shall represent interests in the Nationwide Money Market
Fund and Series I, which shall represent interests in the Nationwide S&P 500
Index Fund, (ii) one Class of Shares for each current Series of the Trust, other
than Series H and I, which Class shall be known as Class D Shares. Series I will
be issued without any class designation.
Section 6.3. Rights of Shareholders. The ownership of the Trust Property
and the property of each Series of the Trust of every description and the right
to conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than the
beneficial interest conferred by their Shares, and they shall have no right to
call for any partition or division of any property, profits, rights or interests
of the Trust nor can they be called upon to assume any losses of the Trust or
suffer an assessment of any kind by virtue of their ownership of Shares. Every
Shareholder by virtue of having become a Shareholder shall be held to
15
<PAGE> 19
have expressly assented and agreed to the terms hereof and to have become a
party hereto. The Shares shall be personal property giving only the rights in
the Declaration specifically set forth. The Shares shall not entitle the holder
to preference, preemptive, appraisal, conversion or exchange rights, except as
the Trustees may determine with respect to any Series or Class of Shares. The
death of a Shareholder during the continuance of the Trust shall not operate to
terminate the Trust nor entitle the representative of any deceased Shareholder
to an accounting or to take any action in court or elsewhere against the Trust
or the Trustees, but only to the rights of said decedent under this Declaration
of Trust.
Section 6.4. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than an Ohio
business trust. Nothing in the Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 6.5. Issuance of Shares . The Trustees, in their discretion, may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times (including, without limitation, each business
day in accordance with the determination of net asset value per Share as set
forth in Section 8.1 hereof), and on such terms as the Trustees may deem best,
except that only Shares previously contracted to be sold may be issued during
any period when the right of redemption is suspended, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and
reissue and resell full and fractional Shares held in the treasury. Any
outstanding fractional Share of any Series shall carry proportionately all the
rights and obligations of a whole Share of that Series, including with respect
to voting, receipt of dividends and distributions, redemption of Shares, and
liquidation of the Trust. Shares may also be issued in separate Series or
Classes as provided in Section 6.12 hereof. The Trustees may from time to time
divide or combine the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interests in the Trust. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/1,000ths of a Share or integral multiples thereof.
Section 6.6. Register of Shares; Share Certificates. A register will be
kept at the principal office of the Trust or at an office of the Transfer Agent
which shall contain the names and addresses of the Shareholders and the number
of Shares held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to who are the holders of the Shares and who
shall be entitled to receive dividends or distributions or otherwise to exercise
or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive
payment of any dividend or distribution, nor to have notice given to him as
herein or in the Bylaws provided, until he has given his address to the Transfer
Agent or such other officer or agent of the Trustees as shall keep the said
register for entry thereon. It is not contemplated that certificates will be
issued for the Shares; however, the Trustees, in their discretion, may authorize
the issuance of Share certificates and promulgate appropriate rules and
regulations as to their use.
16
<PAGE> 20
Section 6.7. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery, the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 6.8. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 6.9. Treasury Shares. Shares held in the treasury shall, until
reissued pursuant to Section 6.5, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 6.10. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.3 hereof or as
required by Section 16 (a) of the 1940 Act; (ii) with respect to any investment
advisory or management contract as provided in Section 4.1; (iii) with respect
to termination or reorganization of the Trust or any Series or Class as provided
in Section 9.2.; (iv) with respect to any amendment of the Declaration to the
extent and as provided in Section 9.3; (v) with respect to any merger,
consolidation or sale or disposition of assets as provided in Section 9.4; (vi)
with respect to incorporation of the Trust to the extent and as provided in
Section 9.5; (vii) to the same extent as the stockholders of an Ohio business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders; and (viii) with respect to such additional
matters relating to the Trust as may be required by the Declaration, the Bylaws,
the 1940 Act or any registration of the Trust with the Commission (or any
successor agency), or as the Trustees may consider necessary or desirable.
Except as otherwise provided in the Declaration or as required by the 1940
Act or other applicable law, and subject to applicable quorum requirements,
matters voted on by Shareholders must be approved by the affirmative vote of the
holders of a majority of the Shares voting at any meeting of Shareholders and
Trustees must be elected by a plurality of the Shares voting, or by an
instrument in writing, without a meeting, signed by a majority of the Trustees
and consented to by the holders of a majority of Shares outstanding and entitled
to vote, or by such other vote as may be
17
<PAGE> 21
established by the Trustees with respect to any Series or Class of Shares,
provided that the election of Trustees (after the election by the initial sole
Shareholder) must be approved by the Shareholders at a meeting of Shareholders.
Each whole Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Share shall be entitled to
proportionate fractional vote, except that Shares held in the treasury of the
Trust shall not be voted, that on matters relating to the Trust and governed by
specific voting requirements in the 1940 Act shall be voted in accordance with
the 1940 Act and that the Trustees may, in conjunction with the establishment of
any Series of Shares, establish conditions under which the several Series shall
have separate voting rights or no voting rights. There shall be no cumulative
voting in the election of Trustees. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law, the
Declaration or the Bylaws to be taken by Shareholders. The Bylaws may include
further provisions for Shareholders' votes and meetings and related matters.
Section 6.11. Investments in Trust. The Trustees may accept investments in
the Trust from such persons and on such terms and for such consideration, not
inconsistent with the provisions of the 1940 Act, as they from time to time
authorize. The Trustees may authorize any Distributor, Custodian, Transfer Agent
or other Person to accept orders for the purchase of Shares that conform to such
authorized terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
Section 6.12. Series or Class Designation. The Trustees, in their
discretion, may authorize the issuance of Shares of multiple Series or Classes,
and the different Series or Classes shall be established and designated, and the
variations in the relative rights and preferences as between the different
Series or Classes shall be fixed and determined by the Trustees, provided, that
all Shares shall be identical except that there may be variations so fixed and
determined between different Series as to investment objective, purchase price,
right of redemption and the price, terms and manner of redemption, special and
relative rights as to dividends and on liquidation, conversion rights,
conditions under which the several Series shall have separate voting rights or
no voting rights, and such other matters, as the Trustees deem appropriate. All
references to Shares in the Declaration shall be deemed to be shares of any or
all Series as the context may require.
If the Trustees shall authorize the issuance of Shares of the Trust with
multiple Series or Classes, the following provisions shall be applicable:
(a) The number of authorized shares and the number of shares of each
Series or Class that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued
and reacquired of any Series or Class into one or more other Series, or
one or more other Classes that may be established and designated from time
to time. The Trustees may hold as treasury shares (of the same or some
other Series or Class), reissue for such consideration and on such terms
as they may determine, or cancel any Shares of any Series or Class
reacquired by the Trust at their discretion from time to time.
18
<PAGE> 22
(b) The power of the Trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to the
existing Series or Classes which represents the interests in the assets of
the Trust immediately prior to the establishment of any additional Series
or Classes and the power of the Trustees to invest and reinvest assets
applicable to any such additional Series or Classes shall be as set forth
in the instrument of the Trustees establishing such Series or Classes
which is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange
or liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the
rights of creditors of such Series, and shall be so recorded upon the
books of account of the Trust. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which
are not readily identifiable as belonging to any particular Series, the
Trustees or their delegate shall allocate them among any one or more of
the Series established and designated from time to time in such manner and
on such basis as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and
binding upon the shareholders of all Series for all purposes. No holder of
Shares of any Series shall have any claim on or right to any assets
allocated or belonging to any other Series.
(d) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust allocated to that Series and all expenses,
costs, charges and reserves attributable to that Series which are not
readily identifiable as belonging to any particular Class, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series shall be
allocated and charged by the Trustees or their delegatee to and among any
one or more of the Series established and designated from time to time in
such manner and on such basis as the Trustees, in their sole discretion,
deem fair and equitable and no Series shall be liable to any person except
for its allocated share. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees or their delegatee shall be
conclusive and binding upon the Shareholders of all Series and Classes for
all purposes. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated
as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The
assets of a particular Series of the Trust shall, under no circumstances,
be charged with liabilities, expenses, costs, charges and reserves
attributable to any other Series thereof of the Trust. All Persons
extending credit to, or contracting with or having any claim against a
particular Series of the Trust shall look only to the assets of that
particular Series for payment of such credit, contract or claim.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Trust with respect to the nine
initial Series which represents the interests in the assets of the Trust
immediately prior to the establishment of any additional Series. With
respect to any other Series, dividends and distributions on Shares of a
particular
19
<PAGE> 23
Series or Class may be paid or credited in such manner and with such
frequency as the Trustees may determine, which may be daily or otherwise,
pursuant to a standing resolution or resolutions adopted only once or with
such frequency as the Trustees may determine, to the holders of Shares of
that Series or Class, from such of the income and capital gains, accrued
or realized, from the assets belonging to that Series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to
that Series or Class. All dividends and distributions on Shares of a
particular Series or Class shall be distributed pro rate to the holders of
that Series or Class in proportion to the number of Shares of that Series
or Class held by such holders at the date and time of record established
for the payment of such dividends or distributions.
(f) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a
Series or Class thereof shall be entitled to receive his pro rata Share of
distributions of income and capital gains made with respect to such Series
or Class net of liabilities, expenses, costs, charges and reserves
belonging and allocated to such Series or Class. Upon redemption of his
Shares or indemnification for liabilities incurred by reason of his being
or having been a Shareholder of a Series, such Shareholder shall be paid
solely out of the funds and property of such Series or Class of the Trust.
Upon liquidation or termination of a Series or Class thereof of the Trust,
a Shareholder of such Series or Class thereof shall be entitled to receive
a pro rata Share of the net assets of such Series based on the net asset
value of his Shares. A Shareholder of a particular Series of the Trust
shall not be entitled to commence or participate in a derivative or class
action on behalf of any other Series or the Shareholders of any other
Series of the Trust.
(g) All Shares of all Series shall have "equal voting rights" as provided
in Section 18(i) of the 1940 Act, except as otherwise permitted or
required by the 1940 Act. The holder of each of the Shares shall be
entitled to one vote for each Share held. The Trustees shall have full
power and authority to call meetings of the Shareholders of a particular
Class or Classes of Shares or of one or more particular Series of Shares,
or otherwise call for the action of such Shareholders on any particular
matter.
(h) Except as otherwise provided in this Article VI, the Trustees shall
have full power and authority to determine the designations, preferences,
privileges, sales charges, purchase prices, assets, liabilities, expenses,
costs, charges and reserves belonging or allocated thereto, limitations
and rights, including without limitation voting, dividend, distribution
and liquidation rights, of each Series and Class of Shares. Subject to any
applicable requirements of the 1940 Act, the Trustees shall have the
authority to provide that the Shares of one Class shall be automatically
converted into Shares of another Class of the same Series or that the
holders of Shares of any Series or Class shall have the right to convert
or exchange such Shares into Shares of one or more other Series or Classes
of Shares, all in accordance with such requirements, conditions and
procedures as may be established by the Trustees.
(i) The establishment and designation of any Series or Class of shares
shall be effective upon the execution by a majority of the then Trustees
of an instrument setting forth such establishment and designation and the
relative rights and preferences of such Series, or as
20
<PAGE> 24
otherwise provided in such instrument. At any time that there are no
shares outstanding of any particular Series or Class previously
established and designated, the Trustees may, by an instrument executed by
a majority of their number, abolish that Series or Class and the
establishment and designation thereof.
Section 6.13. Meetings of Shareholders. A meeting of the Shareholders
shall be held at such times, on such day and at such hour as the Trustees may
from time to time determine, or at the written request of the holder or holders
of ten percent (10%) or more of the total number of Shares then issued and
outstanding of the Trust entitled to vote as such meeting or as required by law.
Any such request shall state the purpose of the proposed meeting. The meeting
shall be held either at the principal office of the Trust, or at such other
place as may be designated by the Trustees, for such purposes as may be
specified by the Trustees.
Section 6.14. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of an Ohio corporation organized under Chapter 1701, Ohio Revised
Code.
Section 6.15. Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE VII
REDEMPTIONS
Section 7.1. Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. The Trustees shall have full power and authority to vary and change
the right of redemption applicable to the various Series and Classes of Shares.
Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares at the price determined as hereinafter
set forth, upon the appropriately verified written application of the record
holder thereof (or upon such other form of request as the Trustees may
determine) at such office or agency as may be designated from time to time for
that purpose by the Trustees. The Trustees may from time to time specify
additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement or
prospectus under the Securities Act of 1933.
Section 7.2. Price. Shares will be redeemed at their net asset value
determined as set forth in Section 8.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 8.1 hereof after
receipt of such application.
Section 7.3. Payment. Payment for such Shares shall be made in cash or in
property out of the assets of the relevant Series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time
21
<PAGE> 25
to time in the Trust's then effective registration statement or prospectus under
the Securities Act of 1933, subject to the provisions of Section 7.3 hereof.
Notwithstanding the foregoing, the Trust or its delegate may withhold from such
redemption proceeds any amount arising (i) from a liability of the redeeming
Shareholder to the Trust, or (ii) in connection with any federal or state tax
withholding requirements.
Section 7.4. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 7.8 hereof, the Trustees shall declare a suspension of the
determination of net asset value with respect to Shares of the Trust or of any
Series or Class thereof, the rights of Shareholders (including those who shall
have applied for redemption pursuant to Section 7.1 hereof but who shall not yet
have received payment) to have Shares redeemed and paid for by the Trust shall
be suspended until the termination of such suspension is declared. Any record
holder who shall have his redemption right so suspended may, during the period
of such suspension, by appropriate written notice of revocation at the office or
agency where application was made, revoke any application for redemption not
honored and withdraw any certificates on deposit. The redemption price of Shares
for which redemption applications have not been revoked shall be the net asset
value of such Shares next determined as set forth in Section 8.1 after the
termination of such suspension, and payment shall be made within seven (7) days
after the date upon which the application was made plus the period after such
application during which the determination of net asset value was suspended.
