<PAGE> 1
As filed with the Securities and Exchange Commission on
November 26, 1997
Registration No. 33-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] PRE-EFFECTIVE AMENDMENT NO.
[ ] POST-EFFECTIVE AMENDMENT NO.
(Check appropriate box or boxes)
____________________
Nationwide Investing Foundation III
(Exact Name of Registrant as Specified in Charter)
Three Nationwide Plaza, Columbus, Ohio 43215
(Address of Principal Executive Offices)
(800) 848-0920
(Area Code and Telephone Number)
____________________
David E. Simaitis
One Nationwide Plaza, Columbus, Ohio 43215
(Name and address of Agent for Service)
Copy to:
Charles H. Hire, Esq., Baker & Hostetler LLP
65 East State Street, Columbus, Ohio 43215
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
Registrant hereby amends this Registration Statement 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, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), shall determine.
Title of Securities Being Registered:
Shares of beneficial interest, without par value.
An indefinite amount of the Registrant's securities are being
registered under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. In reliance upon such Rule, no filing fee is
being paid at this time.
<PAGE> 2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 SUMMARY -- Comparative Expense Information; SUMMARY; SPECIAL
CONSIDERATIONS AND RISK FACTORS
4 THE PROPOSED TRANSACTION
5 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
6 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
7 Front Cover; SUMMARY -- Approval and Consummation of the
Proposed Transaction; SUMMARY -- Comparison of Voting Rights;
THE PROPOSED TRANSACTION; and MISCELLANEOUS -- Solicitation of
Proxies and Payment of Expenses; MISCELLANEOUS -- Substantial
Shareholders
8 SUMMARY -- Proposed Reorganization; SUMMARY -- Comparative
Expense Information; SUMMARY -- Fees and Expenses; THE PROPOSED
TRANSACTIONS -- Reasons for the Proposed Transaction; ADDITIONAL
COMPARATIVE INFORMATION
9 Not Applicable
</TABLE>
<PAGE> 3
Dear Nationwide Investing Foundation Shareholder:
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998 to consider an important proposal affecting your funds. The
Board unanimously approved this proposal, which is described in detail in the
accompanying Prospectus/Proxy Statement, because they believe it is in the best
interests of shareholders.
The proposal would reorganize the Nationwide Investing Foundation (NIF) funds
into a new Ohio-based mutual fund trust along with several other
Nationwide-managed funds. The main reasons for the reorganization are:
- To create a single, modern business trust to improve operating
efficiencies,
- To take advantage of Ohio business trust laws, which are more favorable
to shareholders than Michigan laws,
- To eliminate outdated investment restrictions, which will expand the
investments available to the portfolio managers while keeping similar
investment objectives and risk profiles,
- To increase the number of funds available within the Nationwide family of
funds, and
- To offer more choices to shareholders through the introduction of
additional share classes.
In addition, the proposal would change the investment advisory fees of the
funds, establish a separate fee for fund administration and implement a schedule
under which these fees decrease as assets increase. The current fee structure
for the funds has not changed since 1981. The proposal would increase the
expense ratio of the Growth Fund by 0.14%, the Fund by 0.12%, the Bond Fund by
0.07% and the Money Market Fund by 0.01%. The increased fees would enable
Nationwide Advisory Services to continue to hire and retain top-quality
portfolio managers and supporting staff, and to invest in systems and technology
to help ensure a continued high level of investment performance and shareholder
service. If the proposed fees are approved THE EXPENSE RATIO FOR THE GROWTH FUND
WILL STILL BE 48% BELOW THE AVERAGE FOR OTHER GROWTH FUNDS, THE EXPENSE RATIO
FOR THE NATIONWIDE FUND WILL BE 44% BELOW AVERAGE, THE BOND FUND'S EXPENSE RATIO
WILL BE 22% BELOW AVERAGE AND THE MONEY MARKET FUND'S EXPENSE RATIO WILL BE 27%
BELOW AVERAGE. The Trustees unanimously approved the proposed fees and believe
that they are consistent with our goal of continuing to provide shareholders
with excellent performance and service for fair and reasonable fees.
Most features of the new funds will be the same as those of the current funds.
For instance, the portfolio managers will remain the same and purchase and
redemption procedures will not change, although shareholders will be able to
purchase different share classes in the future. If the reorganization is
approved , you will receive shares of the funds in the new trust in exchange for
your current NIF shares. The shares received will be equal in value to the
shares exchanged and there will be no tax consequences as a result.
The Board of Trustees of the Nationwide Investing Foundation has determined that
this proposal is in the best interest of the funds and the shareholders and
recommends a vote FOR the proposal.
<PAGE> 4
PROXY STATEMENT SUMMARY
The following Q & A is a brief summary of the proposal to be considered at the
special meeting. The information below is qualified by the more detailed
information included elsewhere in this Prospectus/Proxy Statement. Accordingly,
please read all the enclosed materials before voting. Please remember to vote
your shares as soon as possible.
Q: Why are the Trustees recommending the reorganization?
A: The Nationwide Investing Foundation (NIF) Trust was established in 1933 as a
Michigan-based business trust. As you might imagine, over the past 64 years
many changes have occurred in the mutual fund and investment industries. The
NIF Trust is not up-to-date with current industry practices, which causes
many operational inefficiencies and unnecessary limitations on the investment
and business practices of the funds. Also, Nationwide manages six mutual
funds in two other trusts, Nationwide Investing Foundation II (NIF II) and
Financial Horizons Investment Trust (FHIT). NIF II and FHIT are
Massachusetts-based trusts formed in 1985 and 1988, respectively, under
separate trust indentures. The reorganization and consolidation of all the
Nationwide-managed funds into a new, modern, Ohio-based trust will streamline
operations, expand the number of funds available in the Nationwide Family,
eliminate unnecessary investment restrictions, and permit Nationwide to offer
multiple share classes to its shareholders.
Q: How will the reorganization affect the value of my account?
A: The value of your account will not change. If the reorganization is approved,
you will receive shares in the new trust in exchange for your current shares.
The shares received will be equal in value to the shares exchanged, and there
will be no sales charges, fees, or tax consequences to you as a result of the
reorganization.
Q: Will the proposal significantly affect the way the funds are managed?
A: No. The portfolio managers, investment objectives, and risk profiles of the
funds will not significantly change. The proposal will eliminate certain
investment restrictions that are no longer necessary, which will expand the
range of securities that the portfolio managers can invest in.
Q: Why are fund expenses increasing?
A: The current fee structure has been in place since 1981. In general, NIF fund
fees and expenses are well below industry averages. The Board of Trustees has
approved the following proposed fee structure for the funds.
<TABLE>
<CAPTION>
GROWTH FUND BOND MONEY MARKET
------ ---- ---- ------------
<S> <C> <C> <C> <C>
Advisory fee:
Current...................................... .50% .50% .50% .50%
Proposed..................................... .60% .60% .50% .40%
Administration fees:
Current...................................... -- -- -- --
Proposed..................................... .07% .07% .07% .07%
</TABLE>
If the fee proposal is approved by shareholders, Nationwide will increase its
investment in top-quality portfolio managers and support staff, and in
systems and technology to help ensure continued high levels of investment
performance and shareholder service. The following table lists the estimated
expense ratios of the
<PAGE> 5
funds under the proposal and compares the current and proposed expenses to the
average expense ratios for comparable mutual funds.
<TABLE>
<CAPTION>
GROWTH FUND BOND MONEY MARKET
------ ---- ---- ------------
<S> <C> <C> <C> <C>
Expense ratio:
Current...................................... 0.64% 0.60% 0.71% 0.59%
Increase..................................... 0.14% 0.12% 0.07% 0.01%
----- ----- ----- -----
Proposed..................................... 0.78% 0.72% 0.78% 0.60%
Industry average............................. 1.49% 1.29% 1.01% 0.81%
% Nationwide below average................... 48% 44% 23% 27%
</TABLE>
Even after the proposed changes, NIF's expense ratios continue to be well
below industry averages.
Q: The prospectus/proxy says that I will receive Class D shares under the
proposed reorganization. Why am I receiving Class D shares in the initial
exchange?
A: All of the funds in the new trust, except for the Nationwide Money Market
Fund, will begin issuing Class A, Class B, and Class D shares in March 1998.
The Nationwide Money Market Fund has no sales charges, and therefore will
issue only a single share class. Multiple class structures are very common in
the mutual fund industry, providing investors with optional ways to pay sales
charges.
Class D is a special class of shares with a front-end sales charge similar to
current NIF fund shares, which is waived in certain situations. Class D
shareholders will not be subject to 12b-1 or contingent deferred sales
charges.
Q: How do I vote my shares?
A: You can vote by mail or in person at the special meeting. To vote by mail,
sign and send us the enclosed proxy voting card in the envelope provided. Or
you can vote in person at the special meeting set for February 16, 1998.
<PAGE> 6
NATIONWIDE INVESTING FOUNDATION
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
TELEPHONE: (800) 848-0920
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE BOND FUND
NATIONWIDE MONEY MARKET FUND
TO BE HELD ON FEBRUARY 16, 1998
To The Shareholders Of Nationwide
Investing Foundation:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of all of the funds of Nationwide Investing Foundation (the "Trust")
will be held on Monday, February 16, 1998, at :00 A.M. (Eastern Time)
concurrently with special meetings of two other trusts of the Nationwide Funds,
at the offices of the Trust, Three Nationwide Plaza, Columbus, Ohio 43215. The
Meeting is being called for the following purposes:
(1) To approve an Agreement and Plan of Reorganization dated as of
November 24, 1997 (the "Plan"), between the Trust and Nationwide Investing
Foundation III (the "New Trust"), and the transactions contemplated
thereby, which include:
(a) the transfer of all of the assets of Nationwide Growth Fund to
a series of the New Trust which bears the same name (the "New Growth
Fund"), in exchange for Class D shares of the New Growth Fund, and the
assumption by the New Growth Fund of all of the liabilities of
Nationwide Growth Fund, followed by the distribution to shareholders of
Nationwide Growth Fund of such Class D shares of the New Growth Fund so
received;
(b) the transfer of all of the assets of Nationwide Fund to a
series of the New Trust which bears the same name (the "New Nationwide
Fund"), in exchange for Class D shares of the New Nationwide Fund, and
the assumption by the New Nationwide Fund of all of the liabilities of
Nationwide Fund, followed by the distribution to shareholders of
Nationwide Fund of such Class D shares of the New Nationwide Fund so
received;
(c) the transfer of all of the assets of Nationwide Bond Fund to a
series of the New Trust which bears the same name (the "New Bond Fund"),
in exchange for Class D shares of the New Bond Fund, and the assumption
by the New Bond Fund of all of the liabilities of Nationwide Bond Fund,
followed by the distribution to shareholders of Nationwide Bond Fund of
such Class D shares of the New Bond Fund so received; and
(d) the transfer of all of the assets of Nationwide Money Market
Fund to a series of the New Trust which bears the same name (the "New
Money Market Fund"), in exchange for shares of the New Money Market
Fund, and the assumption by the New Money Market Fund of all of the
liabilities of Nationwide Money Market Fund, followed by the
distribution to shareholders of Nationwide Money Market Fund of such
shares of the New Money Market Fund so received; and
(2) To transact such other business as may properly come before the
Meeting, or any adjournment(s) thereof, including any adjournment(s)
necessary to obtain requisite quorums and/or approvals.
<PAGE> 7
The Board of Trustees of the Trust has fixed the close of business on
December 18, 1997, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or any
adjournments thereof. The enclosed Combined Prospectus/Proxy Statement contains
further information regarding the Meeting and the proposals to be considered.
The enclosed Proxy Card is intended to permit you to vote even if you do not
attend the Meeting in person.
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT
LEAST A MAJORITY OF EACH FUND'S SHARES OUTSTANDING AND ENTITLED TO VOTE MUST BE
PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED
BUT UNMARKED PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS
PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees
,
December , 1997
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
<PAGE> 8
COMBINED PROSPECTUS/PROXY STATEMENT
DECEMBER , 1997
Acquisition and Assumption of All of the Assets and
Liabilities of Nationwide Growth Fund of
Nationwide Investing Foundation
In Exchange for Class D Shares of Nationwide Growth Fund of
Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and
Liabilities of Nationwide Fund of
Nationwide Investing Foundation
In Exchange for Class D Shares of Nationwide Fund of
Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and
Liabilities of Nationwide Bond Fund of
Nationwide Investing Foundation
In Exchange for Class D Shares of Nationwide Bond Fund of
Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and
Liabilities of Nationwide Money Market Fund of
Nationwide Investing Foundation
In Exchange for Shares of Nationwide Money Market Fund of
Nationwide Investing Foundation III
<TABLE>
<S> <C>
Nationwide Investing Foundation Nationwide Investing Foundation III
Three Nationwide Plaza Three Nationwide Plaza
Columbus, Ohio 43215 Columbus, Ohio 43215
(800) 848-0920 (800) 848-0920
</TABLE>
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund and Nationwide
Money Market Fund (collectively, the "Acquired Funds," and individually, an
"Acquired Fund") of Nationwide Investing Foundation, a Michigan trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at a Special Meeting of Shareholders of the
Trust (the "Meeting"), to be held at Three Nationwide Plaza, Columbus, Ohio
43215, on Monday, February 16, 1998, beginning at :00 A.M. (Eastern Time).
The Trustees of the Trust are seeking your approval of an Agreement and
Plan of Reorganization (the "Plan"), which contemplates that:
(i) Nationwide Growth Fund of Nationwide Investing Foundation III (the
"New Growth Fund") will acquire all of the assets and assume all of the
liabilities of Nationwide Growth Fund of the Trust;
<PAGE> 9
(ii) Nationwide Fund of Nationwide Investing Foundation III (the "New
Nationwide Fund") will acquire all of the assets and assume all of the
liabilities of Nationwide Fund of the Trust;
(iii) Nationwide Bond Fund of Nationwide Investing Foundation III (the
"New Bond Fund") will acquire all of the assets and assume all of the
liabilities of Nationwide Bond Fund of the Trust; and
(iv) Nationwide Money Market Fund of Nationwide Investing Foundation
III (the "New Money Market Fund") will acquire all of the assets and assume
all of the liabilities of Nationwide Money Market Fund of the Trust.
The New Growth Fund, the New Nationwide Fund, the New Bond Fund and the New
Money Market Fund of Nationwide Investing Foundation III (the "New Trust") are
sometimes collectively referred to herein as the "Acquiring Funds," and
individually as an "Acquiring Fund." Following such exchange, the shares of the
corresponding Acquiring Funds received by each Acquired Fund will be distributed
to the Acquired Funds' shareholders and the Acquired Funds and the Trust will be
liquidated and dissolved. Shareholders of Nationwide Growth Fund, Nationwide
Fund and Nationwide Bond Fund will receive Class D shares of the corresponding
Acquiring Fund, and shareholders of Nationwide Money Market Fund will receive
shares, with no class designation, of the New Money Market Fund. Each of these
exchange and distribution transactions is sometimes referred to herein as the
"Reorganization," and the shares of the Acquiring Funds to be received by the
respective Acquired Fund are sometimes referred to herein as "Acquiring Fund
Shares."
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Funds
that a prospective investor, including shareholders of the Trust, should know
before investing. Additional information about the Reorganization and the
Acquiring Funds is contained in a separate Statement of Additional Information
which has been filed with the Securities and Exchange Commission (the
"Commission") and is available upon request without charge by calling the New
Trust at (800) 848-0920 or writing to the New Trust at the address set forth
above. The Statement of Additional Information bears the same date as this
Combined Prospectus/Proxy Statement and is incorporated by reference herein.
THE SHARES OF THE ACQUIRING FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN AN ACQUIRING FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
AN INVESTMENT IN THE NEW MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE NEW
MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
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.
Upon completion of the Reorganization, you will receive full and fractional
Acquiring Fund Shares of the corresponding Acquiring Fund equal in value when
issued to the shares of the Acquired Fund owned by you immediately prior to the
Reorganization. No commissions or sales loads will be charged in connection with
the Reorganization and there will be no adverse federal income tax consequences.
You should separately consider any other tax consequences in consultation with
your tax advisers.
As discussed in detail herein, the investment objectives and strategy of
each Acquiring Fund are substantially the same as those of the corresponding
Acquired Fund. There are some differences between investment policies and
restrictions, as well as differences in fee levels and expenses, which are
described in detail below.
2
<PAGE> 10
The Prospectus of the Acquiring Funds, dated December , 1997, is
incorporated by reference into this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
The Acquired Funds' Prospectus dated February 28, 1997, as supplemented
November , 1997, contains additional information about the Acquired Funds, has
been filed with the Commission, is incorporated by reference herein and is
available without charge by writing the New Trust at Three Nationwide Plaza,
Columbus, Ohio 43215, or by calling the New Trust at (800) 848-0920. Copies of
documents requested will be sent by first-class mail to the requesting
shareholder within one business day of the request.
3
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................... 5
SPECIAL CONSIDERATIONS AND RISK FACTORS............................................... 13
THE PROPOSED TRANSACTION.............................................................. 17
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................ 21
ADDITIONAL COMPARATIVE INFORMATION.................................................... 26
MISCELLANEOUS......................................................................... 32
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION..................................... A-1
</TABLE>
4
<PAGE> 12
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Combined Prospectus/Proxy Statement, the
Plan, a copy of which is attached to this Combined Prospectus/Proxy Statement as
Exhibit A, the accompanying Prospectus of the Acquiring Funds dated December ,
1997, and the Prospectus of the Acquired Funds dated February 28, 1997, as
supplemented November , 1997.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of each Acquired Fund to the corresponding Acquiring Fund in exchange for
shares of such Acquiring Fund and the assumption by the New Trust on behalf of
the Acquiring Funds of all of the liabilities of the corresponding Acquired
Fund. The New Growth Fund, the New Nationwide Fund and the New Bond Fund will
issue their Class D shares in connection with the Reorganization. The New Money
Market Fund will issue its shares, which are without class designation, in
connection with the Reorganization. The Plan also calls for the distribution of
such Acquiring Fund Shares to the corresponding Acquired Fund's shareholders in
complete liquidation of that Acquired Fund. As a result of the Reorganization,
each shareholder of an Acquired Fund will become the owner of that number of
full and fractional Acquiring Fund Shares of the corresponding Acquiring Fund
having an aggregate value equal to the aggregate value of the shareholder's
shares of the Acquired Fund as of the close of business on the day preceding the
date that the Acquired Fund's assets are exchanged for Acquiring Fund Shares of
the corresponding Acquiring Fund.
Proposals for similar reorganizations are simultaneously being made to
shareholders of Nationwide Investing Foundation II and Financial Horizons
Investment Trust, two other trusts within the Nationwide family of funds.