Section 7.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per Share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 8.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
Section 7.6. Redemption of Shareholder's Interest. The Trust shall have
the right at any time without prior notice to the Shareholder to redeem Shares
of any Shareholder for their then current net asset value per Share if the
aggregate net asset value of such Shares is less than the minimum amount
established by the Trustees from time to time, subject to such terms and
conditions as the Trustees may approve, and subject to the Trust's giving
general notice to all Shareholders of its intention to avail itself of such
right, either by publication in the Trust's prospectus, if any, or by such other
means as the Trustees may determine.
Section 7.7. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
pursuant to the provisions of Section 8.2.
Section 7.8. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings; (ii)
during which trading on the New York Stock Exchange is restricted; (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the
22
<PAGE> 26
value of its net assets; or (iv) during any other period when the Commission may
for the protection of security holders of the Trust by order permit suspension
of the right of redemption or postponement of the date of payment or redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in (ii), (iii), or (iv) exist. Such
suspension shall take effect at such time as the Trust shall specify, but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
Section 7.9. Redemption of Shares; Disclosure of Holding. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person of a number, or principal amount, of Shares or
other securities of the Trust sufficient to maintain or bring the direct or
indirect ownership of Shares or other securities of the Trust into conformity
with the requirements for such qualification; and (ii) to refuse to transfer or
issue Shares or other securities of the Trust to any Person whose acquisition of
the Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 7.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other authority.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE
NET INCOME AND DISTRIBUTIONS
Section 8.1. Net Asset Value. For all purposes under this Declaration of
Trust, the net asset value of any Series or Class shall be determined by at
least once on each business day, as of the close of the New York Stock Exchange
or as of such other time or times as the Trustees shall determine.
The value of the assets of any Series of the Trust shall include the
appraisal of the securities allocated to such Series, such appraisal to be on
the basis of the amortized cost of money market securities or market value in
the case of other securities, or, consistent with the rules and regulations of
the Commission, by such other method as shall be deemed to reflect the fair
value thereof, determined in good faith by or under the direction of the
Trustees, together with all the other assets
23
<PAGE> 27
belonging to such Series. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
such Series which shall be deemed appropriate. The net asset value per Share of
the Shares of any Series shall be the quotient obtained by dividing the
resulting amount by the total number of Shares of that Series outstanding. The
power and duty to make the daily calculations may be delegated by the Trustees
to the Investment Adviser, the Custodian, the Transfer Agent or such other
Person as the Trustees by resolution may determine. The Trustees may suspend the
daily determination of net asset value to the extent permitted by the 1940 Act.
Section 8.2. Distributions to Shareholders. The Trustees shall from time
to time distribute ratably among the Shareholders of the Trust or of a Series or
a Class thereof such proportion of the net profits, surplus (including paid-in
surplus), capital, or assets held by the Trustees as they may deem proper. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the Shareholders, or such Series or Class, additional
Shares issuable hereunder in such manner, at such times, and on such terms as
the Trustees may deem proper. Such distributions may be among the Shareholders
of record at the time of declaring a distribution or among the Shareholders of
record at such later date as the Trustees shall determine. The Trustees may in
their discretion determine that, solely for the purposes of such distributions,
outstanding Shares shall exclude Shares for which orders have been placed
subsequent to a specified time. The Trustees may always retain from the net
profits such amount as they may deem necessary to pay the debts or expenses of
the Series or Class or to meet obligations of the Series or Class, or as they
may deem desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 8.3. Determination of Net Income. The term "net income" with
respect to a Series or Class of shares is hereby defined as the gross earnings
of the Series or Class, excluding gains on sales of securities and stock
dividends received, less the expenses of the Trust allocated to the Series or
Class by the Trustees in such manner as they determine to be fair and equitable
or otherwise chargeable to the Series or Class. The expenses shall include (1)
taxes attributable to the income of the Trust exclusive of gains on sales, and
(2) other charges properly deductible for the maintenance and administration of
the Trust; but there shall not be deducted from gross or net income any losses
on securities, realized or unrealized. The Trustees shall otherwise have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
24
<PAGE> 28
Section 8.4. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable.
Without limiting the generality of the foregoing, the Trustees may establish
additional Series or Classes of Shares in accordance with Section 6.12, and
declare dividends thereon in such manner as they shall determine.
ARTICLE IX
DURATION; TERMINATION OF TRUST
AMENDMENT; MERGERS; ETC.
Section 9.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust.
(a) The Trust or any Series or Class of the Trust may be terminated:
(i) by the affirmative vote of the holders of a majority of the
Shares voting at any meeting of Shareholders, or (ii) by an
instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to by the holders of a majority of Shares
outstanding and entitled to vote, or by such other vote as may be
established by the Trustees with respect to any Series or Class of
Shares.
Upon the termination of the Trust or any one or more Series or Class:
(i) The Trust or the Series or Class, as applicable, shall carry on
no business except for the purpose of winding up its affairs or the
affairs of such Series or Class and that required by the 1940 Act.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and/or the Series or Class and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the Trust
or any Series or Class shall have been wound up, including the power
to fulfill or discharge the contracts of the Trust or the Series of
the Trust, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining
Trust Property to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and to do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require Shareholder approval in accordance with
Section 9.4 hereof.
25
<PAGE> 29
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection,
the Trustees may distribute the remaining Trust Property, in cash or
in kind or partly each, among the Shareholders according to their
respective rights.
(b) After termination of the Trust or any Series or Class of the Trust and
distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination, and the
Trustees shall thereupon be discharged from all further liabilities and
duties hereunder, and the rights and interests of all Shareholders thereof
shall thereupon cease with regard to the Trust, Series or Class, as
applicable.
Section 9.3. Amendment Procedure.
(a) This Declaration may be amended by a vote of the Shareholders holding
a majority of the Shares voting, or by any instrument in writing, without
a meeting, signed by a majority of the Trustees and consented to by the
holders of not less than a majority of the Shares outstanding and entitled
to vote. Amendments shall be effective upon the taking of action as
provided in this section or at such later time as shall be specified in
the applicable vote or instrument. The Trustees may also amend this
Declaration without the vote or consent of Shareholders to designate
Series or Classes in accordance with Section 6.12 hereof, to change the
name of the Trust or any Series or Class thereof, to supply any omission,
to cure, correct or supplement any ambiguous, defective or inconsistent
provision hereof, or if they deem it necessary to conform this Declaration
to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the
Internal Revenue Code, or to make any other changes in the Declaration
which do not materially adversely affect the rights of Shareholders
hereunder, but the Trustees shall not be liable for failing to do so. In
addition amendment of this Declaration of Trust as it may affect any one
or more Series may be effected by vote of the Trustees at any time when
the Trust has no outstanding Shares or Shareholders of such Series.
(b) No amendment may be made under this Section 9.3 which would change any
rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares outstanding and
entitled to vote, or by such other vote as may be established by the
Trustees with respect to any Series of Shares. Nothing contained in this
Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon
Shareholders without the express consent of each Shareholder or Trustee
involved.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by
the Trustees as aforesaid or a copy
26
<PAGE> 30
of the Declaration, as amended, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when lodged among
the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall become effective, or
at any time there are no longer outstanding any Shares of the Trust, this
Declaration may be terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a majority of the
Trustees.
Section 9.4. Merger, Consolidation and Sale or Disposition of Assets. The
Trustees may sell, convey and transfer the assets of the Trust, or the assets
belonging to one or more or all Series, to another trust, partnership,
association or corporation organized under the laws of any state of the United
States, or to the Trust to be held as assets belonging to one or more Series of
the Trust, in exchange for cash, shares or other securities (including, in the
case of a transfer to another Series of the Trust, Shares of such other Series)
with such transfer being made subject to, or with the assumption by the
transferee, of the liabilities belonging to each Series the assets of which are
so transferred; provided, however, that no assets belonging to the Trust or to
any particular Series shall be so transferred unless the terms of such transfer
shall have first been approved at a meeting called for that purpose by the
affirmative vote of Shareholders holding a majority of the voting power of Trust
or of each Series affected. Following such transfer, the Trustees shall
distribute such cash, shares or other securities (giving due effect to the
assets and liabilities belonging to and any other differences among the various
Series the assets belonging to which have so been transferred) among the
Shareholders of the Series the assets belonging to which have been so
transferred; and if all the assets of the Series or Trust have been so
transferred, the Series or Trust, as the case may be, shall be terminated.
The Trust or any Series thereof may be a party, with one or more entities
(including another Series) to an agreement of merger or consolidation; provided,
however, that any such agreement of merger or consolidation shall be approved by
the Trustees, and by the affirmative vote of Shareholders holding a majority of
the voting power of the Trust or of each Series affected.
Section 9.5. Incorporation. With the approval of the holders of a majority
of the Shares outstanding and voting, or by such other vote as may be
established by the Trustees with respect to any Series of Shares [(if
Shareholder approval is required)], the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all of the Trust Property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property to any such corporation, trust, association or
organization in exchange for the shares or securities thereof and assumption of
liabilities of the Trust or otherwise, and to lend money to, subscribe for the
shares or securities of, and enter into any contracts with any such corporation,
trust, partnership, association or organization in which the Trust holds or is
about to acquire shares or any other interest. The Trustees may also cause a
merger or consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect.
27
<PAGE> 31
Section 9.6. Absence of Dissenters' Rights. No shareholder shall be
entitled, as a matter of right, to relief as a dissenting shareholder in respect
of any proposal or action involving the Trust.
ARTICLE X
MISCELLANEOUS
Section 10.1. Filing. The original or a copy of this instrument and of
each amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. This Declaration, any amendment and the report
required by Section 1746.04, Ohio Revised Code, hereto shall be filed in the
office of the Secretary of the of Ohio and in such other places as may be
required under the laws of Ohio and may also be filed or recorded in such other
places as the Trustees deem appropriate. The Declaration and each amendment
thereto shall be effective upon adoption. A restated Declaration, integrating
into a single instrument all of the provisions of the Declaration which are then
in effect and operative, may be executed from time to time by a majority of the
Trustees and shall, upon filing with the Secretary of the of Ohio, be conclusive
evidence of all amendments contained herein and may thereafter be referred to in
lieu of the original Declaration and the various amendments thereto.
Section 10.2. Governing Law. This Declaration is executed by the Trustees
and delivered with reference to the laws of the of Ohio, and the rights of all
parties and the validity and construction of every provision hereof shall be
subject to and construed according to the laws of said State.
Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall sufficiently evidenced by any such original counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any Bylaws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions
is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other
28
<PAGE> 32
applicable laws and regulations, the conflicting provisions shall be
deemed never to have constituted a part of the Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of the Declaration or render invalid or improper any action
taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in
any manner affect such provision in any other jurisdiction or any other
provision of the Declaration in any jurisdiction.
Section 10.6. Index and Heading for Reference Only. The Index and heading
preceding the text, articles and sections hereof have been inserted for
convenience and reference only and shall not be construed to affect the meaning,
construction or effect of this Declaration.
IN WITNESS WHEREOF, the undersigned Trustees have hereunto set their hand this
_____ day of October, 1997.
/s/ Sue A. Doody /s/ Douglas F. Kridler
- ------------------------------ ------------------------------
Sue A. Doody, Trustee Douglas F. Kridler, Trustee
/s/ Robert M. Duncan /s/ John C. Bryant
- ------------------------------ ------------------------------
Robert M. Duncan, Trustee John C. Bryant
/s/ Dimon R. McFerson /s/ C. Brent DeVore
- ------------------------------ ------------------------------
Dimon R. McFerson C. Brent DeVore
/s/ Nancy C. Thomas /s/ Charles L. Fuellgraf, Jr.
- ------------------------------ ------------------------------
Nancy C. Thomas Charles L. Fuellgraf, Jr.
/s/ Harold W. Weihl /s/ Thomas J. Kerr, IV
- ------------------------------ ------------------------------
Harold W. Weihl Thomas J. Kerr, IV
/s/ David C. Wetmore
- ------------------------------
David C. Wetmore
Trust Address: Three Nationwide Plaza
26th Floor
Columbus, Ohio 43215
<PAGE> 1
Exhibit 2
NATIONWIDE INVESTING FOUNDATION III
- --------------------------------------------------------------------------------
BYLAWS
- --------------------------------------------------------------------------------
Dated October 30, 1997
<PAGE> 2
BYLAWS
OF
NATIONWIDE INVESTING FOUNDATION III
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Series", "Shareholder",
"Shares", "Transfer Agent", "Trust", "Trust Property" and "Trustees" have the
respective meaning given them in the Declaration of Trust of Nationwide
Investing Foundation III adopted October 30, 1997, and as amended from time to
time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust in the State of Ohio shall be in the City of Columbus,
County of Franklin, with the principal office at Three Nationwide Plaza,
Columbus, Ohio.
Section 2. Other Offices. The Trust may have offices in such other places
within as well as without the State of Ohio, as the Trustees may from time to
time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. There is no requirement that the Trustees have annual
meetings of the Shareholders. In the event the Trustees determine to have an
annual meeting of the Shareholders, it shall be held at such place within or
without the State of Ohio on such day and at such time as the Trustees shall
designate. Special meetings of the Shareholders may be called at any time by a
majority of the Trustees and shall be called by any Trustee upon written request
of Shareholders holding in the aggregate not less than ten percent (10%) of the
outstanding Shares having voting rights, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without the State of Ohio on such day and at such time as the Trustees
shall designate.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purpose of the meeting, shall be given by the
Trustees by mail to each Shareholder at his address as recorded on the register
of the Trust, mailed at least ten (10) days and not more than sixty (60) days
before the meeting. Only the business stated in the notice of the meeting shall
be considered at
<PAGE> 3
such meeting. No notice need be given to any Shareholder who shall have failed
to inform the Trust of his current address or if a written waiver of notice,
executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
Section 3. Quorum and Required Vote. At any meeting of Shareholders, a
quorum for the transaction of business shall consist of a majority represented
in person or by proxy of all votes attributable to the outstanding Shares
(without regard to individual series) entitled to vote with respect to a matter;
provided, however, that at any meeting at which the only actions to be taken are
actions required by the 1940 Act to be taken by vote of the Shareholders of an
individual series, a quorum shall consist of a majority of all votes
attributable to the outstanding Shares of such individual series entitled to
vote thereon, and that at any meeting at which the only action to be taken shall
have been determined by the Board of Trustees to affect the rights and interests
of one or more but not all series of the Trust, a quorum shall consist of a
majority of all votes attributable to the outstanding Shares of the series so
affected; and provided, further, that reasonable adjournments of such meeting
until a quorum is obtained may be made by a vote attributable so the Shares
present in person or by proxy. A majority of the votes shall decide any question
or a plurality shall elect a Trustee, subject to any applicable requirements of
law or of this Bylaws or the Declaration of Trust; provided, however, that when
any provisions of law or of this Bylaws requires the holders of Shares of any
particular series to vote by series and not in the aggregate with respect to a
matter, then a majority of all votes attributable to the outstanding Shares of
that series shall decide such matter insofar as that particular series shall be
concerned.