Management of the Trust and the New Trust believes that the Reorganization
is necessary in order to be more efficient in the operation of the Nationwide
Funds, including providing for more consistent investment policies and
restrictions and removing those restrictions which are out-dated or no longer
required by Federal or state law, and to provide shareholders with more options
in purchasing shares of the Nationwide Funds by introducing multiple classes of
shares. While the annual operating expenses for the Acquiring Funds are expected
to be higher than the current expenses of the Acquired Funds (as described in
greater detail below), management believes that the increased investment
advisory fees for the Nationwide Growth Fund and the Nationwide Fund are
necessary for Nationwide Advisory Services, Inc. ("NAS"), as the Acquired and
Acquiring Funds' investment adviser, to maintain high-quality services to those
Funds. The Board and management recognize that, especially in today's
competitive environment, there are increasing pressures to attract and retain
qualified professionals and to dedicate greater and more sophisticated resources
to the management of mutual funds that invest in equity securities. In
determining to break out the administrative services provided to each of the
Acquiring Funds and to charge a separate fee for such services, management of
the Trust and the New Trust believes that such fees are needed to cover the
increased costs of improved technology and the need to maintain high quality
compliance and administrative services in light of the ever-increasing
sophistication and competitiveness of the mutual fund industry.
For these reasons (which are discussed in greater detail below under "THE
PROPOSED TRANSACTION -- REASONS FOR THE REORGANIZATION") and based upon
management's representation that the level of the Acquiring Funds' expenses will
remain substantially below the median for such Funds' respective peer groups of
mutual funds, the Board of Trustees of the Trust, including the Trustees of the
Trust who are not "interested persons" as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act") (the "Independent Trustees") at
a meeting held on November 7, 1997, unanimously concluded that the
Reorganization would be in the best interests of the Trust, the Acquired Funds
and their shareholders and that the interests of the Acquired Funds' existing
shareholders will not be diluted as a result of the transactions contemplated by
the Reorganization and therefore has submitted the Plan for approval by the
Acquired Funds' shareholders. The Board of Trustees of the New Trust has reached
similar conclusions with respect to the Acquiring Funds and their shareholders
and has also approved the Reorganization with respect to the Acquiring Funds.
Approval of the Reorganization with respect to an Acquired Fund will
require the affirmative vote of a majority of the outstanding shares of the
Acquired Fund. See "APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION"
below.
5
<PAGE> 13
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Acquired Funds in understanding the costs and
expenses that a holder of Acquiring Fund shares would bear directly or
indirectly. The shareholder transaction expenses for the Acquired Funds are
based upon such expenses for the fiscal year ended October 31, 1997. The
expenses for each of the Acquiring Funds are estimated for the fiscal period
following the Reorganization and ending October 31, 1998. Because each Acquiring
Fund will have no operations prior to completion of the Reorganization, the
information below for the Acquiring Funds estimated for their fiscal year (the
first column) and on a pro forma basis (the third column) is the same. If the
Reorganization is not completed, it is not anticipated that the Acquiring Funds
will commence operations.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES GROWTH FUND ON
OF THE NEW NATIONWIDE A PRO FORMA
GROWTH FUND GROWTH FUND BASIS*
-------------- ----------- --------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering
price)......................................... 4.50% 4.50% 4.50%
Annual Fund Expenses (as a percentage of average
net assets)
Investment Advisory Fees......................... 0.58% 0.50% 0.58%
12b-1 Fees....................................... None None None
Other Expenses................................... 0.20(1) 0.14 0.20
----- ----- -----
Total Fund Operating Expenses.................... 0.78% 0.64% 0.78%
===== ===== =====
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES GROWTH FUND ON
OF THE NEW NATIONWIDE A PRO FORMA
GROWTH FUND GROWTH FUND BASIS*
-------------- ----------- --------------
<S> <C> <C> <C>
One Year......................................... $ 53 $ 51 $ 53
Three Years...................................... $ 69 $ 65 $ 69
Five Years....................................... N/A $ 79 $ 86
Ten Years........................................ N/A $ 121 $137
</TABLE>
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW NATIONWIDE
CLASS D SHARES THE FUND ON A
OF THE NEW NATIONWIDE PRO FORMA
NATIONWIDE FUND FUND BASIS*
--------------- ---------- --------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering
price)........................................ 4.50% 4.50% 4.50%
Annual Fund Expenses (as a percentage of average
net assets)
Investment Advisory Fees........................ 0.57% 0.50% 0.57%
12b-1 Fees...................................... None None None
Other Expenses.................................. 0.15(1) 0.10 0.15
----- ----- -----
Total Fund Operating Expenses................... 0.72% 0.60% 0.72%
===== ===== =====
</TABLE>
6
<PAGE> 14
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW NATIONWIDE
CLASS D SHARES THE FUND ON A
OF THE NEW NATIONWIDE PRO FORMA
NATIONWIDE FUND FUND BASIS*
--------------- ---------- --------------
<S> <C> <C> <C>
One Year........................................ $ 52 $ 51 $ 52
Three Years..................................... $ 67 $ 63 $ 67
Five Years...................................... N/A $ 77 $ 83
Ten Years....................................... N/A $117 $130
</TABLE>
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW BOND
CLASS D SHARES FUND ON A
OF THE NEW NATIONWIDE PRO FORMA
BOND FUND BOND FUND BASIS*
-------------- --------- -------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering price).... 4.50% 4.50% 4.50%
Annual Fund Expenses (as a percentage of
average net assets)
Investment Advisory Fees............................ 0.50% 0.50% 0.50%
12b-1 Fees.......................................... None None None
Other Expenses...................................... 0.29(1) 0.22 0.29
----- ----- -----
Total Fund Operating Expenses....................... 0.79% 0.72% 0.79%
===== ===== =====
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW BOND
CLASS D SHARES FUND ON A
OF THE NEW NATIONWIDE PRO FORMA
BOND FUND BOND FUND BASIS*
-------------- --------- -------------
<S> <C> <C> <C>
One Year............................................ $ 53 $ 52 $ 53
Three Years......................................... $ 69 $ 67 $ 69
Five Years.......................................... N/A $ 83 $ 87
Ten Years........................................... N/A $ 130 $ 138
</TABLE>
<TABLE>
<CAPTION>
NEW MONEY
MARKET FUND
NATIONWIDE ON A PRO
NEW MONEY MONEY FORMA
MARKET FUND MARKET FUND BASIS*
------------- ----------- -----------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering
price)......................................... None None None
Annual Fund Expenses (as a percentage of average
net assets)
Investment Advisory Fees......................... 0.40% 0.45%(2) 0.40%
12b-1 Fees....................................... None None None
Other Expenses................................... 0.20(1) 0.14 0.20
------ ----------- -----------
Total Fund Operating Expenses.................... 0.60% 0.59% 0.60%
============ ========== ==========
</TABLE>
7
<PAGE> 15
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
NEW MONEY
NATIONWIDE MARKET FUND
NEW MONEY MONEY ON A PRO
MARKET FUND MARKET FUND FORMA BASIS*
----------- ----------- ------------
<S> <C> <C> <C>
One Year............................................ $ 6 $ 6 $ 6
Three Years......................................... $ 19 $ 19 $ 19
Five Years.......................................... N/A $ 33 $ 33
Ten Years........................................... N/A $ 74 $ 75
</TABLE>
- ---------------
(1) "Other Expenses" are based upon estimated amounts for the current fiscal
year.
(2) For the fiscal year ended October 31, 1997, NAS agreed to reduce its
investment advisory for to 0.45%. Without such reduction, investment
advisory fees would have been 0.50%.
* These calculations reflect the expense information for the relevant
Acquiring Fund after giving effect to the Reorganization.
* The Commission requires use of a 5% annual return figure for purposes of the
example. Actual return for a Fund may be greater or less than 5%.
The one, three, five and ten year figures in the Examples above for the
Class D shares of the New Growth Fund, the New Nationwide Fund and the New Bond
Fund reflect the deduction of the 4.5% maximum front-end sales charge. However,
Class D shares of those Acquiring Funds received by a shareholder of an Acquired
Fund pursuant to the Reorganization will not be subject to any such charge.
Absent such front-end sales charge, the one, three, five and ten year figures
for the Class D shares of the New Growth Fund, on a pro forma basis, would be
$8, $25, $43 and $97, respectively, the one, three, five and ten year figures
for the Class D shares of the New Nationwide Fund, on a pro forma basis, would
be $7, $23, $40 and $89 respectively, and the one, three, five and ten year
figures for the Class D shares of the New Bond Fund, on a pro forma basis, would
be $8, $25, $44 and $98, respectively.
Any Class D shares of the New Growth Fund, the New Nationwide Fund or the
New Bond Fund purchased after the Reorganization, other than pursuant to
dividend reinvestments, will be subject to the 4.5% sales load unless the
shareholder otherwise qualifies for a waiver or reduction of the sales load. See
the accompanying Prospectus of the Acquiring Funds for further information
regarding sales load reductions and waivers.
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of and as a condition
to the Reorganization, the Acquired Funds and the Trust will have received
opinions of counsel that, upon the consummation of the Reorganization and the
transfer of the assets of the Acquired Funds, no gain or loss will be recognized
by an Acquired Fund or its shareholders for federal income tax purposes. The
holding period and aggregate tax basis for the Acquiring Fund Shares that are
received by an Acquired Fund shareholder will be the same as the holding period
and aggregate tax basis of the shares of the Acquired Fund previously held by
such shareholder. In addition, the holding period and tax basis of the assets of
an Acquired Fund in the hands of the corresponding Acquiring Fund as a result of
the Reorganization will be the same as the holding period and tax basis of the
assets in the hands of the Acquired Fund immediately prior to the
Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Trustees of the Trust, at a special meeting held on November 7, 1997, determined
unanimously that the Reorganization is in the best interests of each of the
Acquired Funds and the Trust and that the interests of the existing shareholders
of the Acquired Funds will not be diluted as a result of the Reorganization.
Similarly, on such date the Board of Trustees of the New Trust unanimously
determined that the Reorganization is in the best interests of the New Trust and
the Acquiring Funds. The proposed Reorganization of each of the Acquired Funds
of the Trust with and into the corresponding Acquiring Funds of the New Trust is
part of a larger plan to reorganize each of the Trust, Nationwide Investing
Foundation II (which consists of two separate funds) and Financial Horizons
Investment Trust (which consists of four separate funds) ("FHIT"), each a
separate stand-alone investment company, into
8
<PAGE> 16
separate corresponding funds of the New Trust. Two smaller funds of FHIT which
have similar investment objectives and styles to two other Nationwide funds will
be combined with such other funds in the New Trust. One such smaller fund of
FHIT is the Cash Reserve Fund which will combine with Nationwide Money Market
Fund in the New Money Market Fund.
Other than the New Money Market Fund, it is anticipated that the Acquiring
Funds will also offer two other classes of shares beginning in March 1998. The
New Money Market Fund offers only one class of shares which is without any class
designation.
To be approved, the Plan will require the affirmative vote of a majority of
the outstanding Shares of each Acquired Fund. The Reorganization with respect to
each Acquired Fund is contingent on the approval of the Reorganization with
respect to each of the other Acquired Funds, but not upon the approval of
similar reorganizations by shareholders of Nationwide Investing Foundation II or
FHIT. If an Acquired Fund's shareholders do not approve the proposed
Reorganization, the Trust's and the New Trust's Boards of Trustees will consider
what other alternatives would be in the shareholders' best interests. If the
Plan is approved at the Meeting by the shareholders of each Acquired Fund, the
effective date of the Reorganization (the "Closing Date") is expected to be on
or about March 1, 1998, subject, however, to the receipt by the Trust and the
New Trust of an order of exemption from the Commission with respect to the
Reorganization, if such an order is necessary. However, the Closing Date may be
such earlier or later date as may be determined by the Trust and the New Trust.
Shareholders of record of the Acquired Funds at the close of business on
December 18, 1997 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting or any adjournment thereof. As of the Record Date, there were
outstanding shares of all four series of the Trust. Of those shares,
the following constituted the issued and outstanding shares of each Acquired
Fund on the Record Date:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FUND SHARES OUTSTANDING
--------------------------------------------------------- ------------------
<S> <C>
Nationwide Growth Fund
Nationwide Fund
Nationwide Bond Fund
Nationwide Money Market Fund
</TABLE>
As of the Record Date, there were no outstanding shares of any of the nine
series of the New Trust, including the Acquiring Funds. Each of the Acquiring
Funds has been created specifically for the purpose of acquiring the assets and
assuming the liabilities of its corresponding Acquired Fund. The Acquiring
Funds, prior to the effective date of the Reorganization, will not have
commenced operations.
Each shareholder of the Acquired Fund will be entitled to one vote for each
share, and a fractional vote for each fractional share, held by such
shareholder. Holders of a majority of the shares of the Trust at the close of
business on the Record Date will be deemed to constitute a quorum for the
transaction of business at the Meeting.
Any proxy which is properly executed and received in time to be voted at
the Meeting will be counted in determining whether a quorum is present and will
be voted in accordance with the instructions marked thereon. In the absence of
any instruction, such proxy will be voted in favor of the approval of the Plan.
Abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a particular matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will not be counted for or against any proposal to which they relate, but
abstentions will be counted for purposes of determining whether a quorum is
present. Broker non-votes will not be counted for purposes of determining
whether a quorum is present. Because approval of the Plan requires the vote of a
majority of each Acquired Fund's issued and outstanding shares as of the Record
Date, abstentions and broker non-votes will have the effect of a vote against
the proposal to approve the Plan.
9
<PAGE> 17
The duly appointed Proxies may, in their discretion, vote upon such other
matters as properly may come before the Meeting or any adjournment(s) thereof,
including any proposal to adjourn a meeting, whether or not a quorum is present,
to permit the continued solicitation of proxies in favor of the Reorganization.
In case any such adjournment is proposed with respect to the Plan, the duly
appointed Proxies will vote those proxies required to be voted against the Plan
against adjournment. A shareholder of an Acquired Fund may revoke his or her
proxy at any time prior to its exercise by delivering written notice of
revocation or by executing and delivering a later-dated proxy to the Secretary
of the Trust, at Three Nationwide Plaza, Columbus, Ohio 43215, or by attending
the Meeting in person to vote the shares of the Acquired Funds held by such
shareholder. The date of the first mailing of this Combined Prospectus/Proxy
Statement to shareholders is on or about December , 1997.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Funds and the
corresponding Acquiring Funds have substantially the same investment objectives,
and generally have the same investment policies and restrictions, although there
are some differences shareholders should consider. The Nationwide Growth Fund
seeks long-term capital appreciation without emphasis on current return, and the
New Growth Fund seeks long-term capital appreciation. In order to achieve these
objectives, each invests in a common stock portfolio of companies of all sizes,
with the expectation that the Fund will benefit from both the underlying
economic growth of the companies it invests in, plus improvement in the
valuation of the stock.
The New Growth Fund will invest at least 65% of its total assets in equity
securities of companies of all sizes, generally common stocks and convertible
securities. Investments are made in different types of equity securities among
many companies and industries which provide diversification to help minimize
risk.
Both Nationwide Fund and the New Nationwide Fund seek total return from a
flexible combination of current income and capital appreciation.
In order to achieve this objective, Nationwide Fund invests in securities
which provide a combination of current income and the possibility of capital
gains and seeks to maximize shareholder returns through a diversified portfolio
where the primary emphasis is given to common stocks.
For the New Nationwide Fund, major emphasis is placed on capital
appreciation and current income. The New Nationwide 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, it is
anticipated that the majority of the New Nationwide Fund's portfolio will
contain the common stocks of well-known, larger companies.
Nationwide Bond Fund seeks a high level of income, consistent with capital
preservation, through investment in high-quality bonds and other fixed-income
securities. This is accomplished by retaining maximum flexibility in the
management of its portfolio consisting mainly of corporate debt instruments. The
New Bond Fund seeks a high level of income, consistent with capital
preservation. The New Bond Fund will invest primarily in fixed-income securities
with a current focus on corporate debt investments and mortgage-backed
securities. Under normal market conditions the average weighted maturity of the
New Bond Fund will be intermediate, which is defined by the New Bond Fund as
being between six and ten years.
For Nationwide Bond Fund, major emphasis is placed on a diversified
portfolio of taxable debt securities including corporate debt securities rated
within the three highest credit categories by Standard & Poor's Corporation
("S&P") (AAA, AA or A) or Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa
or A), U.S. and Canadian Government obligations, mortgage-backed securities, and
the highest investment grade commercial paper rated by Moody's (Prime-1 or
Prime-2) or by S&P (A-1 or A-2). The Nationwide Bond Fund may invest in unrated
securities determined by NAS to be of comparable quality to securities so rated.
For the New Bond Fund, major emphasis is placed on a diversified portfolio
of taxable debt securities substantially the same as that described above for
Nationwide Bond Fund except that the New Bond Fund may also invest without limit
in corporate debt securities rated within the fourth highest credit category by
S&P or Moody's.
Nationwide Money Market Fund seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity,
through investment in a diversified portfolio of high-quality money market
instruments maturing in 397 days or less. The New Money Market Fund seeks as
high a level of
10
<PAGE> 18
current income as is consistent with the preservation of capital and maintenance
of liquidity. The New Money Market 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 either Nationwide Money Market Fund or
the New Money Market Fund will be able to maintain a stable net asset value of
$1.00 per share.
For a discussion of the differences between the investment policies and
restrictions of the Acquired Funds and the corresponding Acquiring Funds, see
"COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS -- Investment
Restrictions" below.
FEES AND EXPENSES. Each of the Acquired Funds pays an investment advisory
and management fee, computed daily and paid monthly, at the annual rate of 0.50%
of the value of its average daily net assets to NAS, the Trust's investment
adviser. NAS has in the past and may from time to time waive all or a portion of
the investment advisory fees payable to it by an Acquired Fund. Currently with
respect to Nationwide Money Market Fund, NAS have voluntarily reduced its
investment advisory fees to 0.45%. In addition, for fund accounting services,
the Acquired Funds pay NAS a total annual fee of $48,000. Nationwide Investors
Services, Inc., a wholly owned subsidiary of NAS ("NISI"), serves as transfer
agent for each of the Acquired Funds and receives a fee from those Funds equal
to: $16 per account for the Growth Fund and the Nationwide Fund; $18 per account
for the Bond Fund; and $27 per account for the Money Market Fund.