Section 4. Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than sixty (60) days
prior to the date of any meeting of Shareholders or distribution or other action
as a record date for the determinations of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by the Declaration. Only Shareholders of record at the close
of business on the record date will be entitled to notice of and to vote at any
meeting.
Section 5. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Trustees may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of
<PAGE> 4
any other person as regards the change or management of such Share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
To the extent that Series are included as underlying investment options in
variable contracts issued by Nationwide Life Insurance Company or Nationwide
Life and Annuity Insurance Company (collectively, "Nationwide"), Nationwide will
vote the shares of each Series at any meeting in accordance with timely
instructions under the variable contracts issued by Nationwide. Nationwide will
vote shares attributable to variable contracts as to which no voting
instructions are received in proportion (for, against or abstain) to those for
which timely instructions are received. If a proxy is received that does not
specify a choice, Nationwide will consider its timely receipt as an instruction
to vote in favor the proposal to which it relates. In certain circumstances,
Nationwide has the right to disregard voting instructions from certain variable
contract owners. Variable contract owners may revoke previously submitted voting
instructions given to Nationwide at any time prior to any meeting by either
submitting to the Trust a subsequently dated proxy, delivering to the Trust a
written notice of revocation or otherwise giving notice of revocation in open
meeting, in all cases prior to the exercise of the authority granted in the
proxy.
Section 6. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders of
an Ohio business corporation or as required by the 1940 Act.
Section 7. Action Without a Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these Bylaws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than by
regular or stated meetings shall be held whenever called by the Chairman, or by
any one of the Trustees, at the time being in office. Notice of the time and
place of each meeting other than regular or stated meetings shall be given by
the Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by an Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar
<PAGE> 5
communications equipment by means of which all persons participating in the
meeting can hear each other, which telephone conference meeting shall be deemed
to have been held at a place designated by the Trustees at the meeting.
Participation in a telephone conference meeting shall constitute presence in
person at such meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if all
the Trustees consent to the action in writing and the written consents are filed
with the records of the Trustees' meetings. Such consents shall be treated as a
vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall
be present in person at any regular or special meeting of the Trustees in order
to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these Bylaws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these Bylaws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees and powers conferred
upon the same (subject to the same limitations with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees. The Trustees may designate a chairman of any such Committee. In the
absence of such designation, the Committee may elect its own Chairman.
Section 2. Meeting, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committees, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written action of the requisite number of members of a Committee
without a meeting and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the offices of the Trust.
<PAGE> 6
Section 3. Advisory Board. The Trustees may appoint an Advisory Board to
consist in the first instance of not less than three (3) members. Members of
such Advisory Board shall not be Trustees or officers and need not be
Shareholders. Members of this Board shall hold office for such period as the
Trustees may by resolution provide. Any member of such Board may resign
therefrom by a written instrument signed by him which shall take effect upon
delivery to the Trustees. The Advisory Board shall have no legal powers and
shall not perform the functions of Trustees in any manner, said Board being
intended merely to act in an advisory capacity. Such Advisory Board shall meet
at such times and upon such notice as the Trustees may by resolution provide.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
Chairman, a Treasurer and a Secretary, who shall be elected by the Trustees. The
Trustees may elect or appoint such other officers or agents as the business of
the Trust may require, including a Vice Chairman, one or more Assistant
Secretaries and one or more Assistant Treasurers. The Trustees may delegate to
any officer or committee the power to appoint any subordinate officers or
agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration of Trust or the Bylaws, the Chairman, the Vice Chairman,
the Treasurer and the Secretary shall hold office until such officer's successor
shall have been duly elected and qualified, and all other officers shall hold
office at the pleasure of the Trustees.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause by a vote of a majority
of the Trustees. Any officer or agent appointed by any officer or committee may
be removed with or without cause by such appointing officer or committee.
Section 4. Powers and Duties of the Chairman. The Chairman may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and any Committees of the Trustees, within their respective
spheres, as provided by the Trustees, he shall at all times exercise a general
supervision and direction over the affairs of the Trust. He shall have the power
to employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust. He shall also have the power to grant, issue, execute or
sign such powers of attorney, proxies or other documents as may be deemed
advisable or necessary in furtherance of the interest of the Trust. The Chairman
shall have such other powers and duties as, from time to time, may be conferred
upon or assigned to him by the Trustees.
Section 5. Powers and Duties of Vice Chairman. In the absence or
disability of the Chairman, the Vice Chairman or, if there be more than one Vice
Chairman, any Vice Chairman designated by the Trustees shall perform all the
duties and may exercise any of the powers of the Chairman, subject to the
control of the Trustees. Each Vice Chairman shall perform such other duties as
may be assigned to him from time to time by the Trustees and the Chairman.
<PAGE> 7
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust which may come into his hands to such custodian as the
Trustees may employ pursuant to Article X of these Bylaws. He shall render a
statement of condition of the finances of the Trust to the Trustees as often as
they shall require the same and he shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Shareholders and the Trustees in proper books
provided for that purpose; he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of the Transfer Agent. The Secretary shall attend to the
giving and serving of all notices by the Trust in accordance with the provisions
of these Bylaws and as required by law; and subject to these Bylaws, he shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
Section 8. Powers and Duties of the Assistant Treasurers. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. The Assistant Treasurers shall perform such other duties as from
time to time may be assigned to them by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his duties, if required to so by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 9. Powers and Duties of the Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. The Assistant Secretaries shall perform such other duties as from
time to time may be assigned to them by the Trustees.
Section 10. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of November in
each year and shall end on the last day of October in each year, provided,
however, that the Trustees may from time to time change the fiscal year.
<PAGE> 8
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wirelessed for the purposes of these Bylaws when it
has been delivered to a representative of any telegraph, cable or wireless
company with instruction that it be telegraphed, cabled or wirelessed. Any
notice shall be deemed to be given at the time when the same shall be mailed,
telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODIAN
The Trustees shall at all times employ a bank or trust company as
Custodian in accordance with the 1940 Act as amended and the rules promulgated
thereunder as amended.
ARTICLE XI
AMENDMENTS
These Bylaws, or any of them, may be altered, amended or repealed, or new
Bylaws may be adopted (a) by Majority Shareholder Vote, or (b) by the Trustees,
provided, however that no Bylaw may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration or these Bylaws, a vote of the Shareholders.
<PAGE> 1
Exhibit 5a
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of ____________,
1998, between NATIONWIDE INVESTING FOUNDATION III (the "Trust"), an Ohio
business trust, and NATIONWIDE ADVISORY SERVICES, INC. (the "Adviser"), an Ohio
corporation registered under the Investment Advisers Act of 1940 (the "Advisers
Act").
W I T N E S S E T H :
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940 (the "1940 Act");
WHEREAS, the Trust desires to retain the Adviser to furnish certain
investment advisory services, as described herein, with respect to certain of
the series of the Trust, all as now are or may be hereafter listed on Exhibit A
to this Agreement (each, a "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 the Adviser do mutually agree and promise as
follows:
1. Appointment as Adviser. The Trust hereby appoints the Adviser to act as
investment adviser to each Fund subject to the terms and conditions set forth in
this Agreement. The Adviser hereby accepts such appointment and agrees to
furnish the services hereinafter described for the compensation provided for in
this Agreement.
2. Duties of Adviser.
(a) Investment Management Services. (1) Subject to the supervision
of the Trust's Board of Trustees (and except as otherwise permitted under
the terms of any exemptive relief obtained by the Adviser from the
Securities and Exchange Commission, or by rule or regulation), the Adviser
will provide, or arrange for the provision of, a continuous investment
program and overall investment strategies for each Fund, including
investment research and management with respect to all securities and
investments and cash equivalents in each 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 each Fund and
will implement, or arrange for others to implement, such determinations
through the placement, in the name of a Fund, of orders for the execution
of portfolio transactions with or through such brokers or dealers as may
be so 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 each Fund as set forth in that Fund's current
prospectus and statement of additional information as currently in effect
and as supplemented or amended
<PAGE> 2
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 and
any exemptions thereto, the Adviser is authorized to appoint one or more
qualified subadvisers (each a "Subadviser") to provide each Fund with
certain services required by this Agreement. Each Subadviser shall have
such investment discretion and shall make all determinations with respect
to the investment of a Fund's assets as shall be assigned to that
Subadviser by the Adviser 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 a 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 a Fund's assets; (ii) determine the
allocation of assets among the Subadvisers, if any; and (iii) have full
investment discretion to make all determinations with respect to the
investment of Fund assets not otherwise assigned to a Subadviser.
(4) The Adviser shall research and evaluate each Subadviser, if any,
including (i) performing initial due diligence on prospective Subadvisers
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 a Fund's business and investments as the Board
of Trustees shall reasonably request.
(b) Compliance with Applicable Laws and Governing Documents. In the
performance of its duties and obligations under this Agreement, the
Adviser shall act in conformity with the Trust's Declaration of Trust and
By-Laws and the Prospectus and with the instructions and directions
received from the Trustees of the Trust and will conform to and comply
with the requirements of the 1940 Act, the Internal Revenue Code of 1986,
as amended (the "Code") (including the requirements for qualification as a
regulated investment company) and all other applicable federal and state
laws and regulations.
The Adviser acknowledges and agrees that subject to the supervision
and directions of the Trust's Board of Trustees, it shall be solely
responsible for compliance with all disclosure requirements under all
applicable federal and state laws and regulations relating to the Trust or
a Fund, including, without limitation, the 1940 Act, and the rules and
regulations
2
<PAGE> 3
thereunder, except that each Subadviser shall have liability in connection
with information furnished by the Subadviser to a Fund or to the Adviser.
(c) Consistent Standards. It is recognized that the Adviser will
perform various investment management and administrative services for
entities other than the Trust and the Funds; in connection with providing
such services, the Adviser agrees to exercise the same skill and care in
performing its services under this Agreement as the Adviser exercises in
performing similar services with respect to the other fiduciary accounts
for which the Adviser has investment responsibilities.
(d) Brokerage. The Adviser is authorized, subject to the supervision
of the Trust's Board of Trustees, to establish and maintain accounts on
behalf of each 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 select and negotiate
commissions to be paid on such transactions. In the selection of such
brokers and the placing of such orders, the Adviser shall seek to obtain
for a 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 a 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 a Fund to pay a broker
that provides brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) 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 if, but only if, the Adviser
determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
the overall responsibilities of the Adviser with respect to the accounts
as to which it exercises investment discretion.
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 a 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
3
<PAGE> 4
considers to be the most equitable and consistent with its fiduciary
obligations to each Fund and to such other clients.
(e) Securities Transactions. The Adviser will not purchase
securities or other instruments from or sell securities or other
instruments to a Fund; provided, however, the Adviser may purchase
securities or other instruments from or sell securities or other
instruments to a 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 or any
exemption therefrom.
The Adviser agrees to observe and comply with Rule 17j-1 under the
1940 Act and the Trust's Code of Ethics, as the same may be amended from
time to time.
(f) Books and Records. In accordance with 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 Funds
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 acknowledges that the Fund's Books and Records are property of the
Trust. In addition, 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 Funds are 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 a
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 be responsible
for the expenses and costs for the officers of the Trust and 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) all charges and expenses paid to an administrator
appointed by the Trust to provide administrative or compliance services, (3) the
charges and expenses of any transfer agents and registrars appointed by the
Trust, (4) the charges and expenses of independent certified public accountants
and of general ledger accounting and internal reporting services for the Trust,
(5) the charges and expenses of dividend and capital gain distributions, (6) the
compensation and expenses of Trustees of the Trust who are not "interested
persons" of the Adviser, (7) brokerage commissions and issue and transfer taxes
chargeable to the Trust in connection with securities transactions to which the
Trust is a party, (8) all taxes and fees payable by the Trust to Federal, State
or other governmental agencies, (9) the cost of stock certificates representing
shares of the Trust, (10) all expenses of shareholders' and Trustees' meetings
4
<PAGE> 5
and of preparing, printing and distributing prospectuses and reports to
shareholders, (11) 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, (12)
insurance and bonding premiums, (13) association membership dues, (14)
bookkeeping and the costs of calculating the net asset value of shares of
the Trust's Funds, and (15) 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 a Fund pursuant to this Agreement, the Adviser will be entitled to
the fee listed for each Fund on Exhibit A. Such fees will be computed daily and
payable monthly at an annual rate based on a Fund's average daily net assets.
The method of determining net assets of a 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 each 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, validly existing
and in good standing 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/or directors, 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;
5
<PAGE> 6
(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 a
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.
(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 _______________, 2000, 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 the vote of the lesser of (a) 67% of the shares of a Fund represented
at a meeting if holders of more than 50% of the outstanding shares of the
Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Fund; provided that in either event its
continuance also is approved by a majority of the Trust's Trustees who are
not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval.
(b) Termination. Notwithstanding whatever may be provided herein to
the contrary, this Agreement may be terminated at any time, without
payment of any penalty by vote of a majority of the Trust's Board of
Trustees, or by vote of a majority of the outstanding
6
<PAGE> 7
voting securities of a Fund, or by the Adviser, in each case, not less
than 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 a Fund (as required by the 1940 Act).