With respect to the Acquiring Funds, NAS also provides investment advisory
services to those Funds for a fee computed daily and paid monthly at the
following annual rates: for each of the New Growth Fund and the New Nationwide
Fund, 0.60% of such Fund's average net assets up to $250 million, 0.575% of such
Fund's average net assets of $250 million up to $1 billion, 0.55% of such Fund's
average net assets of $1 billion up to $2 billion, 0.525% of such Fund's average
net assets of $2 billion up to $5 billion, and 0.50% of such Fund's average net
assets of $5 billion or more; for the New Bond Fund, 0.50% of such Fund's
average net assets up to $250 million, 0.475% of such Fund's average net assets
of $250 million up to $1 billion, 0.45% of such Fund's average net assets of $1
billion up to $2 billion, 0.425% of such Fund's average net assets of $2 billion
up to $5 billion, and 0.40% of such Fund's average net assets of $5 billion or
more; and for the New Money Market Fund, 0.40% of such Fund's average net assets
up to $1 billion, 0.38% of such Fund's average net assets of $1 billion up to $2
billion, 0.36% of such Fund's average net assets of $2 billion up to $5 billion,
and 0.34% of such Fund's average net assets of $5 billion or more. Each of the
Acquiring Funds also pays NAS an administration and fund accounting fee of 0.07%
of such Fund's average net assets up to $250 million; 0.05% of such Fund's
average net assets of $250 million up to $1 billion; and 0.04% of such Fund's
average net assets of $1 billion or more. Finally, the Acquiring Funds pay an
annual fee to NISI for transfer agency services equal to: $16 per account for
the New Growth Fund and the New Nationwide Fund; $18 per account for the New
Bond Fund; and $27 per account for the New Money Market Fund.
Shares of each of the Acquired Funds and the Acquiring Funds are
distributed by NAS, a registered broker-dealer. None of the Acquired Funds, the
New Money Market Fund or the Class D shares of the other Acquiring Funds pays
any distribution fees or expenses.
The expense ratios of the Acquiring Funds subsequent to the Reorganization
are expected to be higher than that of the corresponding Acquired Fund. See "THE
PROPOSED TRANSACTION -- Reasons for the Proposed Transaction." The chart below
compares the total annual operating expenses (as a percent of average net
assets) of each Acquired Fund for the fiscal year ended October 31, 1997, to the
total annual operating expenses (as a percent of average net assets) of the
corresponding Acquiring Fund for the fiscal year ending October 31, 1998,
assuming the same level of net assets for such Acquiring Fund after the
Reorganization:
11
<PAGE> 19
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Nationwide Growth Fund New Growth Fund
0.64% 0.81%
Nationwide Fund New Nationwide Fund
0.60% 0.77%
Nationwide Bond Fund New Bond Fund
0.72% 0.78%
Nationwide Money Market Fund New Money Market Fund
0.59% 0.61%
</TABLE>
COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES. Shares of each
of the Acquired and Acquiring Funds are offered through NAS as principal
underwriter. Net asset value of 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 the
portfolio securities of a Fund to affect materially the net asset value of that
Fund. The minimum initial investment in Nationwide Growth Fund, the New Growth
Fund, Nationwide Fund, the New Nationwide Fund and Nationwide Bond Fund is $250
(although such minimum is lowered for investments made through certain plans)
and the minimum subsequent investment is $25. The minimum initial investment in
the New Bond Fund, Nationwide Money Market Fund and the New Money Market Fund is
$1,000 (although such minimum is lowered for investments made through certain
plans) and the minimum subsequent investment is $100.
Shares of the Nationwide Money Market Fund and the New Money Market Fund
are offered at net asset value without any sales charge. A sales charge is
imposed upon the sale of both the shares of the other Acquired Funds and the
Class D shares of the New Growth Fund, the New Nationwide Fund and the New Bond
Fund equal to 4.5% of the public offering price (4.71% of the net amount
invested). Such sales charge for such Acquired Funds is reduced on investments
of $50,000 or more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF THE AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION NET AMOUNT INVESTED OF OFFERING PRICE
- --------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Less than $50,000........................................ 4.71% 4.5%
$50,000 but less than $100,000........................... 4.17 4.0
$100,000 but less than $250,000.......................... 3.09 3.0
$250,000 but less than $500,000.......................... 2.04 2.0
$500,000 but less than $1,000,000........................ 1.01 1.0
$1,000,000 but less than $5,000,000...................... 0.25 0.25
$5,000,000 or more....................................... 0.00 0.0
</TABLE>
The sales charge on sales of Class D shares of the Acquiring Funds (other
than the New Money Market Fund which does not charge any sales charge) is
reduced on investments of $100,000 or more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF THE AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION NET AMOUNT INVESTED OF OFFERING PRICE
- --------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Less than $100,000....................................... 4.71% 4.5%
$100,000 but less than $250,000.......................... 3.63 3.5
$250,000 but less than $500,000.......................... 2.56 2.5
$500,000 but less than $1,000,000........................ 1.52 1.5
$1,000,000 or more....................................... 0.5 0.5
</TABLE>
12
<PAGE> 20
NO FRONT END SALES CHARGE WILL BE IMPOSED ON ACQUIRING FUND SHARES RECEIVED IN
CONNECTION WITH THE REORGANIZATION.
With respect to the shares of each of the Acquired Funds and the Acquiring
Fund Shares of the Acquiring Funds, there is no sales charge imposed upon the
reinvestment of dividends and distributions. The front end sales charge on
shares of the Nationwide Growth Fund, The Nationwide Fund and the Nationwide
Bond Fund and on Class D shares of the New Growth Fund, the New Nationwide Fund
and the New Bond Fund may be waived under certain specified conditions.
Redemption orders for shares of both the Acquired Funds and the Acquiring
Funds must be placed with NAS. Investors may redeem shares of the Acquired Funds
or the Acquiring Funds at the net asset value per share next determined
following the receipt by NAS of the properly completed redemption request. Such
requests may either be made by telephone, by mail or by fax. For the Nationwide
Money Market Fund and the New Money Market Fund, redemptions may also be made by
check.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of the Nationwide Growth Fund,
the Nationwide Fund and the Nationwide Bond Fund may be exchanged among any of
the Nationwide's Family of Funds without sales charge. Shares of the Nationwide
Money Market Fund may be exchanged for shares of any Acquired Fund upon payment
of the applicable sales charge.
Class D shares of an Acquiring Fund may generally be exchangeable without a
sales charge for Class D shares of any other Acquiring Fund or other fund of the
New Trust which offers Class D shares. Exchanges of shares of the New Money
Market Fund may be exchanged for shares of any other fund of the New Trust,
including the Acquiring Funds, upon payment of the applicable sales charge.
COMPARISON OF DIVIDEND POLICIES. Each of the Nationwide Growth Fund, the
New Growth Fund, the Nationwide Fund and the New Nationwide Fund declare
dividends of net investment income quarterly and pay such dividends quarterly.
Each of the Nationwide Bond Fund, the New Bond Fund, the Nationwide Money Market
Fund and the New Money Market Fund declare dividends of net investment income
daily and pay such dividends monthly. Each of the Acquired Funds and Acquiring
Funds will distribute all of any capital gains at least annually. In addition,
shareholders of the Acquired Funds and the Acquiring Funds receive dividends and
distributions in the form of additional shares and not in cash unless otherwise
requested by the shareholder and such dividends and distributions are of $5 or
more each.
COMPARISON OF VOTING RIGHTS. Each shareholder of an Acquired Fund and of
an Acquiring Fund is entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held on each matter
submitted to the vote of such Fund's shareholders, regardless of the net asset
value of such share.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies and strategies of each Acquired
Fund and the corresponding Acquiring Fund are substantially similar, the overall
level of investment risk should not materially change as a result of the
Reorganization. There can be no assurance that any Acquired Fund or Acquiring
Fund will achieve its investment objectives. However, in some cases an Acquiring
Fund may invest in certain securities or instruments in which the corresponding
Acquired Fund may not invest. This discussion is qualified in its entirety by
the disclosure set forth in the Acquiring Funds' Prospectus accompanying this
Combined Prospectus/Proxy Statement and the Acquired Funds' Prospectus. For
additional information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
An investment in any of the Acquired Funds or the Acquiring Funds (except
for Nationwide Money Market Fund and the New Money Market Fund) involves the
risk that the net asset value of such Fund's shares will fluctuate in response
to changes in economic conditions, interest rates, and the market's perception
of the securities held by such Fund. An investment in Nationwide Growth Fund,
the New Growth Fund, Nationwide Fund and the New Nationwide Fund 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
13
<PAGE> 21
in Nationwide Bond Fund and the New Bond Fund 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 rate.
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.
Warrants. Each of the New Growth Fund and the New Nationwide 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. Each of the Nationwide Growth Fund, the New Growth
Fund, the Nationwide Fund and the New Nationwide Fund 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 investment 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 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.
Repurchase Agreements. Each of the Acquired Funds and the Acquiring 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, a 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 Funds 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
14
<PAGE> 22
underlying securities. NAS, acting under the supervision of such Trust's 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.
Investment Companies. As permitted by the 1940 Act, each Acquiring 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 an Acquiring
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 Acquiring 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 such Acquiring Fund.
When-Issued Securities. Each of the Acquiring Funds may invest without
limitation in securities purchased on a when-issued or delayed delivery basis.
Although the payment and terms of these securities are established at the time
the Acquiring 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 as long as 120 days. Purchasing
when-issued securities allows an Acquiring Fund to lock in a fixed price or
yield on a security it intends to purchase. However, when the Acquiring 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 an Acquiring Fund's outstanding commitments for these
securities, the greater the exposure to potential fluctuations in the net asset
value of that Acquiring Fund. Purchasing securities on a when-issued basis 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 an Acquiring 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 Acquiring
Funds will set aside liquid assets in a segregated account to secure its
outstanding commitments for when-issued securities.
Floating and Variable Rate Obligations. The New Bond Fund and the New
Money Market Fund may each invest in floating and variable rate obligations.
Variable or floating rate obligations bear interest at rates that are not fixed,
but vary with changes in specified market rates or indices, such as the prime
rate, and at specified intervals, floating rate obligations vary with changes to
an underlying index whenever such index changes, while variable rate obligations
change at preset fixed times. Certain of the floating or variable rate
obligations that may be purchase by such 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 period
adjustments in the interest rate. The New Bond Fund and the New Money Market
Fund will each limit its purchase of floating and variable rate obligations to
those of the same quality as it otherwise is 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 these Funds, such
Funds 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 the
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
would, 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 or amortized cost, as the case may be.
Variable and floating rate obligations for which no readily available
market exists and which are not subject to a demand feature that will permit
such a Fund to receive payment of the principal within seven days after
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<PAGE> 23
demand by that Fund, will be considered illiquid and therefore, together with
other illiquid securities held by such Fund, will not exceed such Fund's
limitation on investments in illiquid securities.
Medium Grade Securities. Each of the Nationwide Bond Fund and the New Bond
Fund may invest in medium-grade obligations. Medium grade securities are
obligations rated in the fourth highest rating category by any NRSRO.
Medium-grade 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 grade
securities may be more vulnerable to adverse economic conditions or changing
circumstances than issuers of higher-rated securities.
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, such Fund should take consistent with its investment objective; such
event will not automatically require the sale of the downgraded security.
Mortgage- and Asset-Backed Securities. Nationwide Bond Fund and the New
Bond Fund may purchase mortgage-backed securities. The New Bond 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 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
buy 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 these Funds may invest include both
fixed-rate and adjustable-rate mortgage-backed securities.
The New 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 and 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 purchase 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
16
<PAGE> 24
by the Bond 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.
Unlike fixed rate mortgage securities, adjustable rate mortgage securities
are collateralized by or represent interests in mortgage loans with variable
rates of interest. These variable rates of interest reset periodically to align
themselves with market rates. The New Bond 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 New Bond
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
changes in market rates. During periods of declining interest rates, income to
the New Bond 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.
Collateralized Mortgage Obligations. The New Bond Fund 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, provide
funds to pay debt service on the CMOs. CMOs purchased by the New Bond Fund will
be issued by agencies or instrumentalities of the U.S. Government.
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 in which the New Bond Fund may invest are 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.
The New 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 New Bond 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 New Bond 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 mortgage-backed securities may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and
17
<PAGE> 25
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 the New Bond Fund's total assets will be
invested in IOs and in POs.
U.S. Government Securities. As discussed above, each of the Acquiring and
the Acquired 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.
Zero Coupon Securities. The New Bond Fund 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 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 New Bond Fund may be required to distribute income accrued with
respect tot these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Canadian and Provincial Obligations. Nationwide Money Market Fund and the
New Money Market Fund may each invest in Canadian and Provincial obligations.
Such obligations are unsecured, discounted bills and notes that 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 Section 3(a)(3) of the
Securities Act of 1933, as amended. Canada Bills constitute direct,
unconditional obligations or 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 are backed by the full
faith and credit of the provincial governments.
Lending Portfolio Securities. From time to time, each of the Acquiring
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, an Acquiring 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
18
<PAGE> 26
amount equal to at least 100% of the current market value of the loaned
securities. An Acquiring 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. An Acquiring Fund might experience risk of loss
if the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Acquiring Fund.
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 the New Growth Fund's and
the New Nationwide 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.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION. The Plan provides that all of the
assets of each Acquired Fund as of the Exchange Date (as defined in the Plan)
will be transferred to the corresponding Acquiring Fund in exchange for
Acquiring Fund Shares of the Acquiring Fund and the assumption by the Acquiring
Fund of all of the liabilities of the Acquired Fund. The Exchange Date is
expected to be on or about March 1, 1998; subject, however, to the receipt by
the Trust and the New Trust of any necessary order of exemption from the
Commission with respect to the Reorganization. A copy of the Plan is attached as
Exhibit A to this Combined Prospectus/Proxy Statement. Although portions of the
Plan are summarized below, this summary is qualified in its entirety by
reference to the Plan.
Promptly after the Exchange Date, each Acquired Fund will distribute the
Acquiring Fund Shares of the corresponding Acquiring Fund to the Acquired Fund's
shareholders of record as of the close of business on the Exchange Date. The
Acquiring Fund Shares of the corresponding Acquiring Fund which will be issued
for distribution to each Acquired Fund's shareholders will be equal in aggregate
value to the shares of the corresponding Acquired Fund held as of the Valuation
Time (as defined in the Plan). All issued and outstanding shares of the Acquired
Funds will be cancelled on the Trust's books and any certificates representing
such shares will no longer be valid. Acquiring Fund Shares of the Acquiring
Funds will be represented only by book entries; no share certificates will be
issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of each of the Acquired Funds. The Plan also may be terminated and the
Reorganization abandoned by the Acquired Funds and the Acquiring Funds by mutual
consent of their respective trustees.
The Reorganization will not be completed unless the Trust and the New Trust
obtain opinions of counsel to the effect that the Reorganization constitutes a
tax-free reorganization for Federal income tax purposes and any necessary
written order of exemption from the Commission exempting the Reorganization from
the provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a
party in connection with the Plan will be paid by the party directly incurring
such costs. NAS will pay 50% of the costs associated with the Reorganization,
including 50% of the costs associated with this proxy solicitation. Each
Acquiring Fund will bear its own organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders, all shareholders of the
Acquired Funds as of the Exchange Date, including those that voted against the
approval of the Plan, will receive Acquiring Fund Shares of the corresponding
Acquiring Fund. All shareholders of the Acquired Funds have the right at any
time up to the next business day preceding the Exchange Date to redeem their
shares at net asset value according to the procedures set forth in the Acquired
Funds' Prospectus.
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<PAGE> 27
This summary does not purport to be a complete description of the Plan and
is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in 1933. The New Trust was organized as
a series investment company on October 30, 1997, and on November 7, 1997, its
Board of Trustees created the Acquiring Funds with substantially identical
investment objectives and policies and generally similar restrictions to those
of the Acquired Funds. Because of the similarity between the Acquired Funds and
the Acquiring Funds, the considerations and risks involved with an investment in
an Acquiring Fund are expected to be comparable to those associated with an
investment in the corresponding Acquired Fund. Each Acquiring Fund has been
established for purposes of effecting the Reorganization and will not commence
operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for their consideration at a meeting held on November 7,
1997. The Board of Trustees of the Trust concluded unanimously that the
Reorganization is in the best interests of the Trust, the Acquired Funds and
their shareholders and that the interests of the existing shareholders of the
Acquired Funds will not be diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Acquired Funds and the
Trust and the proposed costs of the Acquiring Funds and the New Trust as
provided by NAS, in light of their substantially similar investment objectives,
policies, restrictions, Boards of Trustees, officers and service providers. The
Board also considered the operating and compliance efficiencies that could
result from moving the operation of the Acquired Funds from the Trust to
corresponding separate portfolios of the New Trust, which has been organized
under a more flexible and modern declaration of trust. The investment
restrictions of the Acquiring Funds which were approved by the Board of Trustees
of the New Trust vary somewhat from the investment restrictions of the Acquired
Funds; however, such differences reflect a more uniform and flexible set of
investment restrictions that will be in place for each of the other series or
portfolios of the New Trust. Such restrictions were approved to help achieve
greater compliance efficiencies by having each series of the New Trust have the
same or substantially the same investment restrictions.
One of the operating efficiencies expected is that certain fixed costs
associated with the operation of the Acquired Funds and the Trust when incurred
by the New Trust and the Acquiring Funds would decrease on a per share basis
since such costs would be spread over a larger pool of assets, e.g., certain
professional and regulatory fees and printing costs.
In particular, the Board considered the anticipated expense ratios of the
Acquiring Funds, the structure of the New Trust, including the provision for
multiple classes of shares, the experience of the service providers of the
Acquiring Funds and the level of service to be provided to the shareholders of
the Acquiring Funds, as represented by NAS, including the greater resources that
could be dedicated to managing the Acquiring Funds and providing administrative
and compliance services.
The Trust's Board also considered the higher fees charged to the Acquiring
Funds compared to those of the Acquired Funds. The Board considered the
following factors, among others: (1) the nature, scope and quality of the
services provided by NAS, (2) the costs incurred and revenues generated by NAS
in rendering such services, (3) NAS' profitability from its mutual fund
activities, (4) the compensation paid to investment advisers of mutual funds
with similar investment objectives and policies and asset sizes, (5) the quality
of personnel at NAS, (6) comparative expense and performance information, (7)
pro forma expense ratios based upon the proposed level of investment advisory
and administration fees, (8) the need to provide NAS with adequate financial
incentives to maintain and improve its services, and (9) NAS' planned and
proposed additional expenditures in the area of fund administration and
investment advisory services.
More specifically, the Board considered the significant increases in
expenses that NAS will experience in connection with the management of the New
Growth Fund and the New Nationwide Fund and in the general administration and
fund accounting for each of the Acquiring Funds and the fact that the total
expense ratios for each of the Acquiring Funds would continue to be at least 23%
lower than the average for comparable mutual funds. The Board of the Trust and
the New Trust also determined that the proposed breakpoints in the Acquiring
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<PAGE> 28
Funds' fees would allow shareholders of the Acquiring Funds to benefit from
certain economies of scale as a Fund's assets grow.
In reaching its conclusion to approve the higher investment advisory for
the New Growth Fund and the New Nationwide Fund, the Board determined that the
increased fees were necessary for NAS to maintain high-quality services to those
Funds, especially in today's competitive environment where there are strong
pressures to attract and retain qualified professionals and to dedicate greater
resources to the management of funds that invest in equity securities. In
determining to break out the administrative services provided to each of the
Funds and to charge a separate fee for such services, the Board specifically
considered the increased costs of improved technology and the need to maintain
high quality compliance and administrative services.
With respect to the New Bond Fund and the New Money Market Fund, while the
administrative and fund accounting services for those Funds will be performed
under the Fund Administration Agreement, for which NAS will receive a separate
fee, the fees paid under the Proposed Agreement, (i) for the New Bond Fund at
the initial level are the same as those paid under the Current Agreement, and
(ii) for the New Money Market Fund, are lower that those paid under the Current
Agreement. In addition, each Fund will receive the benefit of breakpoints in its
investment advisory fees at certain asset levels which will cause that Fund's
overall investment advisory expenses, as a percentage of such Fund's assets, to
decline as such Fund's assets grow. And with respect to each Fund, the Board of
the Trust and the New Trust determined that based on the Funds' performance and
the level of the proposed fees and total expense ratios relative to comparable
funds, the proposed changes were reasonable and in the best interests of each
Fund and its Shareholders.
The Board of Trustees of the Trust based its decision to approve the
proposed transaction upon its consideration of a number of factors, including,
among other things:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
(2) the similarity of the Acquired Funds' investment objectives,
strategies and policies with those of the corresponding Acquiring Funds, as
well as the views of NAS that any differences between the investment
policies and restrictions of the Acquired Funds and their corresponding
Acquiring Fund should not materially increase investment risks;
(3) the experience and resources of NAS with respect to providing
investment management services, and the experience of and quality of
services to be provided by the Acquiring Funds' other service providers;
(4) the projected expense ratios and information regarding fees and
expenses of each Acquiring Fund, each Acquired Fund and other similar funds
and the services being offered to shareholders and the fact that the
overall expense rates for each Acquired Fund will be as least 23% lower
than the median expense ratio of its peer group of mutual funds;
(5) the increased fees being necessary to maintain high-quality
services, especially in today's competitive environment where there are
strong pressures to attract and retain qualified professionals and to
dedicate greater resources to the management of funds that invest in equity
securities and to improved technology;
(6) the continuity of the portfolio managers for the Acquired Funds;
(7) the conditioning of the Reorganization on the receipt of legal
opinions confirming the absence of any adverse federal tax consequences to
the Acquired Funds or their shareholders resulting from the Reorganization;
and
(8) other factors as it deemed relevant.
In particular, the Board considered the per share operating expense ratios
(total annual operating expenses expressed as a percentage of average net
assets) for shares of the Acquired Funds and as estimated for the Acquiring
Funds. The following are the per share operating expense ratios for shares of
the Acquired Funds for the year ended October 31, 1997, and as estimated for the
Acquiring Fund Shares of the corresponding Acquiring
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<PAGE> 29
Funds for the period following the effective date of the Reorganization and
ending October 31, 1998, after giving effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<S> <C>
ACQUIRED FUND ACQUIRING FUND
Nationwide Growth Fund New Growth Fund
0.64% 0.78%
Nationwide Fund New Nationwide Fund
0.60% 0.72%
Nationwide Bond Fund New Bond Fund
0.72% 0.79%
Nationwide Money Market Fund New Money Market Fund
0.59% 0.60%
</TABLE>
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in each Acquiring
Fund is represented by units of beneficial interest, without par value, of
Nationwide Investing Foundation III, which is an open-end investment company of
the management type, organized as an Ohio business trust on October 30, 1997.
The Acquiring Funds are currently four of nine separate series of the New Trust.
Like the Acquired Funds, each Acquiring Fund is diversified, as that term is
defined in the 1940 Act. There is only one class of shares for the Acquired
Funds. The New Money Market Fund of the New Trust offers only one class of
shares, which is without designation. However, each of the Acquiring Funds,
other than the New Money Market Fund, is expected to offer at least three
classes of shares -- Class A, Class B and Class D shares. Class A shares of the
New Trust will be sold with a front-end sales load and pay expenses pursuant to
a Rule 12b-1 plan. Class B shares of the New Trust will be subject to a
contingent deferred sales charge, will be sold without imposition of a front-end
sales load and will pay expenses pursuant to a Rule 12b-1 plan. Except for Rule
12b-1 fees, Class A, Class B and Class D shares of the New Trust will bear the
same expenses. All shareholders of an Acquiring Fund, regardless of class, will
generally vote on the same issues and in the aggregate with respect to matters
submitted to the shareholders of that Fund for their approval as a Fund.
However, holders of one class of shares of an Acquiring Fund will vote as a
class and not with holders of any other class of shares with respect to its
respective Rule 12b-1 Plan, if any. The Acquiring Fund Shares which shareholders
of the Acquired Funds will receive pursuant to the Reorganization do not have a
Rule 12b-1 Plan. Shareholders of an Acquiring Fund are entitled to one vote for
each share held and a proportionate fractional vote for any fraction of a share
held. See "ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the New Trust must receive favorable opinions from
Baker & Hostetler LLP substantially to the effect that, for federal income tax
purposes: (a) the Reorganization will constitute a "tax-free" reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) no gain or loss will be recognized by the Acquiring
Funds or the Acquired Funds as a result of the Reorganization; (c) no gain or
loss will be recognized by shareholders of the Acquired Funds upon the exchange
of their shares of the Acquired Funds for Acquiring Fund Shares of the
corresponding Acquiring Funds; (d) the tax basis of the Acquiring Fund Shares
received by shareholders of the Acquired Funds pursuant to the Reorganization
will be the same as the basis of the shares of the corresponding Acquired Fund
held immediately prior to the Reorganization; (e) the holding period of the
Acquiring Funds Shares so received will include the period during which the
Acquired Fund shareholder held shares of the Acquired Fund, provided such shares
were held as a capital asset; (f) the tax basis of each Acquired Fund's assets
acquired by the corresponding Acquiring Fund will be the same as the basis
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<PAGE> 30
of such assets immediately prior to the Reorganization; and (g) the holding
period of such assets will include the period during which those assets were
held by the Acquired Fund. The Acquiring Funds and the Acquired Funds do not
intend to seek a private letter ruling with respect to the tax effects of the
Reorganization.
CAPITALIZATION. The following table shows the unaudited capitalization of
the Acquired Funds as of October 31, 1997. Except for certain organizational
activities, the Acquiring Funds have no and will have no assets or liabilities,
and will not commence operations prior to the consummation of the
Reorganization. Therefore, no pro forma financial information giving effect to
the Reorganization is provided.
NATIONWIDE GROWTH FUND
(UNAUDITED)
<TABLE>
<S> <C>
Net assets................................................................. $ 818,124,115
Shares outstanding......................................................... 50,125,860
Net asset value per share.................................................. $ 16.32
NATIONWIDE FUND
(UNAUDITED)
Net assets................................................................. $1,448,421,904
Shares outstanding......................................................... 54,513,873
Net asset value per share.................................................. $ 26.57
THE NATIONWIDE BOND FUND
(UNAUDITED)
Net assets................................................................. $ 124,404,412
Shares outstanding......................................................... 13,109,316
Net asset value per share.................................................. $ 9.49
NATIONWIDE MONEY MARKET FUND
(UNAUDITED)
Net assets................................................................. $ 820,657,405
Shares outstanding......................................................... 820,657,237
Net asset value per share.................................................. $ 1.00
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of each Acquired Fund are substantially similar to those of the corresponding
Acquiring Fund. The investment objectives of each Acquired Fund and Acquiring
Fund are "fundamental," which means that they may not be changed without the
consent of a majority of such Fund's outstanding shares, as defined in the 1940
Act. The investment policies of the Acquired Funds and the Acquiring Funds are,
however, "non-fundamental." A "non-fundamental" policy may be changed upon the
vote of the Trustees without shareholder approval.
The investment policies and strategies of each Acquired Fund are generally
the same as those of the corresponding Acquiring Fund, although there are some
differences in the investment policies and restrictions that shareholders should
consider.
NATIONWIDE GROWTH FUND/NEW GROWTH FUND
The investment objective of the Nationwide Growth Fund is to achieve
long-term capital appreciation without emphasis on current return. The
investment objective of New Growth Fund is to achieve long-term capital
appreciation.
Nationwide Growth Fund seeks to benefit from the underlying economic growth
of the companies in which it invests and improvement in the valuation of the
stock. In selecting securities, Nationwide Growth Fund emphasizes companies that
have capable management and that are in fields in which social and economic
trends,
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<PAGE> 31
technological developments, and new processes or products indicate potential for
greater-than-average growth. Although Nationwide Growth Fund generally intends
to invest in common stocks or securities convertible into common stock, it is
not restricted in regard to the proportion of one or another class of securities
it may hold. As a result, management of Nationwide Growth Fund is not in any way
inhibited in selecting appropriate investments in seeking to achieve Nationwide
Growth Fund's investment objectives. However, certain other restrictions exist
to protect investors. Nationwide Growth Fund diversifies its investments to
minimize risk by investing in different types of securities among many companies
and industries.
The equity securities in which the New Growth Fund may invest include
common stock, preferred stock, convertible securities and warrants of both
domestic and foreign issuers. Foreign securities may be acquired directly or
though depository receipts. In addition to equity securities, the New Growth
Fund may invest in index futures, options and other derivatives, and securities
which are not readily marketable or are restricted as to disposition. The New
Growth Fund may also purchase shares of other investment companies, enter into
repurchase agreements and purchase securities on a when-issued or
delayed-delivery basis. For emergency or temporary purposes, the New Growth Fund
may invest up to 100% of its total assets in cash and/or U.S. Government
securities, short-term fixed income securities and money market obligations
("Money Market Obligations").
THE NATIONWIDE FUND/NEW NATIONWIDE FUND
The investment objective of the Nationwide Fund is to obtain a total return
from a flexible combination of current income and capital appreciation. The New
Nationwide Fund has the same investment objective.
The Nationwide Fund seeks to accomplish its investment objective by
retaining maximum flexibility in the management of its portfolio. The Nationwide
Fund's portfolio consists primarily of common stocks but also includes
convertible issues, bonds, and money market instruments. Major emphasis is
placed on investing in securities that provide a combination of current income
and the possibility of capital gains. The Nationwide Fund seeks to maximize
shareholder returns through a diversified portfolio in which the primary
emphasis is given to common stocks. In the past the majority of the Nationwide
Fund's portfolio assets normally consisted of the common stocks of well-known,
larger companies, although the Nationwide Fund is not limited to these
investments.
Although the Nationwide Fund generally intends to invest in common stocks
or in securities convertible to common stock, The Nationwide Fund is not
restricted in regard to the proportion of one or another class of securities it
may hold. As a result, management of The Nationwide Fund is not in any way
inhibited in selecting appropriate investments in seeking to achieve The
Nationwide Fund's investment objectives. However, certain other restrictions
exist to protect investors. The Nationwide Fund diversifies its investments to
minimize risk by investing in different types of securities among many companies
and industries. Nevertheless, although a professional investment manager
carefully selects and monitors The Nationwide Fund's investments, there is no
guarantee that The Nationwide Fund will achieve its investment objective.
The equity securities in which the New Nationwide Fund may invest include
common stock, preferred stock, convertible securities and warrants of both
domestic and foreign issuers. Foreign securities may be acquired directly or
though depository receipts. In addition to equity securities, the New Nationwide
Fund may invest in index futures, options and other derivatives, and securities
which are not readily marketable or are restricted as to disposition. The New
Nationwide Fund may also purchase shares of other investment companies, enter
into repurchase obligations and purchase securities on a when-issued or
delayed-delivery basis. For emergency or temporary purposes, the New Nationwide
Fund may invest up to 100% of its total assets in cash and/or Money Market
Obligations.
THE NATIONWIDE BOND FUND/NEW BOND FUND
The investment objective of the Nationwide Bond Fund is to generate a high
level of income consistent with capital preservation, through investment in
high-quality bonds and other fixed-income securities. The investment objective
of the New Bond Fund is to seek a high level of income, consistent with capital
preservation.
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<PAGE> 32
The Nationwide Bond Fund seeks to accomplish its investment objective by
retaining maximum flexibility in the management of its portfolio. The Nationwide
Bond Fund's portfolio consists mainly of corporate debt instruments. Major
emphasis is placed on maintaining a diversified portfolio of high-quality
taxable debt securities. Such securities include corporate debt securities rated
within the three highest rating categories by S&P or Moody's, obligations of the
governments of the United States and Canada, mortgage-backed securities, and
investment grade commercial paper rated highest by Moody's (Prime-1 or Prime-2)
or by S&P (A-1 or A-2). The Nationwide Bond Fund may invest up to 10% of its
portfolio in securities rated in the fourth highest rating category by S & P or
Moody's or which are of comparable quality.
The New Bond Fund intends to invest in the same securities as the
Nationwide Bond Fund except that it is not subject to any restriction in regard
to the percentage of net assets that may be invested in securities rated in the
fourth highest rating category by S&P or Moody's.
The New Bond Fund may also enter into repurchase agreements, purchase
restricted securities or illiquid securities which are not readily marketable or
are restricted as to disposition, and engage in securities lending transactions.
The New Bond Fund may also purchase securities on a when-issued or delayed
delivery basis. The New Bond Fund may invest up to 100% of its total assets in
cash and/or Money Market Obligations for temporary or emergency purposes.
THE NATIONWIDE MONEY MARKET FUND/NEW MONEY MARKET FUND
The investment objective of the Nationwide Money Market Fund is to provide
as high a level of current income as is consistent with the preservation of
capital and maintenance of liquidity, through investment in a diversified
portfolio of high-quality money market instruments maturing in 397 days or less.
The investment objective of the New Money Market Fund is to seek as high a level
of current income as is consistent with the preservation of capital and
maintenance of liquidity.
The emphasis for the Nationwide Money Market Fund and the New Money Market
Fund is on a diversified portfolio having a dollar weighted average maturity of
90 days or less. Such Funds' portfolio consists or will consist 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 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") (e.g., S&P or Moody's); corporate obligations at
the time of purchase rated in one of the two highest rating categories assigned
by the NRSROs; and repurchase agreements collateralized by any of the above. In
addition, the New Money Market Fund may invest in variable rate demand notes.
FUNDAMENTAL INVESTMENT POLICIES. Each Acquired Fund and corresponding
Acquiring Fund have some fundamental investment policies that are the same and
some that are different. The primary purposes for adopting more flexible
investment restrictions for the Acquiring Funds are to promote standardization
of such restrictions among all of the Nationwide funds and to provide the
portfolio managers with greater flexibility in managing the Acquiring Funds'
portfolios. The similarities and differences are described below.
1. Each of the Acquired Funds has a fundamental policy that it will not
concentrate its investments in any one industry (never more than 25%), but will
endeavor to maintain wide industry diversification. Electric, natural gas
distribution, natural gas pipeline, combined electric and natural gas, and
telephone utilities are considered separate industries for this purpose. In
addition, with respect to the Nationwide Money Market Fund, captive borrowing,
conduit, equipment finance, premium finance, leasing finance, consumer sales
finance and other finance are considered separate industries for purposes of
this restriction and obligations of the United States Government, its agencies
and instrumentalities, and obligations issued by state, county, or municipal
governments are not subject to this 25% limitation. Finally, the Nationwide
Money Market Fund may, if deemed advisable, invest more than 25% of its assets
in the obligations of commercial banks.
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<PAGE> 33
Each of the Acquiring Funds has a fundamental policy against purchasing
securities of any one issuer if, as a result of such purchase, more than 25% of
a Fund's total assets would be invested in securities of issuers that are in the
same industry. This investment restriction does not apply to securities issued
by the U.S. Government, its agencies, or instrumentalities or to securities
issued by state, county, or municipal governments. The following industries are
considered separate industries for purposes of this investment restriction:
captive borrowing conduit, equipment finance, premium finance, leasing finance,
consumer sales finance and other finance, electric, natural gas distribution,
natural gas pipeline, combined electric and natural gas, and telephone
utilities.
2. None of the Nationwide Growth Fund, the Nationwide Fund, or the Nationwide
Bond Fund will purchase securities of any one issuer if immediately thereafter
such Fund would have more than 5% of its assets, taken at value, invested in
that issuer, or own more than 10% of any class of voting or non-voting
securities of any issuer (except obligations issued or guaranteed by the United
States).
Each of the corresponding Acquiring Funds has a fundamental policy that it
will 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 such fund's total assets would
be invested in such issuer or such fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of such
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.
3. The Nationwide Money Market Fund may not purchase securities of any one
issuer if immediately thereafter it would have more than 5% of its assets, taken
at value, invested in that issuer (except obligations issued or guaranteed by
the United States); however, the Nationwide Money Market Fund may invest up to
10% of its assets, taken at value, in First Tier Securities, as defined in the
1940 Act, of a single issuer for a period of up to three business days after the
purchase thereof, provided that it may not make more than one such investment at
any one time.
The New Money Market Fund 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 such
fund's total assets would be invested in such issuer or such fund would hold
more than 10% of the outstanding voting securities of the issuer, except that
25% or less of such 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 New 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.
4. As a fundamental policy, none of the Nationwide Growth Fund, the Nationwide
Fund, or the Nationwide Bond Fund may invest for the purpose of making
short-term trading profits or for the purpose of exercising control of
management or deal with the Trustees in the purchase and sale of securities.
None of the Acquiring Funds has any such restriction.
5. As a fundamental policy, none of the Acquired Funds may make "short" sales.
In addition, none of the Acquired Funds may lend money or securities to any
person, nor may any Acquired Fund pledge, mortgage or hypothecate assets for any
purpose, except that the Nationwide Money Market Fund may pledge up to 10% of
its assets to secure temporary borrowings from banks.
Each of the Acquiring Funds has a non-fundamental policy against selling
securities short, unless an Acquiring 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.
Each corresponding Acquiring Fund also has the fundamental policy that it
will not make loans, except that each such Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its investment
objective and policies, make time deposits with financial institutions and enter
into repurchase agreements.
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<PAGE> 34
As a non-fundamental policy, no Acquiring Fund may mortgage, pledge or
hypothecate its assets in excess of one-third of such Fund's total assets.
6. As a fundamental policy, none of the Acquired Funds may deal in real estate,
commodities or commodity contracts. As a fundamental policy, none of the
Acquiring Funds may (a) purchase or sell real estate unless acquired as a result
of ownership of securities or instruments, but this restriction shall not
prohibit such funds 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 or (b) purchase or sell
commodities or commodities contracts, except to the extent disclosed in the
current Prospectus of each such fund.
7. As a fundamental policy, none of the Acquired Funds may enter into any
repurchase agreement if, as a result, more than 10% of its total assets would be
subject to repurchase agreements maturing in more than seven days. Furthermore,
as a fundamental policy, none of the Nationwide Growth Fund, the Nationwide
Fund, or the Nationwide Bond Fund may invest in securities, the disposition of
which is restricted under federal securities laws and which may not be publicly
sold without registration under the Securities Act of 1933, if as a result, more
than 5% of the net assets of a Fund would be invested in such securities.