11. Confidentiality. Subject to the duties of the Adviser and the Trust 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 a Fund and the Trust and the actions of the
Adviser and the Funds 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:
(a) If to the Adviser:
Nationwide Advisory Services, Inc.
Three Nationwide Plaza, 26th Floor
Columbus, OH 43215
Attention: James F. Laird, Jr.
Facsimile: (614) 249-7424
(b) If to the Trust:
Nationwide Investing Foundation III
Three Nationwide Plaza, 26th Floor
Columbus, OH 43215
Attention: James F. Laird, Jr.
7
<PAGE> 8
Facsimile: (614) 249-7424
13. Jurisdiction. This Agreement shall be governed by and construed to be
in accordance with substantive laws of the State of Ohio 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
ADVISER
NATIONWIDE ADVISORY SERVICES, INC.
By:
---------------------------------------
Name:
Title:
TRUST
NATIONWIDE INVESTING FOUNDATION III
By:
---------------------------------------
Name:
Title:
8
<PAGE> 9
EXHIBIT A
NATIONWIDE INVESTING FOUNDATION III
Investment Advisory Agreement
Funds of the Trust Advisory Fees (applicable for each Fund)
- ------------------ ----------------------------------------
Nationwide Mid Cap Growth Fund 0.60% on assets up to $250 million
Nationwide Growth Fund 0.575% on assets of $250 million and more but
Nationwide Fund less than $1 billion
0.55% on assets of $1 billion and more but
less than $2 billion
0.525% on assets of $2 billion and more but
less than $5 billion
0.50% for assets of $5 billion and more
Nationwide Bond Fund 0.50% on assets up to $250 million
Nationwide Tax- Free Income Fund 0.475% on assets of $250 million and more but
Nationwide Long-Term U.S. less than $1 billion
Government Bond Fund 0.45% on assets of $1 billion and more but
Nationwide Intermediate less than $2 billion
Government Bond Fund 0.425% on assets of $2 billion and more but
less than $5 billion
0.40% for assets of $250 million
Nationwide Money Market Fund 0.40% on assets up to $1 billion
0.38% on assets of $1 billion and more but
less than $2 billion
0.36% on assets of $2 billion and more but
less than $5 billion
0.34% for assets of $5 billion and more
Nationwide S & P 500 Index Fund 0.13% of average daily net assets
9
<PAGE> 1
Exhibit 5b1
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this _____ day of __________,
1998, among NATIONWIDE INVESTING FOUNDATION III, an Ohio business trust (the
"Trust"), NATIONWIDE ADVISORY SERVICES, INC. (the "Adviser"), an Ohio
corporation registered under the Investment Advisers Act of 1940 (the "Advisers
Act"), and THE DREYFUS CORPORATION, a New York corporation (the "Subadviser"),
also registered under the Advisers Act.
WITNESSETH:
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 Adviser has, pursuant to an Advisory Agreement with the Trust
dated as of ____________,1998 (the "Advisory Agreement"), been retained to act
as investment adviser for certain of the series of the Trust which are listed on
Exhibit A to this Agreement (each, a "Fund").
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.
(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 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 and to monitor on a continuous basis
the performance of the Subadviser Assets. In providing these services, the
Subadviser will conduct a continual program of investment, evaluation and,
if appropriate,
1
<PAGE> 2
sale and reinvestment of the Subadviser Assets. The Adviser agrees to
provide 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
Subadviser Assets 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.
(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 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.
2
<PAGE> 3
(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 Subadviser Assets 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 Subadviser Assets 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 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 the Subadviser's 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
3
<PAGE> 4
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 Subadviser Assets 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 Subadviser Assets 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
Subadviser Assets.
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 Subadviser Assets.
(j) Historical Performance Information. To the extent agreed upon by
the parties, the Subadviser will provide the Trust with historical
performance information on similarly managed investment companies or for
other accounts to be included in the Prospectus, or for any other uses
permitted by applicable law.
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, the Trust or the Adviser in any way
or otherwise be deemed an agent of the Fund, the Trust 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
4
<PAGE> 5
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 the fee listed for each Fund on Exhibit A. Such fees will be 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 an annual rate based on
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 ("NFA"), 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 as currently filed with
the SEC and the information contained therein is accurate and complete in
all material respects and does not omit to state any
5
<PAGE> 6
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 NFA 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 or directors, 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 State of Ohio 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
6
<PAGE> 7
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. 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 Subadviser
Assets.
(b) Indemnification. The Subadviser shall indemnity 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. Notwithstanding any other provision in
this Agreement, the Subadviser will indemnity the Adviser and the Trust,
and their respective Affiliated Persons and Controlling Persons for any
liability and expenses, including reasonable attorneys' fees, to which
they may be subjected as a result of the Subadviser providing inaccurate
historical performance calculations concerning the Subadviser's composite
account data or historical performance information on similarly managed
investment companies or accounts, except that the Adviser and the Trust
and their respective affiliated persons and Controlling Persons shall not
be indemnified for any liability or expense resulting from their
negligence or willful misconduct in using such information.
The Adviser shall indemnify the Subadviser, its affiliated persons, 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.
7
<PAGE> 8
11. Duration and Termination.
(a) Duration. Unless sooner terminated, this Agreement shall
continue until ______________, 2000 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 at least 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 any of the other parties; or
(iii) By the Subadviser upon at least 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
8
<PAGE> 9
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:
The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attention: General Counsel
Facsimile: (212) 922-6880
(b) If to the Adviser:
Nationwide Advisory Services, Inc.
Three Nationwide Plaza, 26th Floor
Columbus, OH 43215
Attention: James P. Laird, Jr.
Facsimile: (614) 249-7424
(c) If to the Trust:
Nationwide Investing Foundation III
Three Nationwide Plaza, 26th Floor
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 State of Ohio 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.
9
<PAGE> 10
19. Certain Definitions. For the purposes of this Agreement and except as
otherwise provided herein, "interested person," "affiliated person," and
"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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first written above.
TRUST
NATIONWIDE INVESTING FOUNDATION III
By:
Name:
Title:
ADVISER
NATIONWIDE ADVISORY SERVICES, INC.
By:
Name:
Title:
SUBADVISER
THE DREYFUS CORPORATION
By:
Name:
Title:
10
<PAGE> 11
EXHIBIT A
SUBADVISORY AGREEMENT
BETWEEN NATIONWIDE INVESTING FOUNDATION III,
NATIONWIDE ADVISORY SERVICES, INC.
and THE DREYFUS CORPORATION
Effective October 31, 1997
Funds of the Trust Advisory Fees
------------------ -------------
Nationwide S&P 500 Index Fund 0.07% on Subadviser Assets up to
$250 million
0.06% for Subadviser Assets of
$250 million and more, but less
than $500 million
0.05% for Subadviser Assets of
$500 million and more but less
than $1 billion
0.04% for Subadviser Assets of
$1 billion and more
11
<PAGE> 1
Exhibit 6
UNDERWRITING AGREEMENT
BETWEEN
NATIONWIDE INVESTING FOUNDATION III
AND
NATIONWIDE ADVISORY SERVICES, INC.
AGREEMENT, made as of this _____ day of _________________, 1998, by and
between Nationwide Investing Foundation III, an Ohio business trust (the
"Trust"), and Nationwide Advisory Services, Inc., an Ohio corporation (the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end management
investment company, as defined in the Investment Company Act of 1940 (the "1940
Act"), and is so registered with the Securities and Exchange Commission (the
"SEC") under the provisions of that Act; and
WHEREAS, it is mutually desired that the Underwriter undertake as agent of
the Trust, the sale and distribution of Shares of each of the investment
portfolios of the Trust which are listed on Schedule A to this Agreement (each a
"Fund");
NOW, THEREFORE, the parties do mutually agree and promise as follows:
1. Appointment as Underwriter. The Trust hereby appoints the Underwriter
their agent for the sale of the Shares covered by the registration statement for
the Trust. As used in this Agreement, the "registration statement" shall refer
to the Trust's current registration on Form N-1A and shall include the
prospectus (Part A), Statement of Additional Information (Part B) and Part C,
and together the current prospectus and Statement of Additional Information
shall be referred to as the "Prospectus." The Trust understands that Underwriter
is now and may in the future be the distributor of the shares of several
investment companies or series (together, "Companies") including Companies
having investment objectives similar to those of the Trust. The Trust agrees
that Distributor's duties to such Companies shall not be deemed in conflict with
its duties to the Trust under this paragraph.
2. Duties of Underwriter. (a) The Underwriter hereby accepts such
appointment as distributor for the sale of the Shares and agrees that it will
use its best efforts to solicit orders for the sale of the Shares and will
undertake such advertising and promotion as it believes reasonable in connection
with such solicitation. The Underwriter shall, at its own expense, finance
appropriate activities which are primarily intended to result in the sale of the
Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
(b) In its capacity as Underwriter, Underwriter agrees to act in
conformity with the Prospectus and the Trust's Declaration of Trust and Bylaws
and with instructions received from the Trustees of the Trust and shall conform
to and comply with all applicable laws, rules and regulations, including,
without limitation, the 1940 Act, all rules and regulations promulgated by the
1
<PAGE> 2
SEC thereunder and all rules and regulations adopted by any securities
association registered under the Securities Exchange Act of 1934.
(c) The Underwriter may, and when requested by the Trustees or their
representatives shall, suspend its efforts to effectuate sales of Shares on
behalf of the Trust at any time when in the opinion of the Underwriter or of the
Trustees no sales should be made because of market or other economic
considerations or abnormal circumstances of any kind. The Trust and its Trustees
may withdraw the offering of the Shares (i) at any time with the consent of the
Underwriter, or (ii) without such consent when so required by the provisions of
any statute or of any order, rule or regulation of any governmental body having
jurisdiction. It is mutually understood and agreed that the Underwriter does not
undertake to sell all or any specific portion of the Shares.
(d) The Underwriter agrees on behalf of itself and its directors,
officers and employees to treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust and its prior,
present or potential Shareholders, and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except when requested by the Trust or when requested to divulge such
information by duly constituted authorities, after prior notification to and
approval in writing by the Trust. Such approval shall not be unreasonably
withheld and may not be withheld where the Underwriter may be exposed to civil
or criminal contempt proceedings for failure to comply.
3. Sale and Payment of Shares. (a) The Underwriter shall have the right to
purchase Shares of the Funds at the net asset value in effect at the time that
orders for such Shares are received by the Trust or its authorized agent and to
sell such Shares at the applicable public offering price through dealers or
other persons. The public offering price for the Shares of each Fund shall equal
to the sum of (a) the net asset value per Share next computed for a Fund by the
Trust and (b) any applicable sales charge, all as set forth in the current
Prospectus for the Fund. The net asset value of the Shares shall be determined
in accordance with the provisions of the Trust's Declaration of Trust and the
Prospectus. The Trust shall allow the Underwriter as compensation for its
services the particular sales charge applicable to the Shares sold. The
Underwriter may fix the portion of the distribution charge to be allowed to
dealers and others.
(b) The Underwriter agrees that it will deliver or cause to be
delivered to the Trust or to its authorized agent, as the Trustees may direct,
an amount equal to the net asset value of Shares for which purchase orders have
been placed with and accepted by the Underwriter and shall forward to the Trust
or its authorized agent, as the Trustees may direct, all orders for the purchase
of Shares with reasonable promptness after the receipt and acceptance thereof by
the Underwriter; provided, however, that the Underwriter shall have the sole
right to accept or reject all orders for the purchase of Shares and will return
promptly any rejected order together with the consideration which accompanied
it.
4. Issuance of Shares. The Trust reserves the right to issue, transfer or
sell Shares, which are otherwise subject to a sales charge, at net asset value
(a) in connection with the merger or consolidation of the Trust or the Fund(s)
with any other investment company or the acquisition by the Trust or the Fund(s)
of all or substantially all of the assets or of the outstanding Shares of any
other investment company; (b) in connection with a pro rata distribution
directly to the holders of
2
<PAGE> 3
Shares in the nature of a stock dividend or split; (c) upon the exercise of
subscription rights granted to the holders of Shares on a pro rata basis; (d) in
connection with the issuance of Shares pursuant to any exchange and reinvestment
privileges described in the Prospectus of a Fund; (e) in a sale to the Trustees,
employees, officers and directors of or salespersons employed by the Underwriter
and to officers, directors and employees of any investment adviser of the Trust;
and (f) otherwise in accordance with the Prospectus of a Fund.
5. The Trust agrees as follows:
(1) to use its best efforts to maintain its registration as a
diversified open-end management investment company under the
1940 Act, and to comply with all of the provisions of that Act
and of the rules and regulations thereunder;
(2) to register its Shares under the Securities Act of 1933, and
to use its best efforts to maintain such registration;
(3) to prepare and file such amendments to the registration
statements and Prospectus and other statements or reports as
may be necessary to comply with the Securities Act of 1933,
the 1940 Act, and the rules and regulations of the SEC;
(4) to furnish the Underwriter with a sufficient number of
Prospectuses to meet the Underwriter's requirements for use in
connection with sales of Shares, and that the Underwriter will
not be required to use any prospectuses of the Trust which
shall not be in form and content satisfactory to counsel for
the Underwriter; and
(5) at the request of the Underwriter, to take such steps as may
be necessary and feasible to qualify Shares for sale in each
state, territory or dependency of the United States of
America, in the District of Columbia and in foreign countries,
in accordance with the laws thereof, and to renew or extend
any such qualification; provided, however, that the Trust
shall not be required to qualify Shares or to maintain the
qualification of Shares in any state, territory, dependency,
district or country where they shall deem such qualification
disadvantageous to the Trust.
6. The Underwriter agrees as follows:
(1) that the Underwriter and its officers or directors will
purchase and keep Shares only for investment purposes;
(2) that it will not purchase Shares from the Shareholders except
as agent for the Trust;
(3) that upon the request of the Trust or its representative it
will furnish to the Trust or such representative any
information in its possession which is pertinent to the
preparation of any registration statement, prospectus or
amendment thereto, or any report required by law or
regulation; and
(4) that neither the Underwriter nor any other person authorized
by it to solicit purchases of Shares shall give any
information or make any representations, other than those
contained in the Registration Statement or Prospectus or in
3
<PAGE> 4
any supplemental sales literature authorized by the Trust for
use in connection with the sale of shares.