None of the Acquiring Funds has such restrictions; however, each of the
Acquiring Funds has as a non-fundamental investment policy that it will not
purchase or otherwise acquire any security if, as a result, more than 15% (10%
with respect to the New Money Market Fund) of its net assets would be invested
in securities that are illiquid. For purposes of this investment restriction,
illiquid securities include securities which are not readily marketable and
repurchase agreements with maturities in excess of seven days.
8. As a fundamental policy, none of the Acquired Funds may act as an underwriter
except, with respect to the Nationwide Growth Fund, the Nationwide Fund and the
Nationwide Bond Fund, to the extent that in conjunction with the disposition of
portfolio securities, each such Fund may be deemed an underwriter under certain
federal securities laws. Each of the Acquiring Funds has a fundamental policy
that it will not underwrite securities issued by other persons, except to the
extent that each such fund may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities."
9. As a fundamental policy, none of the Acquired Funds may borrow money, except
under the following circumstances:
(a) each such fund may borrow an amount not in excess of 33 1/3% of
the value of such fund's total assets (calculated when the loan is made)
from banks for temporary purposes to facilitate the orderly sale of
portfolio securities to accommodate unusually heavy redemption requests, if
they should occur. This borrowing provision is not intended for investment
purposes, nor will any such fund purchase portfolio securities during
periods of borrowings outstanding;
(b) each such fund may borrow an amount equal to no more than 5% of
the value of such fund's total assets (calculated when the loan is made)
for temporary, emergency purposes, or for the clearance of transactions, to
provide the Investment Manager additional flexibility in the execution of
routine daily transactions, and allow for more efficient cash management.
This borrowing provision will not be used to leverage any such fund or to
borrow for extended periods of time.
As a fundamental policy, none of the Acquiring Funds may borrow money or
issue senior securities except that each such Fund may enter into reverse
repurchase agreements and may otherwise borrow money and issue senior securities
as and to the extent permitted by the 1940 Act or any rule, order or
interpretation thereunder.
10. As a fundamental policy, none of the Acquired Funds may invest in puts,
calls, straddles, spreads, or any combination thereof. In addition, none of the
Nationwide Growth Fund, the Nationwide Fund nor the Nationwide Bond Fund may
invest in oil, gas or other mineral leases, rights or royalty contracts. None of
the Acquiring Funds has any such limitations.
11. As a fundamental policy, none of the Nationwide Growth Fund, the Nationwide
Fund or the Nationwide Bond Fund may invest more than 5% of its assets in
companies which have a record of less than three years continuous operation,
including their predecessors, or in securities for which market quotations are
not readily available. None of the Acquiring Funds has any such restriction.
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<PAGE> 35
12. As a fundamental policy, none of the Nationwide Growth Fund, the Nationwide
Fund or the Nationwide Bond Fund may invest in the securities of any other
investment company, as defined in the 1940 Act, and the Nationwide Money Market
Fund may not purchase or sell securities of other investment companies except in
connection with a merger, consolidation, acquisition or reorganization).
As a non-fundamental policy, none of the Acquiring Funds may purchase
securities of other investment companies, except (a) in connection with a
merger, consolidation, acquisition, reorganization or offer exchange, and (b) to
the extent permitted by the 1940 Act, or any rules or regulations thereunder, or
pursuant to any exemptions therefrom.
13. As a fundamental policy, none of the Nationwide Growth Fund, the Nationwide
Fund or the Nationwide Bond Fund may retain the securities of any issuer if the
combined holdings of all Trustees or officers of the Trust and all directors and
officers of NAS, who own more than 1/2 of 1% of the securities of such issuer,
total more than 5% of the securities of such issuer. None of the Acquiring Funds
have any such restriction.
14. The Acquired Funds do not have a fundamental or non-fundamental policy
against purchasing securities on margin. Each of the Acquiring Funds, however,
has a non-fundamental policy against purchasing securities on margin, except
that each such Fund may obtain such credits as may be necessary to clear
purchases and sales of securities and to make margin payments in connection with
transactions in derivative instruments.
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in each Acquiring Fund. For a more complete description of the
Acquiring Funds' investment policies and restrictions, including relevant risk
factors, see "OBJECTIVES AND MANAGEMENT" in the Acquiring Funds' Prospectus and
"INVESTMENT OBJECTIVES AND POLICIES" in the Acquiring Funds' Statement of
Additional Information. For a more complete description of the Acquired Funds'
investment policies and restrictions, including relevant risk factors, see
"OBJECTIVES, MANAGEMENT, PERFORMANCE & HOLDINGS" in the Acquired Funds'
Prospectus and "INVESTMENT OBJECTIVES AND POLICIES" in the Acquired Funds'
Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE TRUST
Pursuant to the laws of Michigan and the Trust's Indenture of Trust, the
responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Declaration of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants, and other professionals to assist and
advise in such management.
Investment Adviser. The Acquired Funds are advised by Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a wholly
owned subsidiary of Nationwide Life Insurance Company, which in turn is wholly
owned by Nationwide Financial Services, Inc., a holding company ("NFS"). NFS 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. 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. NAS is also the investment adviser, administrator, fund
accountant and distributor of each of the other funds of the Nationwide Family
of Funds. NAS was established as an Ohio corporation on June 28, 1960, and has
been providing investment advisory services to open-end investment management
companies like the Acquired Funds since 1965.
In its capacity as investment adviser, and subject to the ultimate
authority of the Trust's Board of Trustees, NAS, in accordance with the Acquired
Funds' investment objectives and policies, manages the Acquired Funds, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since June, 1981, John M. Schaffner, MBA, CFA, has been
primarily responsible for the day-to-day management of the
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<PAGE> 36
Nationwide Growth Fund's portfolio. Mr. Schaffner has been with Nationwide
Insurance Enterprise since 1977. Mr. 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.
Since January, 1985, Charles Bath, MBA, CFA, has been primarily responsible
for the day-to-day management of The Nationwide Fund's portfolio. Mr. Bath
joined Nationwide Insurance Enterprise as a securities analyst in March, 1982.
He graduated with a Bachelor of Science degree 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.
Since March, 1997, Douglas Kitchen, CFA, has been primarily responsible for
the day-to-day management of the Nationwide Bond Fund's portfolio. Mr. Kitchen
joined Nationwide Insurance Enterprise in 1986 and from 1992 to March 1997,
managed the bond portfolio for the Nationwide Insurance Enterprise Foundation.
Mr. 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.
Since July, 1997, Patricia A. Mynster, Director of Short-Term Investments,
has been primarily responsible for the day-to-day management of the Nationwide
Money Market Fund. She 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 Insurance Enterprise since 1991.
In addition, pursuant to the Investment Advisory Agreement, NAS generally
assists in all aspects of the Acquired Funds' administration and operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Trust, NAS receives a fee from each Acquired Fund,
computed daily and paid monthly, at the annual rate of 0.50% of average net
daily assets of that Fund.
The Acquired Funds also pay to NAS for fund accounting services a fee equal
to $48,000.
For a complete description of the Acquired Funds' advisory arrangements,
see the sections in the Acquired Funds' Prospectus entitled "OBJECTIVES,
MANAGEMENT, PERFORMANCE & HOLDINGS" and "MANAGEMENT OF THE TRUSTS."
Distributor. The Trust has entered into an Underwriting Agreement with
NAS, Three Nationwide Plaza, Columbus, Ohio 43215, pursuant to which shares of
the Acquired Funds continuously are offered on a best efforts basis by NAS and
dealers selected by NAS. Dimon Richard McFerson is Chairman of the Board and
Chief Executive Officer of NAS. Joseph J. Gasper, Robert A. Oakley, Gordon E.
McCutchan and Robert J. Woodward, Jr. are President and a director, Executive
Vice President -- Chief Financial Officer and a director, Executive Vice
President -- Law and Corporate Services and a director, and Executive Vice
President -- Chief Investment Officer and a director, respectively, of NAS.
James F. Laird, Jr. is Vice President -- General Manager of NAS. NAS receives no
compensation from the Acquired Funds in connection with its services under such
Underwriting Agreement but may retain some or all of the sales charge, if any,
imposed upon sales of the Acquired Funds' shares.
Dividend and Transfer Agent. Nationwide Investors Service, Inc., a wholly
owned subsidiary of NAS ("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215,
serves as the Acquired Funds' Dividend and Transfer Agent. In consideration of
such services, the Acquired Funds have agreed to pay NISI an annual fee, paid
monthly, equal to: $16 per account for the Nationwide Growth Fund and the
Nationwide Fund; $18 per account for the Nationwide Bond Fund; and $27 per
account for the Nationwide Money Market Fund, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Trust, see the section in the Acquired Funds' Prospectus entitled
"MANAGEMENT OF THE TRUSTS."
Custodian. The Acquired Funds have appointed The Fifth Third Bank ("Fifth
Third"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, as the Acquired
Funds' custodian. In such capacity Fifth Third will hold or
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<PAGE> 37
arrange for the holding of all portfolio securities and other assets acquired
and owned by each of the Acquired Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Acquired
Funds, and, as such, has audited the annual financial statements of the Acquired
Funds.
Management Discussion of Fund Performance.
NATIONWIDE GROWTH FUND
For the year ended October 31, 1997, Nationwide Growth Fund had a total
return of 32.12%, which equalled the 32.12% total return for the S&P 500 Index.
During the second half of the fiscal year, Nationwide Growth Fund continued
to find greater opportunities in growth stocks, and took advantage of them to
shift its portfolio mix in this direction, at the same time reducing the level
of value-oriented holdings. For example, compared to its portfolio as of October
31, 1996, Nationwide Growth Fund's investment in the Computer Services and
Software sector increased from 2.2% to a current level of 12.8%. The main
sectors that saw declines in investment were financial services stocks, which
went from 17.3% to 14.9%, Healthcare, which went from 4.5% to 0%, and Food and
Beverage, which went from 4.3% to 0%. In the process of buying the growth stocks
which NAS found attractive, and funding those purchases with sales of
less-attractive stocks, we also tried to concentrate on the best ideas. As a
result, Nationwide Growth Fund's top 10 holding as of this fiscal year-end
represent nearly 37% of assets, compared to a figure of about 30.5% as of
October 31, 1996.
Although growth stocks have been the current focus, the stock selection
process is essentially unchanged. NAS still wants to own companies that benefit
from strong, long-term growth drivers which are clearly visible. NAS wants to
own companies with both the management and financial resources to take full
advantage of their business opportunities. NAS also favors companies that derive
and/or purvey benefits from advancing technology.
The strongest performance over the past 12 months has come from two of
Nationwide Growth Fund's technology holdings: Applied Materials and EMC
Corporation. Both Warner-Lambert and Schering-Plough in the drug group, and
Merrill Lynch and Equitable in the financial sector, have also had outstanding
gains. Nationwide Growth Fund's most significant loss came in the computer
service sector, in First Data Corp. This is a company NAS thinks is extremely
well positioned for long-term growth. The stock has come down because its
current growth rate, though still good, has been less than expected.
The positive results this year have been primarily due to gains in stocks
Nationwide Growth Fund has held for over a year, rather than from ones that have
been added this year. As Nationwide Growth Fund goes forward, NAS expects that
the more recent additions will help sustain this progress.
NATIONWIDE FUND
The total return for Nationwide(R) Fund for the year ending October 31,
1997, was 40.17% assuming all distributions were reinvested compared to 32.10%
for the S&P 500 Index.
The excellent performance of Nationwide Fund was mainly attributable to
large investments in the pharmaceutical and financial services industries.
Warner-Lambert and Schering-Plough are Nationwide Fund's two largest holdings
and they have continued to perform very well. Solid revenue growth combined with
new products have allowed these two companies to outperform the market and their
peers. The Financial Services companies have performed well due to steady
earnings performance, combined with benefits from consolidation. First USA,
Barnett Banks and U.S. Bancorp were all acquired at significant premiums to
their market prices. These takeouts, combined with excellent performance from
Mellon Bank, Horace Mann and CoreStates Financial, led to the Financial Services
sector providing excellent performance for Nationwide(R) Fund sharehold-
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ers. These companies remain significant holdings in the portfolio and will be
important contributors to the future performance of Nationwide Fund.
The New York Times is a significant new investment currently ranked in the
top 10 holdings of the portfolio. This company in many ways epitomizes what Mr.
Bath is looking for in an investment. The shares are inexpensively priced
compared to private market value, yet the business franchise is one of the best
in its industry. The company recently completed a major capital spending program
so cash flow will be available in the future to reward shareholders. Mr. Bath is
optimistic this will be a successful investment for the Nationwide Fund.
Nationwide Fund also has two new holdings in the Cellular Telephone
industry. These are small holdings because the securities appreciated in price
before a larger position could be purchased. However, Mr. Bath is optimistic
that the worst of the fears regarding competition will not be realized and the
attractive purchase prices will provide excellent appreciation potential.
NATIONWIDE BOND FUND
Nationwide Bond Fund's total return with reinvestment of all distributions
for the year ended October 31, 1997, was 8.33%. This compares to the 8.81%
return of such Fund's new benchmark, the Lehman Government/Corporate Bond Index.
In retrospect, it would have improved our performance if the change from the
Lehman Long-Term Gov./Corp. Index had been at the beginning of the year rather
than in the middle. For the last six months of the fiscal year, Nationwide Bond
Fund's total return was 7.37%, little different than the 7.41% return for the
new benchmark.
Interest rates declined substantially in the second half of the year. This
completely reversed the increase that followed the March increase in the Federal
Funds rate. Rates ended at yearly lows, with the 30-year treasury note yielding
6.15% and the two-year treasury note yielding 5.61%. Inflationary pressures
remain remarkably subdued given the strength in the economy and as a result,
expectations of future inflation have declined. The economic weakness seen in
some of the Asian countries has spread throughout the region and could have an
affect on our economy in 1998. Inflation could drop below 2% with enough of a
slowdown.
In the corporate and mortgage-backed market, spreads were historically
narrow for virtually the entire year and few opportunities to improve returns
were available. Spreads did widen substantially at the fiscal-year end, but it
happened too suddenly to affect our returns. Turmoil in the Asian markets and
the fear that corporate profitability in 1998 will be hurt were the primary
cause. Mortgage-backed securities widened in sympathy, with the rationale of
lower interest rates sparking a wave of prepayments.
Restructuring Nationwide Bond Fund from long-term to intermediate required
a significant change in composition. Approximately $50 million of long-term
corporates were sold, including large positions in Bank One, W.R. Berkley,
Prudential and Seagrams. New names added in the intermediate part of the curve
included Hanson, Hilton Hotels, McGraw-Hill and Rayonier among others. Because
of the narrowness of spreads and increasing risk, positions in corporates and
mortgage-backed securities were reduced. U.S. treasury notes now comprise 18% of
the portfolio. The recent widening in spreads appears to present an opportunity
for Nationwide Bond Fund, but Mr. Kitchen intends to wait for some signs of
stability in the Asian markets and a clearer picture of how much of a slowdown
can be expected in 1998.
NATIONWIDE MONEY MARKET FUND
The net assets of Nationwide Money Market Fund ended the year at $820.6
million. They were $729.5 million a year ago. Mutual fund assets have seen
consistent growth during the year. Much of the growth is attributed to an
increase in individual retirement savings utilizing payroll deductions. The
average annual total return for the year ended October 31, 1997, was 5.1% versus
2.15% for the Consumer Price Index.
Nationwide Money Market Fund met its investment objective of providing a
high level of current income consistent with capital preservation and
maintenance of liquidity. This was achieved by careful investment selection and
constant attention to the compliance objectives and policies outlined in the
prospectus.
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The investment portfolio is well diversified and a laddered approach to
maturities was followed. The dollar-weighted average maturity of Nationwide
Money Market Fund remained between 35-45 days. Prime commercial paper provided
the best risk/return profile, accounting for its dominant portfolio weighting.
The trading range for 30-day prime commercial paper (dealer placed) was between
5.24% and 5.61% for the year.
THE ACQUIRING FUNDS AND THE NEW TRUST
Except where shareholder action is required by law, all of the authority of
the New Trust is exercised under the direction of the New Trust's Trustees, who
are elected by the shareholders of the New Trust's series or portfolios,
including the Acquiring Funds, and who are empowered to elect officers and
contract with and provide for the compensation of agents, consultants, and other
professionals to assist and advise in its day-to-day operations. The New Trust
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
Investment Adviser. The Acquiring Funds are also advised by NAS. It is
intended that upon completion of the Reorganization, Mr. Schaffner will be
responsible for the day-to-day management of the New Growth Fund's portfolio,
Mr. Bath will be responsible for the day-to-day management of the New Nationwide
Fund's portfolio, Mr. Kitchen will be responsible for the day-to-day management
of the New Bond Fund's portfolio and Ms. Mynster will be responsible for the
day-to-day management of the New Money Market Fund's portfolio. For its services
as investment adviser, NAS receives a fee for each Acquiring Fund, which is
calculated daily and paid monthly, at the following annual rates: for each of
the New Growth Fund and the New Nationwide Fund, 0.60% of such Fund's average
net assets up to $250 million, 0.575% of such Fund's average net assets of $250
million up to $1 billion, 0.55% of such Fund's average net assets of $1 billion
up to $2 billion, 0.525% of such Fund's average net assets of $2 billion up to
$5 billion, and 0.50% of such Fund's average net assets of $5 billion or more;
for the New Bond Fund, 0.50% of such Fund's average net assets up to $250
million, 0.475% of such Fund's average net assets of $250 million up to $1
billion, 0.45% of such Fund's average net assets of $1 billion up to $2 billion,
0.425% of such Fund's average net assets of $2 billion up to $5 billion, and
0.40% of such Fund's average net assets of $5 billion or more; and for the New
Money Market Fund, 0.40% of such Fund's average net assets up to $1 billion,
0.38% of such Fund's average net assets of $1 billion up to $2 billion, 0.36% of
such Fund's average net assets of $2 billion up to $5 billion, and 0.34% of such
Fund's average net assets of $5 billion or more.
The New Trust on behalf of the Acquiring Funds has also entered into an
Administration Agreement with NAS whereby NAS provides certain administration
and fund accounting services to the Acquiring Funds. For such services, NAS
receives a fee from each Acquiring Fund, calculated daily and paid periodically
at the following annual rate: 0.07% of such Fund's average net assets up to $250
million; 0.05% of such Fund's average net assets of $250 million up to $1
billion, and 0.04% of such Fund's average net assets of $1 billion or more.
For a complete description of the Acquiring Funds' advisory arrangements,
see the section in the Acquiring Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST -- Investment Management."
Dividend and Transfer Agent. NISI also serves as the Acquiring Funds'
Dividend and Transfer Agent. In consideration of such services, the Acquiring
Funds have each agreed to pay NAS an annual fee, paid monthly, equal to: $16 per
account for the New Growth Fund and the New Nationwide Fund, $18 per account for
the New Bond Fund, and $27 per account for the New Money Market Fund, plus
out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Acquiring Funds, see the sections in the Acquiring Funds'
Prospectus entitled "MANAGEMENT OF THE TRUST -- Other Services" and " --
Transfer and Dividend Disbursing Agent."