7. Fees and Expenses. The Trust may pay a distribution fee to the
Underwriter determined in accordance with any applicable Distribution Plan
adopted by the Trustees and approved by the shareholders pursuant to Rule 12b-1
under the 1940 Act.
The Underwriter shall pay expenses for (i) printing and distributing any
prospectus and preparing, printing and distributing any other literature used by
the Underwriter in connection with the offering of the Shares for sale to the
public (except such expenses as may be incurred by the Trust in connection with
the preparation, printing and distribution of any Prospectus, report or other
communication to Shareholders, to the extent that such expenses are necessarily
incurred to effect compliance by the Trust with any Federal or state law or to
enable such distribution to Shareholders), and (ii) expenses of advertising in
connection with such offering. The Trust will pay or cause to be paid (i) all
fees and expenses for the issue and delivery of Shares, and (ii) all auditing
expenses of the Trust.
8. Repurchase of Shares. The Trustees hereby appoints the Underwriter its
agent to repurchase Shares, upon the written request of the Shareholders,
accompanied by the certificate or certificates representing such Shares (if
certificates for such Shares have been issued by the Trust) properly endorsed
for transfer, at the net asset value in effect at the time when the sale is
made.
9. Indemnification. (a) The Trust agrees to indemnify, defend and hold the
Underwriter, its directors, officers and employees, and any person who controls
the Underwriter within the meaning of Section 15 of the Securities Act
("Underwriter Affiliates") free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which the Underwriter and the Underwriter Affiliates
may incur under the Securities Act or under common law or otherwise, arising out
of or based upon any untrue statement, or alleged untrue statement, of a
material fact contained in any registration statement or any prospectus or
arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in either any registration statement or any
prospectus or necessary to make the statements in either thereof not misleading.
Provided, however, that the Trust's agreement to indemnify the Underwriter and
the Underwriter Affiliates shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any information or representations which
were furnished in writing to the Trust by the Underwriter, or arising out of or
based upon any omission or alleged omission to state a material fact in
connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Underwriter and the Underwriter
Affiliates shall not be deemed to cover any liability to the Trust or its
Shareholders to which the Underwriter would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of the Underwriters reckless disregard of its obligations
and duties under this Agreement.
(b) The Underwriter agrees to indemnify, defend and hold the Trust,
its several officers and Trustees and any person who controls the Trust within
the meaning of Section 15 of the Securities Act ("Trust Affiliates") free and
harmless from and against any and all claims, demands,
4
<PAGE> 5
liabilities and expenses (including the costs of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which the Trust and the Trust Affiliates may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Trust or the Trust Affiliates
resulting from such claims or demands, shall arise out of or be based upon any
untrue, or alleged untrue, statement of a material fact contained in information
furnished in writing by the Underwriter to the Trust and used in the answers to
any of the items of the registration statement or in the Prospectus, or shall
arise out of or be based upon any omission, or alleged omission, to state a
material fact in connection with such information furnished in writing by the
Underwriter to the Trust required to be stated in such answers or necessary to
make such information not misleading.
10. Term, Duration and Termination. The term of this Agreement shall begin
as of the date first written above (or, if a particular Fund is not in existence
on that date, the date an amendment to Schedule A to this Agreement adding the
new Fund is executed) and, unless sooner terminated as provided herein, shall
remain in effect for a period of two (2) years from that date. Thereafter, if
not terminated, this Agreement shall continue in effect from year to year
thereafter provided such continuance shall be approved at least annually by (a)
a majority of the Trustees or by the affirmative vote or written approval of the
holders of a majority of the outstanding Shares and (b) a majority of the
Trustees who are not interested persons of the Underwriter, the term "interested
person" having the meaning defined in Section 2(a)(19) of the 1940 Act. This
Agreement is terminable without penalty, on not less than sixty days prior
written notice, by the Trust's Board of Trustees, by vote of a majority of the
outstanding voting securities of the Trust or by the Underwriter. This Agreement
will also terminate automatically in the event of its assignment (as such term
is defined in the 1940 Act).
11. Amendment. This Agreement may not be amended or changed in any manner
except by a written agreement executed by both the Trust and the Underwriter.
12. Jurisdiction. This Agreement shall be governed by and in accordance
with the substantive laws of the State of Ohio without reference to choice of
law principles thereof and in accordance with the 1940 Act. In case of any
conflict, the 1940 Act shall control.
13. Limitation of Liability of the Trustees and Shareholders. It is
understood and is expressly stipulated that this Agreement is executed on behalf
of the Trustees of Nationwide Investing Foundation III as Trustees and not
individually and that the obligations of this Agreement are not binding upon any
of the Trustees or shareholders of the Trust individually but are binding only
upon the assets and property of the Trust.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NATIONWIDE INVESTING FOUNDATION III
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
NATIONWIDE ADVISORY SERVICES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
6
<PAGE> 7
Dated: As of _____________
Schedule A
to the
Underwriting Agreement
between Nationwide Investing Foundation III and
Nationwide Advisory Services, Inc.
Name of Fund
- -----------------------------
Nationwide Fund
Nationwide Growth Fund
Nationwide Mid Cap Growth Fund
Nationwide Bond Fund
Nationwide Tax-Free Income Fund
Nationwide Long-Term U.S. Government Bond Fund
Nationwide Intermediate U.S. Government Bond Fund
Nationwide Money Market Fund
Nationwide S & P 500 Index Fund
NATIONWIDE INVESTING
FOUNDATION III
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
NATIONWIDE ADVISORY SERVICES,
INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
7
<PAGE> 1
CUSTODY AGREEMENT
THIS AGREEMENT, is made as of ________________, by and between NATIONWIDE
INVESTING FOUNDATION III, a business trust organized under the laws of the State
of Ohio (the "Trust"), and THE FIFTH THIRD BANK, a banking company organized
under the laws of the State of Ohio (the "Custodian").
WITNESSETH:
WHEREAS, the Trust desires that the Securities and cash of each of its
investment portfolios, as named in Exhibit A hereto, (such investment portfolios
and individually referred to herein as a "Fund" and collectively as the
"Funds"), be held and administered by the Custodian pursuant to this Agreement;
and
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly authorized
by resolution of the Board of Trustees to give Oral Instructions and Written
Instructions on behalf of the Trust and named in Exhibit B hereto or in such
resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to time serving
under the Trust's Agreement and Declaration of Trust, dated , 19 , as from time
to time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as provided
in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR
Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a settlement day by
The New York Stock Exchange, Inc. and any other day for which the Fund computes
the net asset value of the Fund.
1.5 "NASD" shall mean The National Association of Securities Dealers, Inc.
1.6 "Officer" shall mean the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Trust.
1.7 "Oral Instructions" shall mean instructions orally transmitted to and
accepted by the Custodian because such instructions are: (i) reasonably believed
by the Custodian to have been given by an Authorized Person, (ii) recorded and
kept among the records of the Custodian made in the ordinary course of business
and (iii) orally confirmed by the Custodian. The Trust shall cause all Oral
Instructions to be confirmed by Written Instructions. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect
<PAGE> 2
the validity of the transaction or the authorization thereof by the Trust. If
Oral Instructions vary from the Written Instructions which purport to confirm
them, the Custodian shall notify the Trust of such variance but such Oral
Instructions will govern unless the Custodian has not yet acted.
1.8 "Custody Account" shall mean any account in the name of the Trust,
which is provided for in Section 3.2 below.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10 "Securities Depository" shall mean The Participants Trust Company or
The Depository Trust Company and (provided that Custodian shall have received a
copy of a resolution of the Board of Trustees, certified by an Officer,
specifically approving the use of such clearing agency as a depository for the
Trust) any other clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities and Exchange Act of 1934 (the
"1934 Act"), which acts as a system for the central handling of Securities where
all Securities of any particular class or series of an issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and preferred
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, bankers' acceptances, mortgage-backed securities, shares or units of
an investment company registered under the 1940 Act, money market instruments,
guaranteed investment contracts or other obligations, and any certificates,
receipts, warrants or other instruments or documents representing rights to
receive, purchase or subscribe for the same, or evidencing or representing any
other rights or interests therein, or any similar property or assets that the
Custodian has the facilities to clear and to service.
1.12 "Shares" shall mean the units of beneficial interest issued by the
Trust.
1.13 "Written Instructions" shall mean (i) written communications actually
received by the Custodian and signed by one or more persons as the Board of
Trustees shall have from time to time authorized, or (ii) communications by
telex or any other such system from a person or persons reasonably believed by
the Custodian to be Authorized, or (iii) communications transmitted
electronically through the Institutional Delivery System (IDS), or any other
similar electronic instruction system acceptable to Custodian and approved by
resolutions of the Board of Trustees, a copy of which, certified by an Officer,
shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints the Custodian
as custodian of all Securities and cash owned by or in the possession of the
Trust at any time during the period of this Agreement, provided that such
Securities or cash at all times shall be and remain the property of the Trust.
2.2 Acceptance. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth and in
accordance with the 1940 Act as amended. Except as specifically set forth
herein, the Custodian shall have no liability and assumes no responsibly for any
non-compliance by the Trust or a Fund of any laws, rules or regulations.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of the Fund, except Securities maintained in a
Securities Depository or Book-Entry System, shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian and
shall be identified as subject to this Agreement.
2
<PAGE> 3
3.2 Custody Account. The Custodian shall open and maintain in its trust
department a custody account in the name of each Fund, subject only to draft or
order of the Custodian, in which the Custodian shall enter and carry all
Securities, cash and other assets of the Fund which are delivered to it.
3.3 Appointment of Agents. In its discretion, the Custodian may appoint,
and at any time remove, any domestic bank or trust company, which has been
approved by the Board of Trustees and is qualified to act as a custodian under
the 1940 Act, as sub-custodian to hold Securities and cash of the Funds and to
carry out such other provisions of this Agreement as it may determine, and may
also open and maintain one or more banking accounts with such a bank or trust
company (any such accounts to be in the name of the Custodian and subject only
to its draft or order), provided, however, that the appointment of any such
agent shall not relieve the Custodian of any of its obligations or liabilities
under this Agreement.
3.4 Delivery of Assets to Custodian. The Fund shall deliver, or cause to
be delivered, to the Custodian all of the Fund's Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The Custodian may
deposit and/or maintain Securities of the Funds in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any Securities
Depository or Book-Entry System, the Fund shall deliver to the
Custodian a resolution of the Board of Trustees, certified by an
Officer, authorizing and instructing the Custodian on an on-going
basis to deposit in such Securities Depository or Book-Entry System
all Securities eligible for deposit therein and to make use of such
Securities Depository or Book-Entry System to the extent possible
and practical in connection with its performance hereunder,
including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and
deliveries and returns of collateral consisting of Securities. The
Trust will promptly inform the Custodian of any change to the
authorization regarding the use of such Securities Depository or
Book-Entry System.
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of the
Custodian in such Book-Entry System or Securities Depository which
includes only assets held by the Custodian as a fiduciary, custodian
or otherwise for customers.
(c) The records of the Custodian and the Custodian's account on the
books of the Book-Entry System and Securities Depository as the case
may be, with respect to Securities of a Fund maintained in a
Book-Entry System or Securities Depository shall, by book-entry, or
otherwise identify such Securities as belonging to the Fund.
(d) If Securities purchases by the Fund are to be held in a Book-Entry
System or Securities Depository, the Custodian shall pay for such
Securities upon (i) receipt of advice from the Book-Entry System or
Securities Depository that such Securities have been transferred to
the Depository Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and transfer for
the account of the Fund. If Securities sold by the Fund are held in
a Book-Entry System or Securities Depository, the Custodian shall
transfer such Securities upon (i) receipt of advice from the
Book-Entry System or Securities depository that payment for such
Securities has been transferred to the Depository Account, and (ii)
the making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Fund.
3
<PAGE> 4
(e) Upon request, the Custodian shall provide the Fund with copies of
any report (obtained by the Custodian from a Book-Entry System or
Securities Depository in which Securities of the Fund is kept) on
the internal accounting controls and procedures for safeguarding
Securities deposited in such Book-Entry System or Securities
Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to the
Trust resulting (i) from the use of a Book-Entry System or
Securities Depository by reason of any negligence or willful
misconduct on the part of Custodian or any sub-custodian appointed
pursuant to Section 3.3 above or any of its or their employees, or
(ii) from failure of Custodian or any such sub-custodian to enforce
effectively such rights as it may have against a Book-Entry System
or Securities Depository. At its election, the Trust shall be
subrogated to the rights of the Custodian with respect to any claim
against a Book-Entry System or Securities Depository or any other
person for any loss or damage to the Funds arising from the use of
such Book-Entry System or Securities Depository, if and to the
extent that the Trust has been made whole for any such loss or
damage.
3.6 Disbursement of Moneys from Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall disburse moneys from a Fund Custody Account
but only in the following cases:
(a) For the purchase of Securities for the Fund but only upon compliance
with Section 4.1 of this Agreement and only (i) in the case of
Securities (other than options on Securities, futures contracts and
options on futures contracts), against the delivery to the Custodian
(or any sub-custodian appointed pursuant to Section 3.3 above) of
such Securities registered as provided in Section 3.9 below in
proper form for transfer, or if the purchase of such Securities is
effected through a Book-Entry System or Securities Depository, in
accordance with the conditions set forth in Section 3.5 above; (ii)
in the case of shares or units of investment companies registered
under the 1940 Act against confirmation evidencing ownership in
favor of the Trust (iii) in the case of options on Securities,
against delivery to the Custodian (or such sub-custodian) of such
receipts as are required by the customs prevailing among dealers in
such options; (iv) in the case of futures contracts and options on
futures contracts, against delivery to the Custodian (or such
sub-custodian) of evidence of title thereto in favor of the Trust or
any nominee referred to in Section 3.9 below; and (v) in the case of
repurchase or reverse repurchase agreements entered into between the
Trust and a bank which is a member of the Federal Reserve System or
between the Trust and a primary dealer in U.S. Government
securities, against delivery of the purchased Securities either in
certificate form or through an entry crediting the Custodian's
account at a Book-Entry System or Securities Depository for the
account of the Fund with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in Section
5.1 below;
(e) For the payment of any expense or liability incurred by the Trust,
including but not limited to the following payments for the account
of a Fund: interest; taxes; administration, investment management,
investment advisory, accounting, auditing, transfer agent,
custodian, trustee and legal fees; and other operating expenses of a
Fund; in all cases, whether or not such expenses are to be in whole
or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered under
the 1934 Act and a member of the NASD, relating to compliance with
rules of The Options Clearing Corporation and of any registered
national securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in connection
with transactions by the Trust;
4
<PAGE> 5
(g) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian, and a futures commission merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any contract market (or any similar organization or organizations)
regarding account deposits in connection with transactions by the
Trust;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including the
Custodian), which deposit or account has a term of one year or less;
and
(i) For any other proper purposes, but only upon receipt, in addition to
Proper Instructions, of a copy of a resolution of the Board of
Trustees, certified by an Officer, specifying the amount and purpose
of such payment, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom such payment is to
be made.
3.7 Delivery of Securities from Fund Custody Accounts. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from a
Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of a Fund but only
against receipt of payment therefor in cash, by certified or
cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section
3.5 above;
(c) In the case of a sale of shares or units of an investment company
delivery shall be effected through a sale of the assets off the
Custodian's system, to reflect the transaction within the investment
company's book-entry system.
(d) To an Offeror's depository agent in connection with tender or other
similar offers for Securities of a Fund; provided that, in any such
case, the cash or other consideration is to be delivered to the
Custodian;
(e) To the issuer thereof or its agent (i) for transfer into the name of
the Trust, the Custodian or any sub-custodian appointed pursuant to
Section 3.3 above, or of any nominee or nominees of any of the
foregoing, or (ii) for exchange for a different number of
certificates or other evidence representing the same aggregate face
amount or number of units; provided that, in any such case, the new
Securities are to be delivered to the Custodian;
(f) To the broker selling Securities, for examination in accordance with
the "street delivery" custom;
(g) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the issuer of such Securities, or pursuant to provisions for
conversion contained in such Securities, or pursuant to any deposit
agreement, including surrender or receipt of underlying Securities
in connection with the issuance or cancellation of depository
receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to the Custodian;
(h) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by a Fund;
(i) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the Custodian;
(j) For delivery in connection with any loans of Securities of a Fund,
but only against receipt of such collateral as the Trust shall have
specified to the Custodian in Proper Instructions;
5
<PAGE> 6
(k) For delivery as security in connection with any borrowings by the
Trust on behalf of a Fund requiring a pledge of assets by such Fund,
but only against receipt by the Custodian of the amounts borrowed;
(l) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Trust or a Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer registered under
the 1934 Act and a member of the NASD, relating to compliance with
the rules of The Options Clearing Corporation and of any registered
national securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in connection
with transactions by the Trust on behalf of a Fund;
(n) For delivery in accordance with the provisions of any agreement
among the Trust on behalf of a Fund, the Custodian, and a futures
commission merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Trust on behalf of a Fund; or
(o) For any other proper corporate purposes, but only upon receipt, of
Proper Instructions, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such Securities shall be
made.
3.8 Actions Not Requiring Proper Instructions. Unless otherwise instructed
by the Trust, the Custodian shall with respect to all Securities held for a
Fund;
(a) Subject to Section 7.4 below, collect on a timely basis all income
and other payments to which the Trust is entitled either by law or
pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect on a
timely basis the amount payable upon all Securities which may mature
or be called, redeemed, or retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Trust, checks, drafts and
other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect, and prepare and submit reports to the Internal Revenue
Service ("IRS") and to the Trust at such time, in such manner and
containing such information as is prescribed by the IRS;
(f) Hold for a Fund, either directly or, with respect to Securities held
therein, through a Book-Entry System or Securities Depository, all
rights and similar securities issued with respect to Securities of
the Fund; and
(g) In general, and except as otherwise directed in Proper Instructions,
attend to all non-discretionary details in connection with sale,
exchange, substitution, purchase, transfer and other dealings with
Securities and assets of the Fund.
3.9 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System for the account of the Trust on behalf of a Fund, if eligible
therefor. All other Securities held for a Fund may be registered in the name of
the Trust on behalf of such Fund, the Custodian, or any sub-custodian appointed
pursuant to Section 3.3 above, or in the name of any nominee of any of them, or
in the name of a Book-Entry System,
6
<PAGE> 7
Securities Depository or any nominee of either thereof or in the case of shares
or units of an investment company in book-entry with the investment company and
listed on the records of the Custodian; provided, however, that such Securities
are held specifically for the account of the Trust on behalf of a Fund. The
Trust shall furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of any of the nominees hereinabove referred to or in the name of a
Book-Entry System or Securities Depository, any Securities registered in the
name of a Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other property held for the
Trust, including (i) journals or other records of original entry containing an
itemized daily record in detail of all receipts and deliveries of Securities and
all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral therefor and substitutions of such collateral),
(D) dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) canceled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Trust as the Trust
shall reasonably request, or as may be required by the 1940 Act, including, but
not limited to Section 3.1 and Rule 31a-1 and Rule 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust with
a daily activity statement by Fund and a summary of all transfers to or from the
Custody Account on the day following such transfers. At least monthly and from
time to time, the Custodian shall furnish the Trust with a detailed statement,
by Fund, of the Securities and moneys held for the Trust under this Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any sub-custodian appointed pursuant to Section
3.3 above.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies if
any, relating to Securities which are not registered in the name of a Fund, to
be promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
include all other proxy materials, if any, promptly deliver to the Trust such
proxies, all proxy soliciting materials, which should include all other proxy
materials, if any, and all notices to such Securities.
3.14 Information on Corporate Actions. Custodian will promptly notify the
Trust of corporate actions, limited to those Securities registered in nominee
name and to those Securities held at a Depository or sub-Custodian acting as
agent for Custodian. Custodian will be responsible only if the notice of such
corporate actions is published by the Financial Daily Card Service, J.J. Kenny
Called Bond Service, DTC, or received by first class mail from the agent. For
market announcements not yet received and distributed by Custodian's services,
Trust will inform its custody representative with appropriate instructions.
Custodian will, upon receipt of Trust's response within the required deadline,
affect such action for receipt or payment for the Trust. For those responses
received after the deadline, Custodian will affect such action for receipt or
payment, subject to the limitations of the agent(s) affecting such actions.
Custodian will promptly notify Trust for put options only if the notice is
received by first class mail from the agent. The Trust will provide or cause to
be provided to Custodian with all relevant information contained in the
prospectus for any security which has unique put/option provisions and provide
Custodian with specific tender instructions at least ten business days prior to
the beginning date of the tender period.
7
<PAGE> 8
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of Securities for
the Trust, Written Instructions shall be delivered to the Custodian, specifying
(a) the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units purchased, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount is payable.
The Custodian shall upon receipt of such Securities purchased by a Fund pay out
of the moneys held for the account of such Fund the total amount specified in
such Written Instructions to the person named therein. The Custodian shall not
be under any obligation to pay out moneys to cover the cost of a purchase of
Securities for a Fund, if in the relevant Custody Account there is insufficient
cash available to the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for the purchase of Securities for a Fund is
made by the Custodian in advance of receipt for the account of the Fund of the
Securities purchased but in the absence of specific Written or Oral Instructions
to so pay in advance, the Custodian shall be liable to the Fund for such
Securities to the same extent as if the Securities had been received by the
Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a Fund,
Written Instructions shall be delivered to the Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Trust as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or any
other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Trust shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the Custodian shall have no liability for any of the
foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from time
to time, the Custodian may credit the relevant Custody Account, prior to actual
receipt of final payment thereof, with (i) proceeds from the sale of Securities
which it has been instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Trust, and (iii) income from
cash, Securities or other assets of the Trust. Any such credit shall be
conditional upon actual receipt by Custodian of final payment and may be
reversed if final payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit the Trust to use funds so
credited to its Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
anticipation of which funds were credited to the Custody Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its sole
discretion and from time to time, advance funds to the Trust to facilitate the
settlement of a Trust transactions on behalf of a Fund in its Custody Account.
Any such advance shall be repayable immediately upon demand made by Custodian.
8
<PAGE> 9
ARTICLE V
REDEMPTION OF TRUST SHARES
Transfer of Funds. From such funds as may be available for the purpose in
the relevant Custody Account, and upon receipt of Proper Instructions specifying
that the funds are required to redeem Shares of a Fund, the Custodian shall wire
each amount specified in such Proper Instructions to or through such bank as the
Trust may designate with respect to such amount in such Proper Instructions.
Upon effecting payment or distribution in accordance with proper Instruction,
the Custodian shall not be under any obligation or have any responsibility
thereafter with respect to any such paying bank.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the 1934 Act and
a member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading
commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Trust,
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by a Fund or in connection
with financial futures contracts (or options thereon) purchased or
sold by a Fund,
(c) which constitute collateral for loans of Securities made by a Fund,
(d) for purposes of compliance by the Trust with requirements under the
1940 Act for the maintenance of segregated accounts by registered
investment companies in connection with reverse repurchase
agreements and when-issued, delayed delivery and firm commitment
transactions, and
(e) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Trustees, certified by an Officer, setting forth the
purpose or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of
commercially reasonable care in carrying out its obligations under this
Agreement, and shall be without liability to the Trust for any loss, damage,
cost, expense (including attorneys' fees and disbursements), liability or claim
unless such loss, damages, cost, expense, liability or claim arises from bad
faith, reckless or willful misconduct on its part or on the part of any
sub-custodian appointed pursuant to Section 3.3 above. The Custodian's
cumulative liability within a calendar year shall be limited with respect to the
Trust or any party claiming by, through or on behalf of the Trust for the
initial and all subsequent renewal terms of this Agreement, to the actual
damages sustained by the Trust, (actual damages for uninvested funds shall be
the overnight Feds fund rate). The Custodian shall be entitled to rely on and
may act upon advice of counsel on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice. The
9
<PAGE> 10
Custodian shall promptly notify the Trust of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not be under any
obligation at any time to ascertain whether the Trust is in compliance with the
1940 Act, the regulations thereunder, the provisions of the Trust's charter
documents or by-laws, or its investment objectives and policies as then in
effect.
7.2 Actual Collection Required. The Custodian shall not be liable for, or
considered to be the custodian of, any cash belonging to the Trust or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 No Responsibility for title, etc. So long as and to the extent that it
is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for the Trust if such Securities are
in default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and/or any Written Instructions
actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or obligations
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
7.7 Cooperation. The Custodian shall cooperate with and supply necessary
information, by the Trust, to the entity or entities appointed by the Trust to
keep the books of account of the Trust and/or compute the value of the assets of
the Trust. The Custodian shall take all such reasonable actions as the Trust may
from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's report on Form N-1A and Form N-SAR and any other reports required by the
Securities and Exchange Commission, and (b) the fulfillment by the Trust of any
other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold harmless the
Custodian and any sub-custodian appointed pursuant to Section 3.3 above, and any
nominee of the Custodian or of such sub-custodian from and against any loss,
damage, cost, expense (including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
Securities are registered in the name of any such nominee, or (b) from any
action or inaction by the Custodian or such sub-custodian (i) at the request or
direction of or in reliance on the advice of the Trust, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement or any sub-custody agreement with a sub-custodian appointed
pursuant to Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such custody agreement, provided that
neither the Custodian nor any such sub-custodian shall be indemnified and held
harmless from and against any such loss, damage, cost, expense, liability or
claim arising from the Custodian's or such sub-custodian's negligence, bad faith
or willful misconduct. The Custodian and any sub-custodian appointed pursuant to
Section 3.3 above, and any nominee of the Custodian or of such sub-custodian
shall at all times indemnify and hold harmless the Trust for any disposition of
any securities and/or cash held by it hereunder, made by it or its agents,
officers, servants or employees in direct contradiction to the terms of this
Agreement except such acts or omissions as are required by order of any court or
other legal process or regulation of any government body.
10
<PAGE> 11
8.2 Indemnity to be Provided. If the Trust requests the Custodian to take
any action with respect to Securities, which may, in the opinion of the
custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes, acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay shall use its best efforts to ameliorate the effects of any such
failure or delay. Notwithstanding the foregoing, the Custodian shall maintain
sufficient disaster recovery procedures to minimize interruptions.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of the
date first set forth above and shall continue in full force and effect until
terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the
Trust and held by the Custodian as custodian, and (b) transfer any Securities
held in a Book-Entry System or Securities Depository to an account of or for the
benefit of the Trust at the successor custodian, provided that the Trust shall
have paid to the Custodian all fees, expenses and other amounts to the payment
or reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Trust may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the Custodian by
regulatory authorities in the State of Ohio or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian is
not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "Bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $25
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to an
account of or for the Trust at such bank or trust company all Securities of the
Trust held in a Book-Entry System or Securities Depository. Upon such delivery
and transfer, such bank or trust company shall be the successor custodian under
this Agreement and the Custodian shall be relieved of all obligations under this
Agreement. If, after reasonable inquiry, Custodian cannot find a successor
custodian as contemplated in this Section 10.3, then Custodian shall have the
right to deliver to the Trust all Securities and cash then owned by the Trust
and to transfer any Securities held in a Book-Entry System or Securities
Depository to an account of or for the Trust. Thereafter, the Trust shall be
deemed to be its own custodian with respect to the Trust and the Custodian shall
be relieved of all obligations under this Agreement.
11
<PAGE> 12
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from time
to time by the Trust and the Custodian. The fees and other charges in effect on
the date hereof and applicable to the Funds are set forth in Exhibit C attached
hereto.