Distributor. NAS also serves as the distributor of the Acquiring Funds'
shares pursuant to a distribution agreement. Pursuant to such agreement, NAS may
retain all or a portion of the front end sales charge, if any, imposed upon
purchases of Class D shares of the Acquiring Funds.
In addition, NAS may enter into, from time to time, agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of the Acquiring Fund Shares.
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For a complete description of these arrangements, see the sections in the
Acquiring Funds' Prospectus entitled "HOW TO PURCHASE SHARES."
Custodian. The Acquiring Funds have also appointed Fifth Third as the
Acquiring Funds' custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the New Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Funds, and, as such, will audit the annual financial
statements of the Acquiring Funds.
Management Discussion of Fund Performance. No management discussion of
fund performance is included since the Acquiring Funds have not yet commenced
operations.
CERTAIN FINANCIAL INFORMATION. The Prospectus for the Trust contains
information on per share income, capital changes and performance calculations
under the caption "FINANCIAL HIGHLIGHTS."
The Acquiring Funds have not yet commenced operations and have no and will
have no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE ADVERTISING FOR THE FUNDS" in
the Acquiring Funds' Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS. The Trust is a Michigan trust,
registered under the 1940 Act as an open-end investment company of the
management type and established under an Indenture of Trust dated May 5, 1933.
The New Trust is an Ohio business trust, registered under the 1940 Act as an
open-end investment company of the management type and established under a
Declaration of Trust dated as of October 30, 1997.
The Acquiring Funds are four of nine series of the New Trust. The other
five series of the New Trust are the Nationwide Tax-Free Income Fund, the
Nationwide Long-Term U.S. Government Bond Fund, the Nationwide Intermediate U.S.
Government Bond Fund, the Nationwide Mid Cap Growth Fund and the Nationwide S&P
500 Index Fund.
Both the Trust and the New Trust are authorized to issue an unlimited
number of shares of beneficial interest. Each share of beneficial interest in
the Trust is designated under its Amended Trust Indenture as a share of one of
the Acquired Funds; no provision is made for dividing such shares into
additional series or shares. The New Trust, in contrast, may divide its shares
of beneficial interest into one or more series of shares and into one or more
classes or sub-series of shares. Each share of a series of the Trust or New
Trust represents a beneficial interest in the assets of only that series. The
consideration received by the Trust or New Trust for the issuance of shares of a
particular series, the assets in which such consideration is invested, and all
income and proceeds from the holding or sale of such assets belong to that
series, subject only to the rights of creditors.
Each share of beneficial interest of a series of the Trust and New Trust
represents an equal proportionate interest in that series of the Trust and New
Trust, respectively, with each other share of the same series. Each such share
is entitled to share on a pro rata basis in any dividends or distributions out
of the income or assets belonging to the particular series of the Trust and New
Trust, as applicable. Such dividends or distributions are declared at the
discretion of the Trustees of the Trust and New Trust. Upon any liquidation of a
series of the Trust or New Trust, shareholders are entitled to share pro rata in
the net assets that belong to that series and that are available for
distribution.
Shares of the Acquiring Funds, once properly issued and outstanding, are
fully paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
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Shareholders of both the Trust and the New Trust are entitled to one vote
for each full share held and a proportionate fractional vote for each fractional
share held regardless of the net asset value of the shares.
Voting rights for the Trust's shareholders are not cumulative, so that the
holders of more than 50% of the Trust voting in the election of its Trustees
have the power to elect all of the Trustees of the Trust. The Trust is not
required to, and currently does not, hold an annual meeting of shareholders.
Shareholders of the New Trust have no cumulative voting rights, which means
that the holders of a plurality of the shares voting for the election of the New
Trust's Board of Trustees can elect all of the New Trust's Board of Trustees if
they choose to do so. The New Trust does not intend to hold annual meetings of
shareholders, except as required under its Declaration of Trust or the 1940 Act.
Shareholders of the Acquiring Funds will vote in the aggregate with other
shareholders of the New Trust and not by series or portfolio except as otherwise
expressly required by law. For example, shareholders of an Acquiring Fund will
vote in the aggregate with other shareholders of the New Trust with respect to
the election of Trustees and ratification of the selection of independent
accountants. However, shareholders of an Acquiring Fund will vote as a Fund, and
not in the aggregate with other shareholders of the New Trust, for purposes of
approval of amendments to the Investment Advisory Agreement as it relates to
that Acquiring Fund or any of that Acquiring Fund's fundamental policies.
For a complete description of the respective attributes of the Trust's and
the New Trust's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Acquired Funds or the Acquiring
Funds, as the case may be, and its shareholders, and dividend and distribution
policies, see the sections in the Acquired Funds' and the Acquiring Funds'
respective Prospectuses entitled "HOW TO PURCHASE SHARES," "HOW TO REDEEM
SHARES," "INVESTOR SERVICES," and "DISTRIBUTIONS AND TAXES." Additional
information about the Trust is included in its Prospectus, dated February 28,
1997, as supplemented on November , 1997, which is incorporated herein by
reference, and in the Trust's Statement of Additional Information dated February
28, 1997. Copies of the Prospectus and the Statement of Additional Information
may be obtained without charge by calling the Trust at 1-800-848-0920.
Additional information about the Acquiring Funds is included in its
Prospectus dated December , 1997, which accompanies this Combined
Prospectus/Proxy Statement, and its Statement of Additional Information dated
December , 1997, copies of which may be obtained without charge by calling
the New Trust at 1-800-848-0920.
Additional information regarding the Reorganization is contained in the
Statement of Additional Information, dated December , 1997, to this
Combined Prospectus/Proxy Statement. The Statement of Additional Information is
incorporated by reference herein and may be obtained by calling the New Trust at
1-800-848-0920.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the New Trust are each subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act, and in accordance therewith each
files reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne 50% by the Trust
and 50% by NAS. Proxies will be solicited initially, and in any supplemental
solicitation, by mail and may be solicited in person, by telephone, telegraph or
other electronic means by officers of the Trust.
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SUBSTANTIAL SHAREHOLDERS. As of December 18, 1997, to the knowledge of the
Trust, the only persons who own of record or beneficially five percent or more
of the outstanding shares of any of the Acquired Funds are Nationwide Life
Insurance Company and/or Nationwide Life and Annuity Insurance Company, One
Nationwide Plaza, Columbus, Ohio 43215, which own, through various separate
accounts, % of Nationwide Growth Fund, % of Nationwide Fund, % of
Nationwide Bond Fund, and % of Nationwide Money Market Fund.
As of the close of business on December 18, 1997, the officers and Trustees
of the Trust as a group beneficially owned less than 1% of the outstanding
shares of the Trust or of any Acquired Fund.
As of the close of business on December 18, 1997, there were no issued and
outstanding shares of the New Trust. As of such date, there were no shareholders
of the Acquiring Funds. It is anticipated, however, that those persons who are
beneficial holders of the Acquired Funds' shares immediately prior to the
Reorganization will be beneficial holders of the same or substantially the same
percentage of the corresponding Acquiring Fund Shares immediately after the
Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Funds dated December , 1997, is incorporated by reference into this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
February 28, 1997, as supplemented November , 1997, is incorporated by
reference into this Combined Prospectus/Proxy Statement and may be obtained by
writing the Trust at Three Nationwide Plaza, Columbus, Ohio 43215 or by calling
the Trust at 1-800-848-0920. Copies of documents requested will be sent by
first-class mail to the requesting shareholder within one business day of
receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in accordance
with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to introduce
at such meeting. Any shareholder proposals must be presented a reasonable time
before the proxy materials for the next meeting are sent to shareholders. The
submission of a proposal does not guarantee its inclusion in the Trust's proxy
statement and is subject to limitations under the 1934 Act. It is not presently
anticipated that the New Trust will hold regular meetings of shareholders, and
no anticipated date of the next meeting can be provided.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Nationwide Investing Foundation, a Michigan business trust
("NIF") and Nationwide Investing Foundation III, an Ohio business trust ("NIF
III").
WHEREAS, NIF is registered under the Investment Company Act of 1940, as
amended ("1940 Act") as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following four series: Nationwide Growth Fund ("NIF Growth
Fund"), Nationwide Fund ("NIF Fund"), Nationwide Bond Fund ("NIF Bond Fund"),
and Nationwide Money Market Fund ("NIF Money Market Fund", and, together with
each of the NIF's other three series described in this paragraph, the "Acquired
Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series
(Nationwide Money Market Fund will only issue shares of beneficial interest,
without par value, without any class designation): Nationwide Growth Fund ("NIF
III Growth Fund"), Nationwide Fund ("NIF III Fund"), Nationwide Bond Fund ("NIF
III Bond Fund"), and Nationwide Money Market Fund ("NIF III Money Market Fund",
and, together with each of NIF III's other three series described in this
paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets and liabilities
of the corresponding Acquired Series; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares (or, in
the case of NIF III Money Market Fund, shares of beneficial interest, without
par value, without any class designation) of the corresponding Acquiring Series
("Acquiring Series Shares"), which are voting securities, followed by the
distribution of the Acquiring Series Shares by each Acquired Series to the
shareholders of the Acquired Series in connection with the dissolution of NIF
and the Acquired Series, all upon the terms and provisions of this Agreement
(individually and together, the "Reorganization"); and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: NIF Growth Fund corresponds to NIF III Growth Fund, NIF Fund
corresponds to NIF III Fund, NIF Bond Fund corresponds to NIF III Bond Fund, and
NIF Money Market Fund corresponds to NIF III Money Market Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of NIF has determined that the
Reorganization is in the best interests of NIF, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
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1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of NIF and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as described in Section 9(h) herein), NIF and the
Acquired Series agree to assign, convey, transfer and deliver to NIF III
and the Acquiring Series, and NIF III and the Acquiring Series agree to
acquire from NIF and the Acquired Series on the Exchange Date (as defined
below), all of the Investments (as defined below), cash and other assets of
NIF in exchange for that number of full and fractional Acquiring Series
Shares of the corresponding Acquiring Series having an aggregate net asset
value equal to the value of all assets of NIF transferred to the Acquring
Series, as provided in Section 4, less the liabilities of NIF assumed by
the Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring Series
from NIF shall consist of all of NIF's property, including, without
limitation, all Investments (as defined below), cash and dividends or
interest receivables which are owned by NIF and any deferred or prepaid
expenses shown as an asset on the books of NIF as of the Valuation Time
described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date NIF will endeavor
to discharge or cause to be discharged, or make provision for the payment
of, all of its known liabilities and obligations. The Acquiring Series
shall assume all liabilities, expenses, costs, charges and reserves of NIF,
contingent or otherwise, including liabilities reflected in the unaudited
statements of assets and liabilities of NIF as of the Valuation Time,
prepared by or on behalf of NIF as of the Valuation Time in accordance with
generally accepted accounting principles consistently applied from and
after October 31, 1996, and including all liabilities of the NIF under its
registration statement on Form N-1A filed with the Securities and Exchange
Commission ("Commission") under the Securities Act of 1933, as amended
("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the transactions
described in Section 1(a), 1(b) and 1(c) above, each Acquired Series shall
distribute to its shareholders of record as of the Exchange Date the
Acquiring Series Shares received by it, each Acquired Series shareholder of
record being entitled to receive that number of Acquiring Series Shares
equal to the proportion which the number of shares of beneficial interest,
par value $1.00 per share, of the Acquired Series held by such shareholder
bears to the total number of such shares of the Acquired Series outstanding
on such date, and shall take such further action as may be required,
necessary or appropriate under NIF's Amended Trust Indenture, Michigan law
and the Code to effect the complete liquidation and dissolution of NIF. NIF
will fulfill all reporting requirements under the 1940 Act, both before and
after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF. NIF represents and
warrants to and agrees with NIF III and the Acquiring Series that:
(a) NIF is a business trust validly existing under the laws of the
State of Michigan and has power to own all of its properties and assets and
to carry out its obligations under this Agreement.
(b) NIF is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. NIF has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for NIF, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of NIF, have been furnished to NIF III. Such statements of assets
and liabilities fairly present the financial position of NIF as of such
date and such statements of operations and changes in net assets fairly
reflect the results of operations and changes in net assets for the
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periods covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of NIF as of such
dates which are not disclosed therein.
(d) The Prospectus of NIF dated February 28, 1997 and its related
Statement of Additional Information dated February 28, 1997 (together, the
"NIF Prospectus"), in the form filed under the 1933 Act with the Commission
and previously furnished to NIF III, did not as of their date and do not as
of the date hereof contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of NIF, threatened against NIF.
(f) There are no material contracts outstanding to which NIF is a
party, other than as disclosed in the NIF Prospectus, and there are no such
contracts or commitments (other than this Agreement) which will be
terminated with liability to NIF on or prior to the Exchange Date.
(g) NIF has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statements of
assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of NIF's business as an investment company since that date.
(h) As used in this Agreement, the term "Investments" shall mean NIF's
investments shown on the statements of assets and liabilities at October
31, 1996 referred to in Section 2(g) hereof, as supplemented with such
changes as NIF shall make after October 31, 1996 in the ordinary course of
its business.
(i) NIF has filed or will file all federal and state tax returns
which, to the knowledge of NIF's officers, are required to be filed by NIF
and has paid or will pay all federal and state taxes shown to be due on
said returns or on any assessments received by NIF. All tax liabilities of
NIF have been adequately provided for on its books, and no tax deficiency
or liability of NIF has been asserted, and no question with respect thereto
has been raised, by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), NIF will
have full right, power and authority to assign, transfer and deliver the
Investments and any other of its assets and liabilities to be transferred
to NIF III and the Acquiring Series pursuant to this Agreement. On the
Exchange Date, subject only to the delivery of the Investments and any such
other assets and liabilities as contemplated by this Agreement, NIF III and
the Acquiring Series will acquire the Investments and any such other assets
subject to no encumbrances, liens or security interests in favor of any
third party creditor of NIF and, except as described in Section 2(k),
without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of NIF or NIF III, except as previously
disclosed to NIF III by NIF prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by NIF of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement (the "N-14 Registration Statement") to
be filed with the Commission by NIF III on Form N-14 relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of NIF
included therein (the "Proxy Statement"), on the effective date of the N-14
Registration Statement and insofar as they relate to NIF and the Acquired
Series, (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in
A-3
<PAGE> 46
the N-14 Registration Statement of which the Proxy Statement is a part, as
amended or supplemented by any amendments or supplements filed with the
Commission by NIF III, (together, the "N-14 Prospectus") insofar as it
relates to NIF and the Acquired Series, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that the representations and warranties in
this Section 2(m) shall apply only to statements of fact relating to NIF
and the Acquired Series contained in the N-14 Registration Statement, the
N-14 Prospectus or and the Proxy Statement, or omissions to state in any
thereof a material fact relating to NIF or any Acquired Series, as such
Registration Statement, N-14 Prospectus and Proxy Statement shall be
furnished to NIF in definitive form as soon as practicable following
effectiveness of the N-14 Registration Statement and before any public
distribution of the N-14 Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with NIF that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to NIF promptly
upon the completion thereof and will not as of their date contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of NIF to be transferred to the Acquiring
Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date,
A-4
<PAGE> 47
the N-14 Prospectus, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that none of the representations and warranties in this subsection shall
apply to statements in or omissions from the N-14 Registration Statement,
the N-14 Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by NIF or any Acquired Series for use
in the N-14 Registration Statement, the N-14 Prospectus or the Proxy
Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end investment
company, nor does NIF III have any plan or intention to redeem or otherwise
reacquire any shares of the Acquiring Series issued to NIF shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business. NIF III will actively continue NIF's
business in the same manner that NIF conducted it immediately before the
Reorganization and has no plan or intention to sell or otherwise dispose of
any of the assets to be acquired by NIF III in the Reorganization, except
for dispositions made in the course of its business and dispositions
necessary to maintain the status of each Acquiring Series as a regulated
investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to NIF pursuant to this
Agreement will be legally and validly issued by NIF III and will be fully
paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to NIF a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of NIF acquired
by the respective Acquiring Series, less the value of the liabilities of
NIF assumed, determined as hereafter provided in this Section 4.
(a) The net assets of NIF and each Acquired Series will be computed as
of the Valuation Time, using the valuation procedures set forth in the NIF
Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
NIF on a share deposit receipt registered in the name of NIF. NIF shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former NIF shareholder as may
be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of NIF, whether
accrued or contingent, described in subsection l(c) hereof in connection
with the acquisition of assets and subsequent dissolution of NIF or
otherwise, except that recourse for assumed liabilities relating to an
Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of NIF and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
NIF will be responsible for proxy solicitation and other costs associated
with the special meeting.
A-5
<PAGE> 48
Notwithstanding the foregoing, Nationwide Advisory Services, Inc.,
investment adviser of NIF and NIF III, will be responsible for 50% of NIF's
and NIF III's fees and expenses of the Reorganization and 50% of NIF's
proxy solicitation and other costs associated with the special meeting.
6. EXCHANGE DATE. Delivery of the assets of NIF to be transferred, assumption
of the liabilities of NIF to be assumed, and the delivery of Acquiring
Series Shares to be issued shall be made at the offices of NIF, at 9:00
A.M. on March 1, 1998, or at such other time, date, and location agreed to
by NIF and NIF III, the date and time upon which such delivery is to take
place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) NIF agrees to call a special meeting of its shareholders as soon
as is practicable for the purpose of considering the transfer of all of the
assets of NIF to, and the assumption of all of the liabilities of NIF by,
the Acquiring Series as herein provided, authorizing and approving this
Agreement, and authorizing and approving the liquidation and dissolution of
NIF, and it shall be a condition to the obligations of each of the parties
hereto that the holders of shares of beneficial interest, par value $1.00
per share, of NIF shall have approved this Agreement, and the transactions
contemplated herein, including the liquidation and dissolution of NIF, in
the manner required by law and NIF's Amended Trust Indenture at such a
meeting on or before the Valuation Time.
(b) NIF agrees that the liquidation and dissolution of NIF will be
effected in the manner provided in NIF's Amended Trust Indenture and in
accordance with applicable law, and that it will not make any constructive
distribution of any Acquiring Series Shares to the shareholders of NIF
without first paying or adequately providing for the payment of all of
NIF's known debts, obligations and liabilities.
(c) Each of NIF and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14-Registration Statement, including the N-14 Prospectus
and N-14 Proxy Statement included therein.
8. CONDITIONS OF NIF'S OBLIGATIONS. The obligations of NIF hereunder shall be
subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF,
shall have been approved by the trustees and shareholders of NIF in the
manner required by law.