ARTICLE XII
LIMITATION OF LIABILITY
The Trust is a business trust organized under the laws of the State of
Ohio and under a Declaration of Trust, to which reference is hereby made a copy
of which is on file at the office of the Secretary of State of Ohio 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 of the Trust or on behalf
thereof by any of the Trustees, officers, employees or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust or the Funds
personally, but bind only the assets of the Trust, and all persons dealing with
any of the Funds of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be in writing and shall be sent
or delivered to The receipt at the address set forth after its name herein
below:
To the Trust:
Nationwide Investing Foundation III
Three Nationwide Plaza, 3-26-04
Columbus, OH 43215
Attn: Ms. Karen Tackett
Telephone: (614) 249-0653
Facsimile: (614) 249-7424
To the Custodian:
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attn: Area Manager - Trust Operations
Telephone: (513) 579-5300
Facsimile: (513) 579-4312
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmission by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
12
<PAGE> 13
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
14.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information or its registration statement for the Trust
and such other printed matter as merely identifies Custodian as custodian for
the Trust. The Trust shall submit printed matter requiring approval to Custodian
in draft form, allowing sufficient time for review by Custodian and its counsel
prior to any deadline for printing.
14.3 No Waiver. No failure by either party hereto to exercise and no delay
by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally and no amendment
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
14.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: NATIONWIDE INVESTING FOUNDATION III
By:
- -------------------------------- -----------------------------------
Its:
----------------------------------
ATTEST: THE FIFTH THIRD BANK
By:
- -------------------------------- -----------------------------------
Its:
----------------------------------
13
<PAGE> 14
Dated: ________________
EXHIBIT A
TO THE CUSTODY AGREEMENT BETWEEN
NATIONWIDE INVESTING FOUNDATION III AND THE FIFTH THIRD BANK
--------------------
Name of Fund Date
- ------------ ----
Nationwide Mid Cap Growth Fund
Nationwide Growth Fund
Nationwide Fund
Nationwide S&P 500 Index Fund
Nationwide Bond Fund
Nationwide Tax-Free Income Fund
Nationwide Long-Term U.S. Government Bond Fund
Nationwide Intermediate U.S. Government Bond Fund
Nationwide Money Market Fund
NATIONWIDE INVESTING FOUNDATION III
By:
-----------------------------------
Its:
----------------------------------
THE FIFTH THIRD BANK
By:
-----------------------------------
Its:
----------------------------------
14
<PAGE> 15
Dated: November 1, 1997
EXHIBIT B
TO THE CUSTODY AGREEMENT BETWEEN
NATIONWIDE INVESTING FOUNDATION III AND THE FIFTH THIRD BANK
November 1, 1997
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to Administer each Custody Account.
Name Signature
---- ---------
- ------------------------------------ ----------------------------------
- ------------------------------------ ----------------------------------
- ------------------------------------ ----------------------------------
- ------------------------------------ ----------------------------------
- ------------------------------------ ----------------------------------
- ------------------------------------ ----------------------------------
- ------------------------------------ ----------------------------------
- ------------------------------------ ----------------------------------
15
<PAGE> 16
SIGNATURE RESOLUTION
RESOLVED, That all of the following officers of NATIONWIDE INVESTING FOUNDATION
III and any of them, namely the Chairman, President, Vice President, Secretary
and Treasurer, are hereby authorized as signers for the conduct of business for
an on behalf of the Funds with THE FIFTH THIRD BANK:
CHAIRMAN
- -------------------------- ----------------------------------
PRESIDENT
- -------------------------- ----------------------------------
VICE PRESIDENT
- -------------------------- ----------------------------------
VICE PRESIDENT
- -------------------------- ----------------------------------
VICE PRESIDENT
- -------------------------- ----------------------------------
VICE PRESIDENT
- -------------------------- ----------------------------------
TREASURER
- -------------------------- ----------------------------------
SECRETARY
- -------------------------- ----------------------------------
In addition, the following Assistant Treasurer is authorized to sign on behalf
of the Trust for the purpose of effecting securities transactions:
ASSISTANT TREASURER
- -------------------------- ----------------------------------
The undersigned officers of NATIONWIDE INVESTING FOUNDATION III hereby certify
that the foregoing is within the parameters of a Resolution adopted by Trustees
of the Trust in a meeting held ____________, 19__, directing and authorizing
preparation of documents and to do everything necessary to effect the Custody
Agreement between NATIONWIDE INVESTING FOUNDATION III and THE FIFTH THIRD BANK.
By:_________________________________________
Its:________________________________________
By:_________________________________________
Its:________________________________________
16
<PAGE> 17
EXHIBIT C
TO THE CUSTODY AGREEMENT BETWEEN
NATIONWIDE SEPARATE ACCOUNT TRUST AND THE FIFTH THIRD BANK
November 1, 1997
MUTUAL FUND CUSTODY FEE SCHEDULE
BASIC ACCOUNT CHARGE
MARKET VALUE CHARGE:
All Asset Levels .0015%
TRANSACTION FEES
Book Entry Trades $7.00
Ineligible Trades $25.00
Amortized Security Trades $25.00
Options, each transaction $25.00
Amortized Security Principal Paydowns $5.00
A transaction is a purchase, sale, maturity, redemption, tender, exchange,
dividend reinvestment, deposit or withdrawal of a security (with the exception
of Fifth Third Certificates of Deposit, Commercial Paper & Repo's).
MISCELLANEOUS FEES
Wire Transfers $7.00
Check Disbursements $6.00
Special Service $75.00 (per hour)
Cash Offsets Based on amounts and rates.
Maximum of 50% fee offset.
17
<PAGE> 1
Exhibit 9a
FUND ADMINISTRATION AGREEMENT
This Fund Administration Agreement is made as of this ___ day of _____________,
1998, between Nationwide Investing Foundation III, an Ohio business trust (the
"Trust"), and Nationwide Advisory Services, Inc., an Ohio corporation, (the
"Administrator").
WHEREAS, the Trust is a Massachusetts business trust, which operates as an
open-end management investment company and registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Trust desires to retain the Administrator to provide certain
administrative and fund accounting services described below with respect to
certain of the series of the Trust (the "Funds"), each of which as are now, or
may hereafter be, listed on Exhibit A to this Agreement, and the Administrator
is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants set forth
herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Trust hereby appoints the Administrator
as administrator of the Funds on the terms and conditions set forth in
this Agreement; and the Administrator hereby accepts such appointment and
agrees to perform the services and duties set forth in Section 2 of this
Agreement in consideration of the compensation provided for in Section 4
hereof.
2. Services and Duties. As Administrator, and subject to the supervision and
control of the Trust's Board of Trustees, the Administrator will provide
facilities, equipment, and personnel to carry out the following
administrative and fund accounting services for operation of the business
and affairs of the Trust and each of the Funds covered by this Agreement:
a. prepare, file, and maintain the Trust's governing documents,
including the Declaration of Trust, the Bylaws, minutes of meetings
of Trustees and shareholders, and proxy statements for meetings of
shareholders;
b. prepare and file on a timely basis with the Securities and Exchange
Commission and the appropriate state securities authorities the
registration statements for the Trust, relating to the Funds and the
Funds' shares, and all amendments thereto, the Trust's reports
pursuant to Investment Company Act Rule 24f-2, reports to
shareholders and regulatory authorities, including form N-SAR, and
prospectuses, proxy statements, and such other documents as may be
necessary or convenient to enable the Trust to make continuous
offering of the Fund's shares and to conduct its affairs;
c. prepare, negotiate, and administer contracts on behalf of the Funds
with, among others, the Trust's custodian and transfer agent;
d. supervise the Trust's custodian;
<PAGE> 2
e. calculate performance data of the Funds;
f. prepare and file on a timely basis the Federal and State income and
other tax returns for the Funds;
g. examine and review the operations of the Trust's custodian, transfer
agent and investment adviser and the Funds' subadvisers, if any, to
promote compliance with applicable state and federal law;
h. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
i. perform internal audit examinations in accordance with procedures to
be adopted by the Administrator and the Trust;
j. assist with the design, development, and operation of the Funds;
k. provide individuals reasonably acceptable to the Trust's Board of
Trustees for nomination, appointment, or election as officers of the
Trust, who will be responsible for the management of certain of the
Trust's affairs as determined by the Trust's Board of Trustees;
l. monitor the Trust's compliance with Section 817 and Sections 851
through 855 of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder, so as to enable the Trust
and each Fund to comply with the diversification requirements
applicable to investments of variable contracts and for each to
maintain its status as a "regulated investment company;"
m. advise the Trust and its Board of Trustees on matters concerning the
Funds and their affairs;
n. provide the Trust with office space and personnel; and
o. provide the Trust and each Fund with fund accounting services,
including but not limited to the following services:
1) keeping and maintaining the following books and records of the
Trust and each of the Funds pursuant to Rule 31a-1 under the
Investment Company Act, including:
a) journals containing an itemized daily record of all
purchase and sales of securities, all receipts and
disbursements of cash and all other debit and credits,
as required by Rule 31a-1(b)(1);
<PAGE> 3
b) general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by Rule 31a-1(b)(2)(i);
c) separate ledger accounts required by Rule
31a-1(b)(2)(ii) and (iii); and
d) a monthly trial balance of all ledger accounts (except
shareholder accounts) as required by Rule 31a-1(b)(8).
2) performing the following accounting services on a regular
basis for each Fund, as may be reasonably requested by the
Trust:
a) calculate the net asset value per share;
b) calculate the dividend and capital gain distribution, if
any;
c) calculate a Fund's yield;
d) reconcile cash movements with the Trust's custodian;
e) affirm to the Trust's custodian all portfolio trades and
cash movements;
f) verify and reconcile with the Trust's custodian all
daily trade activity;
g) provide such reports as may be required by the Trust;
h) preparation of the Trust's financial statements,
including oversight of expense accruals and payments;
(i) calculating the deviation between marked-to-market and
amortized cost valuations for any money market funds;
and
h) such other similar services with respect to a Fund as
may be reasonably requested by the Trust; and
p. assist in all aspects of the Funds' operations other than those
provided under other specific contracts.
The foregoing, along with any additional services that the Administrator
shall agree in writing to perform for the Trust hereunder, shall hereafter
be referred to as "Administrative Services." In compliance with the
requirements of Rule 31a-3 under the Investment Company Act, the
Administrator hereby agrees that all records that it maintains for the
Trust are the property
<PAGE> 4
of the Trust and further agrees to surrender promptly to the Trust any of
such records upon the Trust's request. The Administrator further agrees to
preserve for the periods prescribed by Investment Company Act Rule 31a-2
the records required to be maintained by Investment Company Act Rule
31a-1. Administrative Services shall not include any duties, functions, or
services to be performed for the Trust by the Trust's investment adviser,
custodian, or transfer agent pursuant to their agreements with the Trust.
The Administrator acknowledges the importance of efficient and prompt
transmission of information to the life insurance companies affiliated
with the Administrator ("Nationwide"), the purchaser of Trust shares to
fund the obligations of certain variable annuity contracts. The
Administrator agrees to use its best efforts to meet the deadline for
transmission of pricing information presently set by Nationwide and such
other time deadlines as may be established from time to time in the
future.
When performing Administrative Services to the Trust and for the Funds,
the Administrator will comply with the provisions of the Declaration of
Trust and Bylaws of the Trust, will safeguard and promote the welfare of
the Trust and the Funds, and will comply with the policies that the
Trustees may from time to time reasonably determine, provided that such
policies are not in conflict with this Agreement, the Trust's governing
documents, or any applicable statutes or regulations.
3. Expenses. The Administrator shall be responsible for expenses incurred in
providing all the Administrative Services to the Trust, including the
compensation of the Administrator's employees who serve as officers of the
Trust, except that the Trust shall reimburse the Administrator for the
cost of the pricing services that the Administer utilizes. The Trust (or
the Trust's investment adviser) shall be responsible for all other
expenses of the Trust, including without limitation: (i) investment
advisory and subadvisory fees; (ii) interest and taxes; (iii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iv) fees and expenses of the
Trust's trustees, other than those who are "interested persons" of the
Administrator or investment adviser of the Trust; (v) legal and audit
expenses; (vi) custodian and transfer and dividend disbursing agent fees
and expenses; (vii) fees and expenses related to the registration and
qualification of the Trust and the Trust's shares for distribution under
state and federal securities laws; (viii) expenses of printing and mailing
reports and notices and proxy material to beneficial shareholders of the
Trust; (ix) all other expenses incidental to holding meetings of the
Trust's shareholders, including proxy solicitations therefor; (x)
insurance premiums for fidelity and other coverage; (xi) association
membership dues; (xii) such nonrecurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which
the Trust is a party and the legal obligation which the Trust may have to
indemnify the Trust's trustees and officers with respect thereto.
4. Compensation. For the Administrative Services provided, the Trust hereby
agrees to pay and the Administrator hereby agrees to accept as full
compensation for its services rendered
<PAGE> 5
hereunder the administrative fee listed for each Fund on Exhibit A. Such
fees will be computed daily and payable monthly at an annual rate based on
a Fund's average daily net assets and will be paid monthly as soon as
practicable after the last day of each month.
In case of termination of this Agreement during any month, the
administrative fee for that month shall be reduced proportionately on the
basis of the number of business days during which it is in effect, and the
fee computed upon the average net assets for the business days it is so in
effect for that month.