(b) NIF III shall have executed and delivered to NIF an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of NIF, contingent or otherwise, including liabilities existing at
the Valuation Time and described in Section 1(c) hereof in connection with
the transactions contemplated by this Agreement; provided that recourse for
assumed liabilities relating to an Acquired Series shall be limited to the
corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to NIF a statement, dated the Exchange Date, signed by NIF III's
Chairman and Treasurer (or other financial officer) certifying those facts
as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) NIF shall have received an opinion of Druen, Dietrich, Reynolds &
Koogler in form reasonably satisfactory to NIF, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to NIF as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be
A-6
<PAGE> 49
fully paid and nonassessable by NIF III and no shareholder of NIF III has
any preemptive right to subscription or purchase in respect thereof, (iii)
this Agreement has been duly authorized, executed and delivered by NIF III,
and assuming due authorization, execution and delivery of this Agreement by
NIF, is a valid and binding obligation of NIF III, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) NIF shall have received an opinion of Baker & Hostetler LLP
addressed to NIF, NIF III and each Acquiring Series and in a form
reasonably satisfactory to NIF dated the Exchange Date, with respect to the
matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, NIF and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and NIF shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF,
shall have been approved by the trustees and shareholders of NIF in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF made in this Agreement are true and
correct in all material respects as if made at and as of such dates, NIF
has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to each of such dates,
and NIF shall have furnished to NIF III a statement, dated the Exchange
Date, signed by NIF's Chairman and Treasurer (or other financial officer)
certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) NIF is a business trust validly
existing under the laws of the State of Michigan, (ii) this Agreement has
been duly authorized, executed and delivered by NIF and, assuming due
authorization, execution and delivery of this Agreement by NIF III, is a
valid and binding obligation of NIF, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
A-7
<PAGE> 50
creditors' rights generally and other equitable principles, (iii) NIF has
power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, NIF
will have duly assigned, conveyed, transferred and delivered such
Investments and other assets to NIF III, (iv) the execution and delivery of
this Agreement did not and the consummation of the transactions
contemplated hereby will not, violate NIF's Amended Trust Indenture or its
Code of Regulations, as amended, or any provision of any agreement known to
such counsel to which NIF is a party or by which it is bound, and (v) to
the knowledge of such counsel no consent, approval, authorization or order
of any court or governmental authority is required for the consummation by
NIF of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, 1934 Act and 1940 Act and such as may be
required under state securities or blue sky laws or state laws applicable
to business trusts. In rendering such opinion, Druen, Dietrich, Reynolds &
Koogler may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and NIF, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
Acquired Series' assets in exchange for the Acquiring Series Shares and the
assumption by the Acquiring Series of the liabilities of Acquired Series
will constitute a "reorganization" within the meaning of Section 368(a) of
the Code, and each of the Acquiring Series and Acquired Series is a "party
to a reorganization" within the meaning of Section 368(b) of the Code; (ii)
no gain or loss will be recognized by Acquired Series upon the transfer of
the assets of the Acquired Series in exchange for Acquiring Series Shares
and the assumption by the Acquiring Series of the liabilities of Acquired
Series or upon the distribution of Acquiring Series Shares by Acquired
Series to its shareholders in liquidation; (iii) no gain or loss will be
recognized by the shareholders of Acquired Series upon the exchange of
their shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) an Acquired Series shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the
period for which he or she held Acquired Series Shares exchanged therefor,
provided that he or she held such Shares as capital assets; (vi) no gain or
loss will be recognized by the Acquiring Series upon the receipt of the
assets of the corresponding Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of the corresponding Acquired Series (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of the
assets in the hands of the corresponding Acquired Series immediately prior
to the transfer and (viii) the Acquiring Series' holding periods of the
assets of the corresponding Acquired Series will include the period for
which such assets of the corresponding Acquired Series were held by the
corresponding Acquired Series. In rendering such opinion, Baker & Hostetler
LLP may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF III, NIF, and certain of its
shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by NIF in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31, 1997 and the short taxable year beginning November
1, 1997 and ending on the Valuation Time (after reduction for any capital
loss carryover).
A-8
<PAGE> 51
(i) NIF shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
NIF's entire right, title and interest in and to the Investments and all
other assets of NIF to the Acquiring Series.
(j) NIF III and NIF shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
10. TERMINATION. NIF III and NIF may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or NIF, after consultation
with counsel and by consent of their respective trustees or an officer
authorized by such trustees may, subject to Section 11 of this Agreement,
waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
NIF; provided, however, that following the special meeting of NIF's shareholders
called by NIF pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received by
NIF, or altering or changing to any material extent the amount or kind of
liabilities assumed by NIF III and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect NIF's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
NATIONWIDE INVESTING FOUNDATION
By /s/ JAMES F. LAIRD, JR.
------------------------------------
NATIONWIDE INVESTING FOUNDATION III
By /s/ CHRISTOPHER A. CRAY
------------------------------------
A-9
<PAGE> 52
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE GROWTH FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of Nationwide Growth Fund (the "Fund") of
P NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, at its offices at Three Nationwide Plaza,
Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all adjournments
thereof, on the following proposal and any other matters that may properly
R come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement
and Plan of Reorganization by and between Nationwide Investing
Foundation III and the Trust providing for the transfer of all of the
O assets of the Fund to Nationwide Growth Fund of Nationwide Investing
Foundation III for shares of Nationwide Growth Fund and the assumption
by Nationwide Growth Fund of all of the liabilities of the Fund,
followed by the dissolution and liquidation of the Fund and the Trust
and the distribution of shares of Nationwide Growth Fund to the
X shareholders of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
Y and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _____________________________
____________________________________
(Signature of Shareholder)
<PAGE> 53
___________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 54
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of Nationwide Fund (the "Fund") of
P NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, at its offices at Three Nationwide Plaza,
Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all adjournments
thereof, on the following proposal and any other matters that may properly
R come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Fund of Nationwide Investing Foundation III for
shares of Nationwide Fund and the assumption by Nationwide Fund of all
of the liabilities of the Fund, followed by the dissolution and
liquidation of the Fund and the Trust and the distribution of shares of
Nationwide Fund to the shareholders of the Fund.
X
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
and in accordance with the best judgment of the proxies on any other matter
Y which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _____________________________
____________________________________
<PAGE> 55
___________________________
(Signature of Shareholder)
___________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 56
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE BOND FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of Nationwide Bond Fund (the "Fund") of
P NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, at its offices at Three Nationwide Plaza,
Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all adjournments
thereof, on the following proposal and any other matters that may properly
R come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Bond Fund of Nationwide Investing Foundation III
for shares of Nationwide Bond Fund and the assumption by Nationwide
Bond Fund of all of the liabilities of the Fund, followed by the
dissolution and liquidation of the Fund and the Trust and the
distribution of shares of Nationwide Bond Fund to the shareholders of
X the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
Y and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _____________________________
<PAGE> 57
___________________________
(Signature of Shareholder)
___________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 58
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE MONEY MARKET FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of Nationwide Money Market Fund (the
P "Fund") of NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the
undersigned is entitled to vote, at the Special Meeting of Shareholders of
the Trust to be held Monday, February 16, 1998, at its offices at Three
Nationwide Plaza, Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all
adjournments thereof, on the following proposal and any other matters that
R may properly come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Money Market Fund of Nationwide Investing
Foundation III for shares of Nationwide Money Market Fund and the
assumption by Nationwide Money Market Fund of all of the liabilities of
the Fund, followed by the dissolution and liquidation of the Fund and
the Trust and the distribution of shares of Nationwide Money Market
X Fund to the shareholders of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
Y and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _____________________________
<PAGE> 59
___________________________
(Signature of Shareholder)
___________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 60
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 SUMMARY -- Comparative Expense Information; SUMMARY; SPECIAL
CONSIDERATIONS AND RISK FACTORS
4 THE PROPOSED TRANSACTION
5 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
6 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
7 Front Cover; SUMMARY -- Approval and Consummation of the
Proposed Transaction; SUMMARY -- Comparison of Voting Rights;
THE PROPOSED TRANSACTION; and MISCELLANEOUS -- Solicitation of
Proxies and Payment of Expenses; MISCELLANEOUS -- Substantial
Shareholders
8 SUMMARY -- Proposed Reorganization; SUMMARY -- Comparative
Expense Information; SUMMARY -- Fees and Expenses; THE PROPOSED
TRANSACTIONS -- Reasons for the Proposed Transaction; ADDITIONAL
COMPARATIVE INFORMATION
9 Not Applicable
</TABLE>
<PAGE> 61
Dear Nationwide Investing Foundation II Shareholder:
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998 to consider an important proposal affecting your funds. The
Board unanimously approved this proposal, which is described in detail in the
accompanying Prospectus/Proxy Statement, because they believe it is in the best
interests of shareholders.
The proposal would reorganize the Nationwide Investing Foundation II (NIF II)
funds into a new Ohio-based mutual fund trust along with several other
Nationwide-managed funds. The main reasons for the reorganization are:
- To create a single, modern business trust to improve operating
efficiencies,
- To take advantage of Ohio business trust laws, which are more favorable
to shareholders than Massachusetts laws,
- To eliminate outdated investment restrictions, which will expand the
investments available to the portfolio managers while keeping similar
investment objectives and risk profiles,
- To increase the number of funds available within the Nationwide family of
funds, and
- To offer more choices to shareholders through the introduction of
additional share classes.
In addition, the proposal would lower the investment advisory fees of the funds,
eliminate the 12b-1 fee, establish a separate fee for fund administration and
implement a schedule under which advisory and administration fees decrease as
assets increase. Under the proposal, the expense ratios of the Tax-Free Income
Fund and the U. S. Government Income Fund (renamed Nationwide Intermediate U. S.
Government Bond Fund) would decrease by 0.28% each. If the proposed fees are
approved, THE EXPENSE RATIO FOR THE TAX-FREE INCOME FUND WILL BE 37% BELOW THE
AVERAGE FOR OTHER MUNICIPAL FUNDS AND THE EXPENSE RATIO FOR THE INTERMEDIATE U.
S. GOVERNMENT BOND FUND WILL BE 24% BELOW AVERAGE. The Trustees unanimously
approved the proposed fees and believe that they are consistent with our goal of
continuing to provide shareholders with excellent performance and service for
fair and reasonable fees.
Most features of the new funds will be the same as those of the current funds.
For instance, the portfolio managers will remain the same and procedures to
purchase and redeem shares will not change, however, shares received in the new
trust as a part of the reorganization will not be subject to contingent deferred
sales charges when redeemed. If the reorganization is approved, you will receive
shares of the funds in the new trust in exchange for your current NIF II shares.
The shares received will be equal in value to the shares exchanged and there
will be no tax consequences as a result.
The Board of Trustees of the Nationwide Investing Foundation II has determined
that this proposal is in the best interest of the funds and the shareholders and
recommends a vote FOR the proposal.
<PAGE> 62
PROXY STATEMENT SUMMARY
The following Q & A is a brief summary of the proposal to be considered at the
special meeting. The information below is qualified by the more detailed
information included elsewhere in this Prospectus/Proxy Statement. Accordingly,
please read all the enclosed materials before voting. Please remember to vote
your shares as soon as possible.
Q: Why are the Trustees recommending the reorganization?
A: The Nationwide Investing Foundation II (NIF II) Trust was established in 1985
as a Massachusetts-based business trust. The NIF II Trust is not up-to-date
with current industry practices, which causes many operational inefficiencies
and unnecessary limitations on the investment and business practices of the
funds. Also, Nationwide manages eight mutual funds in two other trusts,
Nationwide Investing Foundation (NIF) and Financial Horizons Investment Trust
(FHIT). NIF is a Michigan-based trust formed in 1933, and FHIT is a
Massachusetts-based trust formed in 1988. The reorganization and
consolidation of all the Nationwide-managed funds into a new, modern,
Ohio-based trust will streamline operations, expand the number of funds
available in the Nationwide Family, eliminate unnecessary investment
restrictions, and permit Nationwide to offer multiple share classes to its
shareholders.
Q: How will the reorganization affect the value of my account?
A: The value of your account will not change. If the reorganization is approved,
you will receive shares in the new trust in exchange for your current shares.
The shares received will be equal in value to the shares exchanged, and there
will be no sales charges, fees, or tax consequences to you as a result of the
reorganization.
Q: Will the proposal significantly affect the way the funds are managed?
A: No. The portfolio managers, investment objectives, and risk profiles of the
funds will not significantly change. The proposal will eliminate certain
investment restrictions that are no longer necessary, which will expand the
range of securities that the portfolio managers can invest in.
Q: What effect will the proposal have on fund expenses?
A: Total expenses for the Tax-Free Income Fund and the U.S. Government Income
Fund will each decrease by 0.28% due to reductions in advisory fees and the
elimination of 12b-1 fees.
Q: The prospectus/proxy says that I will receive Class D shares under the
proposed reorganization. Why am I receiving Class D shares in the initial
exchange?
A: All of the funds in the new trust, except for the Nationwide Money Market
Fund, will begin issuing Class A, Class B, and Class D shares in March 1998.
The Nationwide Money Market Fund has no sales charges, and therefore will
issue only a single share class. Multiple class structures are very common in
the mutual fund industry, providing investors with optional ways to pay sales
charges.
Class D is a special class of shares. Unlike the contingent deferred sales
charges (CDSC's) associated with your current NIF II fund shares, Class D
shares carry a front-end sales charge, which is waived in certain situations.
Class D shareholders will not be subject to 12b-1 fees or CDSC's.
Q: How do I vote my shares?
A: You can vote by mail or in person at the special meeting. To vote by mail,
sign and send us the enclosed proxy voting card in the envelope provided. Or
you can vote in person at the special meeting set for February 16, 1998.
<PAGE> 63
NATIONWIDE INVESTING FOUNDATION II
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
TELEPHONE: (800) 848-0920
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE U.S. GOVERNMENT INCOME FUND
TO BE HELD ON FEBRUARY 16, 1998
To The Shareholders Of Nationwide
Investing Foundation II:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of all of the funds of Nationwide Investing Foundation II (the
"Trust") will be held on Monday, February 16, 1998, at :00 A.M. (Eastern
Time) concurrently with special meetings of two other trusts of the Nationwide
funds, at the offices of the Trust, Three Nationwide Plaza, Columbus, Ohio
43215. The Meeting is being called for the following purposes:
(1) To approve an Agreement and Plan of Reorganization dated as of
November 24, 1997 (the "Plan"), between the Trust and Nationwide Investing
Foundation III (the "New Trust"), and the transactions contemplated
thereby, which include:
(a) the transfer of all of the assets of Nationwide Tax-Free Income
Fund to a series of the New Trust which bears the same name (the "New
Tax-Free Income Fund"), in exchange for Class D shares of the New
Tax-Free Income Fund, and the assumption by the New Tax-Free Income Fund
of all of the liabilities of Nationwide Tax-Free Income Fund, followed
by the distribution to shareholders of Nationwide Tax-Free Income Fund
of such Class D shares of the New Tax-Free Income Fund so received; and
(b) the transfer of all of the assets of Nationwide U.S. Government
Income Fund to the Nationwide Intermediate U.S. Government Bond Fund, a
series of the New Trust (the "New Intermediate Government Bond Fund"),
in exchange for Class D shares of the New Intermediate Government Bond
Fund, and the assumption by the New Intermediate Government Bond Fund of
all of the liabilities of Nationwide U.S. Government Income Fund,
followed by the distribution to shareholders of Nationwide U.S.
Government Income Fund of such Class D shares of the New Intermediate
Government Bond Fund so received; and
(2) To transact such other business as may properly come before the
Meeting, or any adjournment(s) thereof, including any adjournment(s)
necessary to obtain requisite quorums and/or approvals.
The Board of Trustees of the Trust has fixed the close of business on
December 18, 1997, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or any
adjournments thereof. The enclosed Combined Prospectus/Proxy Statement contains
further information regarding the Meeting and the proposals to be considered.
The enclosed Proxy Card is intended to permit you to vote even if you do not
attend the Meeting in person.
<PAGE> 64
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT
LEAST A MAJORITY OF EACH FUND'S SHARES OUTSTANDING AND ENTITLED TO VOTE MUST BE
PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED
BUT UNMARKED PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS
PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees
,
December , 1997
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
<PAGE> 65
COMBINED PROSPECTUS/PROXY STATEMENT
December , 1997
Acquisition and Assumption of All of the Assets and
Liabilities of Nationwide Tax-Free Income Fund of
Nationwide Investing Foundation II
In Exchange for Class D Shares of Nationwide Tax-Free Income Fund of
Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and
Liabilities of Nationwide U.S. Government Income Fund of
Nationwide Investing Foundation II
In Exchange for Class D Shares of Nationwide Intermediate U.S. Government Bond
Fund of
Nationwide Investing Foundation III
<TABLE>
<S> <C>
Nationwide Investing Foundation II Nationwide Investing Foundation III
Three Nationwide Plaza Three Nationwide Plaza
Columbus, Ohio 43215 Columbus, Ohio 43215
(800) 848-0920 (800) 848-0920
</TABLE>
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Nationwide Tax-Free Income Fund and Nationwide U.S. Government Income Fund
(collectively, the "Acquired Funds," and individually, an "Acquired Fund") of
Nationwide Investing Foundation II, a Massachusetts business trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at a Special Meeting of Shareholders of the
Trust (the "Meeting"), to be held at Three Nationwide Plaza, Columbus, Ohio
43215, on Monday, February 16, 1998, beginning at :00 A.M. (Eastern Time).
The Trustees of the Trust are seeking your approval of an Agreement and
Plan of Reorganization (the "Plan"), which contemplates that:
(i) Nationwide Tax-Free Income Fund of Nationwide Investing Foundation
III (the "New Tax-Free Income Fund") will acquire all of the assets and
assume all of the liabilities of Nationwide Tax-Free Income Fund of the
Trust; and
(ii) Nationwide Intermediate U.S. Government Bond Fund of Nationwide
Investing Foundation III (the "New Intermediate Government Bond Fund") will
acquire all of the assets and assume all of the liabilities of Nationwide
U.S. Government Income Fund of the Trust.
The New Tax-Free Income Fund and the New Intermediate Government Bond Fund
of Nationwide Investing Foundation III (the "New Trust") are sometimes
collectively referred to herein as the "Acquiring Funds" and individually as an
"Acquiring Fund." Following such exchange, the Class D shares of the
corresponding Acquiring Fund received by each Acquired Fund will be distributed
to the Acquired Funds' shareholders and the Acquired Funds and the Trust will be
liquidated and dissolved. Each of these exchange and distribution transactions
is sometimes referred to herein as the "Reorganization."
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Funds
that a prospective investor, including shareholders of the Trust, should know
before investing. Additional information about the Reorganization and the
Acquiring Funds is contained in a separate Statement of Additional Information
which has been filed with the Securities and Exchange Commission (the
"Commission") and is available upon request without charge by calling the New
Trust at (800) 848-0920 or writing to the New Trust at the address set forth
above. The Statement of Additional
<PAGE> 66
Information bears the same date as this Combined Prospectus/Proxy Statement and
is incorporated by reference herein.
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.