5. Responsibility of Administrator.
a. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or negligence on its
part in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement. Any person,
even though also an officer, director, partner, employee or agent of
the Administrator, who may be or become an officer or trustee of the
Trust, shall be deemed, when rendering services to the Trust or
acting on any business of the Trust (other than services or business
in connection with the duties of the Administrator hereunder) in
accordance with his responsibilities to the Trust as such officer or
trustee, to be rendering such services to or acting solely for the
Trust and not as an officer, director, partner, employee or agent or
one under the control or direction of the Administrator even through
paid by the Administrator.
b. The Administrator shall be kept indemnified by the Trust and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards; provided, however, that the Trust will not indemnify the
Administrator for the portion of any loss or claim caused, directly
or indirectly, by the negligence, wilfull misfeasance or bad faith
of the Administrator or by the Administrator's reckless disregard of
its duties and obligations hereunder. In order that the
indemnification provisions contained in this Section 5 shall apply,
however, it is understood that if in any case the Trust may be asked
to indemnify or save the Administrator harmless, the Trust shall be
fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the
Administrator will use all reasonable care to identify and notify
the Trust promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification against the Trust. The Trust shall have the option
to defend the Administrator against any claim which may be the
subject of this indemnification. In the event that the Trust so
elects it will so notify the Administrator and thereupon the Trust
shall take over complete defense of the claim, and the Administrator
shall in such situation initiate no further legal or other expenses
for which it shall seek indemnification under this Section. The
Administrator shall in
<PAGE> 6
no case confess any claim or make any compromise or settlement in
any case in which the Trust will be asked to indemnify the
Administrator except with the Trust's written consent.
6. Duration and Termination.
a. This Agreement shall become effective as of the date first written
above. The Agreement may be terminated at any time, without payment
of any penalty, by either party upon 90 days' advance written notice
to the other party. The Agreement may also be terminated immediately
upon written notice to the other party in the event of a material
breach of any provision of this Agreement by such other party.
b. Upon the termination of this Agreement, the Trust shall pay to the
Administrator such compensation as may be payable prior to the
effective date of such termination. In the event that the Trust
designates a successor to any of the Administrator's obligations
hereunder, the Administrator shall, at the direction of the Trust,
transfer to such successor all relevant books, records and other
data established or maintained by the Administrator under the
foregoing provisions.
7. Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.
8. Notices. Notices of any kind to be given to the Trust hereunder by the
Administrator shall be in writing and shall be duly given if delivered to
the Trust and to its investment adviser at the following address:
Nationwide Investing Foundation III
Three Nationwide Plaza
Columbus, Ohio 43215
Attn: James F. Laird, Treasurer
Notices of any kind to be given to the Administrator hereunder by the
Trust shall be in writing and shall be duly given if delivered to the
Administrator at:
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
Attn: James F. Laird, Vice President and General Manager
9. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. If any provision
of this Agreement shall be held or made invalid by a
<PAGE> 7
court or regulatory agency decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. Subject to the
provisions of Section 5, hereof, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors. This Agreement shall be governed by and construed to be in
accordance with substantive laws of the State of Ohio 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.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
NATIONWIDE ADVISORY SERVICES, INC.
By:
--------------------------------------
Vice President and General Manager
NATIONWIDE INVESTING FOUNDATION III
By:
--------------------------------------
<PAGE> 8
EXHIBIT A
NATIONWIDE INVESTING FOUNDATION III
Fund Administration Agreement
Funds of the Trust Fund Administration Fees
- ------------------ ------------------------
Nationwide Fund For each Fund,
Nationwide Growth Fund 0.07% on assets up to$250 million
Nationwide Mid Cap Growth Fund 0.05% on asset of $250 million and more
Nationwide Bond Fund but less than $1 billion
Nationwide Tax-Free Income Fund 0.04% on assets of $1 billion and more
Nationwide Long-Term U.S. Government
Bond Fund
Nationwide Intermediate U.S. Government
Bond Fund
Nationwide Money Market Fund
Nationwide S & P 500 Index Fund 0.05% on assets up to $1 billion
0.04% on assets of $1 billion and more
<PAGE> 1
Exhibit 9b
TRANSFER AND DIVIDEND DISBURSING AGENT AGREEMENT
BETWEEN
NATIONWIDE INVESTING FOUNDATION III
AND
NATIONWIDE INVESTORS SERVICES, INC.
This Transfer and Dividend Disbursing Agent Agreement ("Agreement"), made
this ______ day of __________________, ______, by and between Nationwide
Investing Foundation III, an Ohio business trust, hereinafter called the
("Trust") and Nationwide Investors Services, Inc., an Ohio corporation
hereinafter called the ("Agent").
WITNESSETH:
WHEREAS, the Trust desires to enter into a Transfer and Dividend
Disbursing Agent Agreement with the Agent under which Agent will provide the
services as set forth in detail in this Agreement and the Agent is desirous of
providing such services upon the terms and conditions hereinafter provided; and
WHEREAS, Trust is an open-end management investment company and is or will
be so registered under the Investment Company Act of 1940, as amended, and has
or will have registered its shares for public offering under the Securities Act
of 1933; and
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, it is agreed as follows:
1. The Agent shall act as Transfer Agent for the Trust and in this
capacity, the Agent shall:
a. maintain the current name and address, issuance date, and
number of shares and fractional shares owned by all
shareholders of the Trust;
b. deposit and process all investments on a daily basis;
c. establish new accounts;
d. process and mail redemption checks including Systematic
Withdrawal Plan checks;
e. examine and process all legal changes in share registrations
and transfers of ownership;
<PAGE> 2
f. respond to inquiries from investors and representatives
selling shares of the Trust;
g. prepare and mail confirmation statements.
2. The Agent shall act as the Dividend Disbursing Agent and shall:
a. calculate the shareholders' dividends and capital gains
distributions;
b. prepare and mail dividend and capital gains distribution
checks;
c. cause reinvestment of such dividends and capital gains where
required
d. prepare and mail dividend and capital gains distribution
confirmations.
3. The Agent shall also:
a. address and mail semi-annual reports, annual reports and
prospectuses;
b. prepare and mail all necessary reports to investors, State and
Federal authorities, including Federal Form 1099, 1042, and
1042S;
c. issue replacement checks and maintain a "Stop Payment" file;
d. solicit taxpayer identification numbers;
e. provide comprehensive accounting controls and reconciliations
of all cash flow.
4. The Agent agrees to act in good faith in furnishing the services
provided for herein and shall at all times maintain a staff of
trained personnel for the purpose of performing its obligations
under the Agreement. The Agent assumes no responsibility under this
Agreement other than to render the services called for hereunder in
good faith. Anything herein to the contrary notwithstanding, Trust
hereby agrees that while Agent has sole responsibility for
performance of its obligations under this Agreement, any or all
duties of Agent may be performed from time to time by one or more
third parties as Agent, in its discretion, shall select, provided
that Trust shall be notified of all contracts between Agent and such
third party or parties and provided copies thereof upon request.
5. The Agent agrees that in all matters relating to the services to be
performed by it hereunder, it will use its best efforts to act in
conformity with the terms of the Declaration of Trust, Bylaws, Code
of Ethics, Registration Statements and current Prospectuses of the
Trust. Each of the parties agree that in all matters relating to the
performance of this Agreement, it will use its best efforts to
conform to and comply
<PAGE> 3
with the requirements of the Investment Company Act of 1940 and all
other applicable Federal, State or other laws and regulations.
Nothing herein contained shall be deemed to relieve or deprive the
Board of Trustees of the Trust of its responsibility for and control
of the conduct of the affairs of the Trust.
6. The services of the Agent as provided herein are not to be deemed to
be exclusive, and it shall be free to render services of any kind to
any other group, firm, individual or association, and to engage in
other business or activity.
7. This Agreement, including Exhibit A hereto, may be amended at any
time by mutual written consent of the parties.
8. This Agreement may be terminated by either party hereto upon sixty
(60) days written notice given by one to the other, provided that no
such notice of termination given by the Agent to the Trust shall be
effective unless and until a substitute person or entity has been
engaged by the Trust to perform the services required hereunder for
the Trust, or the Trust has certified to the Agent that other
arrangements have been made by it to provide such services.
9. For its services specified above, the Trust shall pay to the Agent
fees as provided in Exhibit A which is attached hereto and made a
part hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
NATIONWIDE INVESTING
FOUNDATION III
Attest:
- ------------------------------------ ------------------------------------
Rae M. Pollina James F. Laird, Jr.
Secretary Treasurer
NATIONWIDE INVESTORS SERVICES,
INC.
Attest:
- ------------------------------------ ------------------------------------
Rae M. Pollina Christopher A. Cray
Secretary Treasurer
<PAGE> 4
EXHIBIT A
SCHEDULE OF FEES
For the services specified in the Agreement, the Trust shall pay the Agent
the sum of:
$18.00 per Fixed Income Fund account in Class D Shares per annum
$16.00 per Equity Fund account in Class D Shares per annum
$27.00 per Money Market Fund account in Class D Shares per annum
to be computed monthly, based on the number of accounts as shown on the books of
the fund at each month-end.
In addition, for the services specified in the Agreement, the Trust shall
pay the Agent an annual fee, computed daily and payable monthly of 0.01% of
average daily net assets of the Local Fund Shares of the Nationwide S & P 500
Index Fund.
The fees listed above becomes effective on _________________________ and
is payable on or before the 10th of each succeeding month.
In addition, the Trust shall pay the Agent reimbursement for the
out-of-pocket expenses, including postage, telephone, forms, supplies and
counsel.
Special extraordinary projects shall be performed by the Agent at rates to
be determined and agreed upon by the parties, based on time and effort involved.
AGREED TO AND ACCEPTED BY:
NATIONWIDE INVESTING
FOUNDATION III
Dated as of: By:
----------------------------- -------------------------------
James F. Laird, Jr., Treasurer
NATIONWIDE INVESTORS SERVICES,
INC.
By:
-------------------------------
Christopher A. Cray, Treasurer
<PAGE> 1
Exhibit 10
DRUEN, DIETRICH, REYNOLDS & KOOGLER
ATTORNEYS AT LAW
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(614) 249-7617
FACSIMILE: (614) 249-2418
BRIAN M. BACON
THOMAS E. BARNES
ROGER A. CRAIG
RAE ANN DANKOVIC*
ELIZABETH A. DAVIN
THOMAS W. DIETRICH
W. SIDNEY DRUEN
JOHN D. GILLESPIE
JEANNE A. GRIFFIN
ANGELA R. JETT
LEROY JOHNSTON, III
MARK B. KOOGLER
WALTER R. LEAHY
GEORGE K. MACKLIN
RANDALL W. MAY
M. LINDA MAZZITTI
DAVID A. MEYER
SANDRA L. NEELY
CHRISTINE A. NESS
PETER J. OESTERLING**
RANDALL L. ORR
ROBERT M. PARSONS
THOMAS J. PRUNTE
ARLENE L. REILLY
LUCINDA A. REYNOLDS
DANIEL R. RUPP
ANNE DANZA SAXON
THERESA R. SCHAEFER
W. JOSEPH SCHLEPPI
DAVID E. SIMAITIS
KENT N. SIMMONS
DINA A. TANTRA
LEE A. THORNBURY
PHILIP W. WHITAKER
DAVID L. WHITE
STEVEN L. ZISSER
Practice limited to Nationwide Insurance Companies
and their associated companies
* Practice limited to the State of Michigan
** Practice limited to the State of Pennsylvania
November 17, 1997
Nationwide Investing Foundation III
Three Nationwide Plaza, 26th Floor
Columbus, Ohio 43215
Re: Nationwide Investing Foundation III
Registration Statement on Form N-1A
Ladies and Gentlemen:
In connection with the filing of the initial Registration Statement for
Nationwide Investing Foundation III, it is our opinion that, upon the
effectiveness of the Registration Statement, the indefinite number of units of
beneficial interest of the following new funds, nine separate investment
portfolios of the Nationwide Investing Foundation III, when issued for the
consideration described in the Registration Statement, will be legally issued,
fully paid and nonassessable:
1. Nationwide Growth Fund
2. Nationwide Mid Cap Growth Fund
3. Nationwide Fund
4. Nationwide Bond Fund
5. Nationwide Tax-Free Income Fund
6. Nationwide Intermediate U.S. Government Bond Fund
7. Nationwide Long-Term U.S. Government Bond Fund
8. Nationwide Money Market Fund
9. Nationwide S & P 500 Index Fund
<PAGE> 2
Nationwide Investing Foundation III
November 17, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ DRUEN, DIETRICH, REYNOLDS & KOOGLER
- ---------------------------------------------
DRUEN, DIETRICH, REYNOLDS & KOOGLER
<PAGE> 1
Exhibit 15
DISTRIBUTION PLAN OF NATIONWIDE INVESTING FOUNDATION III
LOCAL FUND SHARES OF
NATIONWIDE S & P 500 INDEX FUND
Section 1. The Distribution Plan (the "Plan") constitutes the distribution
plan of the Local Fund Shares of the Nationwide S & P 500 Index Fund (the
"Fund"), a series of Nationwide Investing Foundation III (the "Trust") and is
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act").
Section 2. Subject to the limitations on the payment of asset-based sales
charges set forth in Section 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc., the Fund shall pay amounts not
exceeding a maximum amount equal to 0.07% of the average of the daily net assets
of the Local Fund Shares of the Fund to Nationwide Advisory Services, Inc. (the
"Underwriter") for activities or expenses primarily intended to result in the
sale of the Local Fund Shares of the Fund including, but not limited to,
compensation to registered representatives and other personnel of the
Underwriter, its affiliates, or broker-dealers, incremental costs of
prospectuses and periodic shareholder reports for distribution to other than
existing shareholders, advertising, and preparation and distribution of sales
literature.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding voting
securities of the Local Fund Shares of the Fund, if adopted after any public
offering of such Shares or by the vote of the initial shareholder if adopted
prior to any public offering of the Local Fund Shares.
Section 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund (by votes of the majority of
both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust
who are not "interested persons" (as defined in the 1940 Act) of the Trust and
who have no direct or indirect financial interest in the operation of this Plan
or any agreements of the Fund or any other person related to this Plan (the
"Rule 12b-1 Directors"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 8, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trustee's Board and the Board shell review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
<PAGE> 2
Section 7. This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees, or by vote of a majority of the outstanding Local
Fund Shares of the Fund.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Rule 12b-1 Trustees or
by a vote of a majority of the outstanding Local Fund Shares on not
more than sixty days written notice to any party to the agreement;
and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof and no material amendment
to this Plan shall be made unless approved in the manner provided for in Section
4 hereof.