Upon completion of the Reorganization, you will receive full and fractional
Class D shares of the corresponding Acquiring Fund equal in value when issued to
the shares of the Acquired Fund owned by you immediately prior to the
Reorganization. No commissions or sales loads will be charged in connection with
the Reorganization, including any contingent deferred sales charge, and there
will be no adverse federal income tax consequences. You should separately
consider any other tax consequences in consultation with your tax advisers.
As discussed in detail herein, the investment objectives and strategy of
each Acquiring Fund are substantially the same as those of the corresponding
Acquired Fund. There are some differences between investment policies and
restrictions, as well as differences in fee levels and expenses, which are
described in detail below.
The Prospectus of the Acquiring Funds, dated December , 1997, is
incorporated by reference into this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
The Acquired Funds' Prospectus dated February 28, 1997, as supplemented
November , 1997, contains additional information about the Acquired Funds, has
been filed with the Commission, is incorporated by reference herein and is
available without charge by writing the New Trust at Three Nationwide Plaza,
Columbus, Ohio 43215, or by calling the New Trust at (800) 848-0920. Copies of
documents requested will be sent by first-class mail to the requesting
shareholder within one business day of the request.
2
<PAGE> 67
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 4
SPECIAL CONSIDERATIONS AND RISK FACTORS............................................... 11
THE PROPOSED TRANSACTION.............................................................. 14
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................ 17
ADDITIONAL COMPARATIVE INFORMATION.................................................... 21
MISCELLANEOUS......................................................................... 25
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION..................................... A-1
</TABLE>
3
<PAGE> 68
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Combined Prospectus/Proxy Statement, the
Plan, a copy of which is attached to this Combined Prospectus/Proxy Statement as
Exhibit A, the accompanying Prospectus of the Acquiring Funds dated December
, 1997, and the Prospectus of the Acquired Funds dated February 28, 1997, as
supplemented November , 1997.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of each Acquired Fund to the corresponding Acquiring Fund in exchange for
Class D shares of such Acquiring Fund and the assumption by the New Trust on
behalf of the Acquiring Funds of all of the liabilities of the corresponding
Acquired Fund. The Plan also calls for the distribution of such Class D shares
of the Acquiring Funds to the corresponding Acquired Fund's shareholders in
complete liquidation of that Acquired Fund. As a result of the Reorganization,
each shareholder of an Acquired Fund will become the owner of that number of
full and fractional Class D shares of the corresponding Acquiring Fund having an
aggregate value equal to the aggregate value of the shareholder's shares of the
Acquired Fund as of the close of business on the day preceding the date that the
Acquired Fund's assets are exchanged for Class D shares of the corresponding
Acquiring Fund.
Proposals for similar reorganizations are simultaneously being made to
shareholders of Nationwide Investing Foundation and Financial Horizons
Investment Trust, two other trusts within the Nationwide family of funds.
Management of the Trust and the New Trust believes that the Reorganization
is necessary in order to be more efficient in the operation of the Nationwide
Funds, including providing for more consistent investment policies and
restrictions and removing those restrictions which are out-dated or no longer
required by Federal or state law, and to provide shareholders with more options
in purchasing shares of the Nationwide Funds by introducing multiple classes of
shares. In addition the annual operating expenses of each of the Acquiring
Funds, including the investment advisory fees, are expected to be lower than the
current expenses of the Acquired Funds (as described in greater detail below).
In determining to break out the administrative services provided to each of the
Acquiring Funds and to charge a separate fee for such services, management of
the Trust and the New Trust believes that such fees are needed to cover the
increased costs of improved technology and the need to maintain high quality
compliance and administrative services in light of the ever-increasing
sophistication and competitiveness of the mutual fund industry.
For these reasons (which are discussed in greater detail below under "THE
PROPOSED TRANSACTION -- REASONS FOR THE REORGANIZATION") the Board of Trustees
of the Trust, including the Trustees of the Trust who are not "interested
persons" as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act") (the "Independent Trustees"), at a meeting held on
November 7, 1997, unanimously concluded that the Reorganization would be in the
best interests of the Trust, the Acquired Funds and their shareholders and that
the interests of the Acquired Funds' existing shareholders will not be diluted
as a result of the transactions contemplated by the Reorganization and therefore
has submitted the Plan for approval by the Acquired Funds' shareholders. The
Board of Trustees of the New Trust has reached similar conclusions with respect
to the Acquiring Funds and their shareholders and has also approved the
Reorganization with respect of the Acquiring Funds.
Approval of the Reorganization with respect to an Acquired Fund will
require the affirmative vote of (1) a majority of the outstanding shares of the
Trust and (2) a majority of the outstanding voting securities of each Acquired
Fund which means the lesser of (a) 67% or more of the outstanding shares of an
Acquired Fund that are present in person or by proxy at the meeting, if holders
of more than 50% of the outstanding shares of that Acquired Fund are present in
person or by proxy, or (b) more than 50% of the outstanding shares of such
Acquired Fund. See "Approval and Consummation of the Proposed Transaction"
below.
4
<PAGE> 69
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Acquired Funds in understanding the costs and
expenses that a Class D shareholder in an Acquiring Fund would bear directly or
indirectly. The shareholder transaction expenses for the Acquired Funds are
based upon such expenses for the fiscal year ended October 31, 1997. The
expenses for the Class D shares of each of the Acquiring Funds are estimated for
the fiscal year following the Reorganization and ending October 31, 1998.
Because each Acquiring Fund will have no operations prior to completion of the
Reorganization, the information below for the Acquiring Funds estimated for
their first year (the first column) and on a pro forma basis (the third column)
are the same. If the Reorganization is not completed, it is not anticipated that
the Acquiring Funds will commence operations.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES TAX-FREE
OF THE NEW NATIONWIDE INCOME FUND
TAX-FREE TAX-FREE ON A
INCOME FUND INCOME FUND PRO FORMA BASIS*
-------------- ----------- ----------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering price)..... 4.50% 0% 4.50%
Maximum Contingent Deferred Sales Charge (as a
percentage of redemption proceeds)................. 0% 5.00% 0%
Annual Fund Expenses (as a percentage of average net
assets)
Investment Advisory Fees........................... 0.50% 0.65% 0.50%
12b-1 Fees......................................... None 0.20(2) None
Other Expenses..................................... 0.18(1) 0.11 0.18
---------- ----- ----- ------ ----
Total Fund Operating Expenses...................... 0.68% 0.96% 0.68%
========== ========== ==========
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
NATIONWIDE OF THE NEW
CLASS D SHARES TAX-FREE TAX-FREE
OF THE NEW NATIONWIDE INCOME FUND INCOME FUND
TAX-FREE TAX-FREE ASSUMING NO ON A
INCOME FUND INCOME FUND REDEMPTION PRO FORMA BASIS*
-------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
One Year................................ $ 52 $ 60 $ 10 $ 52
Three Years............................. $ 66 $ 61 $ 31 $ 66
Five Years.............................. N/A $ 63 $ 53 $ 81
Ten Years............................... N/A $ 118 $ 118 $ 126
</TABLE>
5
<PAGE> 70
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES INTERMEDIATE
OF THE NEW NATIONWIDE GOVERNMENT BOND
INTERMEDIATE U.S. FUND ON A
GOVERNMENT GOVERNMENT PRO FORMA
BOND FUND INCOME FUND BASIS*
-------------- ----------- ---------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering price)..... 4.50% 0% 4.50%
Maximum Contingent Deferred Sales Charge (as a
percentage of redemption proceeds)................. 0% 5.00% 0%
Annual Fund Expenses (as a percentage of average net
assets)
Investment Advisory Fees........................... 0.50% 0.65% 0.50%
12b-1 Fees......................................... None 0.20(2) None
Other Expenses..................................... 0.29(1) 0.22 0.29
---------- ----- ----- ------ ----
Total Fund Operating Expenses...................... 0.79% 1.07% 0.79%
========== ========== ==========
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES NATIONWIDE INTERMEDIATE
OF THE NEW NATIONWIDE U.S. GOVERNMENT GOVERNMENT BOND
INTERMEDIATE U.S. INCOME FUND FUND ON A
GOVERNMENT GOVERNMENT ASSUMING NO PRO FORMA
BOND FUND INCOME FUND REDEMPTION BASIS*
-------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
One Year............................... $ 53 $ 61 $ 11 $ 53
Three Years............................ $ 69 $ 64 $ 34 $ 69
Five Years............................. N/A $ 69 $ 59 $ 87
Ten Years.............................. N/A $ 131 $ 131 $ 138
</TABLE>
- ---------------
(1) "Other Expenses" are based upon estimated amounts for the current fiscal
year.
(2) Nationwide Advisory Services, Inc. ("NAS"), as the Acquired Funds'
distributor, charges a 12b-1 fee of 0.20%, rather than the 0.35% allowed
under the Trust's Rule 12b-1 Plan, and has agreed to waive the remaining
0.15% until further written notice.
* These calculations reflect the expense information for the relevant
Acquiring Fund after giving effect to the Reorganization.
** The Commission requires use of a 5% annual return figure for purposes of the
example. Actual return for a Fund may be greater or less than 5%.
NO CONTINGENT DEFERRED SALES CHARGE WILL BE IMPOSED UPON SHARES OF THE
ACQUIRED FUNDS REDEEMED IN CONNECTION WITH THE REORGANIZATION NOR ON CLASS D
SHARES OF THE ACQUIRING FUNDS AT ANY TIME.
The one, three, five and ten year figures in the Examples above for the New
Tax-Free Income Fund and the New Intermediate Government Bond Fund reflect the
deduction of the 4.5% maximum front-end sales charge. However, Class D shares of
an Acquiring Fund received by a shareholder of an Acquired Fund pursuant to the
Reorganization will not be subject to any such charge. Absent such front-end
sales charge, the one, three, five and ten year figures for the Class D shares
of the New Tax-Free Income Fund, on a pro forma basis, would be $7, $22, $38 and
$85, respectively, and the one, three, five and ten year figures for the Class D
shares of the New Intermediate Government Bond Fund, on a pro forma basis, would
be $8, $25, $44 and $98.
Any Class D shares of an Acquiring Fund purchased after the Reorganization,
other than pursuant to dividend reinvestments, will be subject to the 4.5% sales
load unless the shareholder otherwise qualifies for a waiver or reduction of the
sales load. See the accompanying Prospectus of the Acquiring Funds for further
information regarding sales load reductions and waivers.
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<PAGE> 71
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of and as a condition
to the Reorganization, the Acquired Funds and the Trust will have received
opinions of counsel that, upon the consummation of the Reorganization and the
transfer of the assets of the Acquired Funds, no gain or loss will be recognized
by an Acquired Fund or its shareholders for federal income tax purposes. The
holding period and aggregate tax basis for the Acquiring Fund Class D shares
that are received by a corresponding Acquired Fund shareholder will be the same
as the holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of an Acquired Fund in the hands of the corresponding
Acquiring Fund as a result of the Reorganization will be the same as the holding
period and tax basis of the assets in the hands of the Acquired Fund immediately
prior to the Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Trustees of the Trust, at a meeting held on November 7, 1997, determined
unanimously that the Reorganization is in the best interests of each of the
Acquired Funds and the Trust and that the interests of the existing shareholders
of the Acquired Funds will not be diluted as a result of the Reorganization.
Similarly, on such date the Board of Trustees of the New Trust unanimously
determined that the Reorganization is in the best interests of the New Trust and
the Acquiring Funds. The proposed Reorganization of each of the Acquired Funds
of the Trust with and into the corresponding Acquiring Funds of the New Trust is
part of a larger plan to reorganize each of the Trust, Nationwide Investing
Foundation (which consists of four separate funds) and Financial Horizons
Investment Trust (which consists of four separate funds) ("FHIT"), each a
separate stand-alone investment company, into separate corresponding funds of
the New Trust. Two smaller funds of FHIT which have similar investment
objectives and styles to two other Nationwide funds will be combined with such
other funds in the New Trust. One such smaller fund of FHIT is the Municipal
Bond Fund which will combine with Nationwide Tax-Free Income Fund in the New
Tax-Free Income Fund.
It is anticipated that the Acquiring Funds will also offer two other
classes of shares beginning in March 1998.
To be approved, the Plan will require the affirmative vote of (1) a
majority of the outstanding shares of the Trust and (2) a majority of the
outstanding voting securities of each Acquired Fund, as defined above under
"SUMMARY -- Proposed Reorganization." The Reorganization with respect to each
Acquired Fund is contingent on the approval of the Reorganization with respect
to the other Acquired Fund and upon the approval of a similar reorganization by
shareholders of Nationwide Investment Foundation. The Reorganization, however,
is not contingent upon the approval of a similar reorganization by shareholders
of or FHIT. If the proposed Reorganization is not approved, the Trust's and the
New Trust's Boards of Trustees will consider what other alternatives would be in
the shareholders' best interests. If the Plan is approved at the Meeting by the
shareholders of each Acquired Fund, the effective date of the Reorganization
(the "Closing Date") is expected to be on or about March 1, 1998, subject,
however, to the receipt by the Trust and the New Trust of an order of exemption
from the Commission with respect to the Reorganization, if such an order is
necessary. However, the Closing Date may be such earlier or later date as may be
determined by the Trust and the New Trust.
Shareholders of record of the Acquired Funds at the close of business on
December 18, 1997 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting or any adjournment thereof. As of the Record Date, there were
outstanding shares of each series of the Trust. Of those shares, the
following constituted the issued and outstanding shares of each Acquired Fund on
the Record Date:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FUND SHARES OUTSTANDING
--------------------------------------------------------- ------------------
<S> <C>
Nationwide Tax-Free Income Fund..........................
Nationwide U.S. Government Income Fund...................
</TABLE>
As of the Record Date, there were no outstanding shares of any of the nine
series of the New Trust, including the Acquiring Funds. Each of the Acquiring
Funds has been created specifically for the purpose of acquiring the assets and
assuming the liabilities of its corresponding Acquired Fund. The Acquiring
Funds, prior to the effective date of the Reorganization, will not have
commenced operations.
7
<PAGE> 72
Each shareholder of the Acquired Fund will be entitled to one vote for each
share, and a fractional vote for each fractional share, held by such
shareholder. Holders of a majority of the shares of each of the Acquired Funds
at the close of business on the Record Date will be deemed to constitute a
quorum for the transaction of business at the Meeting.
Any proxy which is properly executed and received in time to be voted at
the Meeting will be counted in determining whether a quorum is present and will
be voted in accordance with the instructions marked thereon. In the absence of
any instruction, such proxy will be voted in favor of the approval of the Plan.
Abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a particular matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will not be counted for or against any proposal to which they relate, but
abstentions will be counted for purposes of determining whether a quorum is
present. Broker non-votes will not be counted for purposes of determining
whether a quorum is present. Because approval of the Plan requires the vote of a
majority of the Trust's issued and outstanding shares as of the Record Date,
abstentions and broker non-votes will have the effect of a vote against the
proposal to approve the Plan.
The duly appointed Proxies may, in their discretion, vote upon such other
matters as properly may come before the Meeting or any adjournment(s) thereof,
including any proposal to adjourn a meeting, whether or not a quorum is present,
to permit the continued solicitation of proxies in favor of the Reorganization.
In case any such adjournment is proposed with respect to the Plan, the duly
appointed Proxies will vote those proxies required to be voted against the Plan
against adjournment. A shareholder of an Acquired Fund may revoke his or her
proxy at any time prior to its exercise by delivering written notice of
revocation or by executing and delivering a later-dated proxy to the Secretary
of the Trust, at Three Nationwide Plaza, Columbus, Ohio 43215, or by attending
the Meeting in person to vote the shares of the Acquired Funds held by such
shareholder. The date of the first mailing of this Combined Prospectus/Proxy
Statement to shareholders is on or about December , 1997.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Funds and the
corresponding Acquiring Funds have substantially the same investment objectives,
and generally have the same investment policies and restrictions, although there
are some differences shareholders should consider. Nationwide Tax-Free Income
Fund seeks as high a level of current income exempt from Federal income tax
(although shareholders may be subject to state and local tax and the Federal
alternative minimum tax) as is consistent with the preservation of capital
through investing in a diversified portfolio of high-quality intermediate-term
municipal obligations with maturities ranging from three to 10 years and
long-term municipal obligations with maturities in excess of 10 years. The New
Tax-Free Income Fund seeks as high a level of current income exempt from Federal
income tax (although shareholders may be subject to state and local tax) as is
consistent with the preservation of capital through investing in a diversified
portfolio of high-quality intermediate- and long-term municipal obligations.
The major emphasis in portfolio securities selection for each Fund is on a
diversified portfolio of municipal obligations rated within the three highest
credit categories assigned by Moody's Investors Services, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"), or if not rated, are of equivalent
investment quality as determined by NAS. The New Tax-Free Income Fund may also
invest up to 10% of its net assets in securities rated BBB by S&P or Baa by
Moody's, or, if not rated, are of equivalent investment quality as determined by
NAS.
Each of Nationwide U.S. Government Income Fund and the New Intermediate
Government Bond Fund seek as high a level of current income as is consistent
with the preservation of capital by investing primarily in securities of the
U.S. Government, its agencies and instrumentalities.
Nationwide U.S. Government Income Fund attempts to maintain an average
dollar-weighted maturity between three and 10 years. The New Intermediate
Government Bond Fund will attempt to maintain an average duration of between
3 1/2 and 6 years. Each of these Funds normally invests or will invest all of
its net assets in securities issued by the U.S. Government, its agencies and
instrumentalities and in repurchase agreements collateralized by these
securities. In selecting securities for these Funds, NAS utilizes interest-rate
expectations, yield-curve analysis, economic forecasting, market sector
analysis, and other security selection techniques. Such
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<PAGE> 73
Funds' investments will be concentrated in areas of the bond market (based upon
sector, coupon or maturity) NAS believes are relatively undervalued.
For a discussion of the differences between the investment policies and
restrictions of the Acquired Funds and the corresponding Acquiring Funds, see
"COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS -- INVESTMENT
RESTRICTIONS."
FEES AND EXPENSES. Each of the Acquired Funds pay an investment advisory
and management fee, computed daily and paid monthly, at the annual rate of 0.65%
on the first $250 million of average daily net assets, 0.60% on the next $250
million, 0.55% on the next $250 million and 0.50% on the average daily net
assets in excess of $750 million of the value of its average daily net assets to
NAS as the Trust's investment adviser. Nationwide Investors Services, Inc., a
wholly owned subsidiary of NAS ("NISI"), serves as transfer agent for each of
the Acquired Funds and receives a fee from those Funds equal to $18 per account.
With respect to the Acquiring Funds, NAS also provides investment advisory
services to those Funds for a fee computed daily and paid monthly at the
following annual rates: 0.50% of such Fund's average net assets up to $250
million, 0.475% of such Fund's average net assets of $250 million up to $1
billion, 0.45% of such Fund's average net assets of $1 billion up to $2 billion,
0.425% of such Fund's average net assets of $2 billion up to $5 billion, and
0.40% of such Fund's average net assets of $5 billion or more. Each of the
Acquiring Funds also pays NAS an administration fee of 0.07% of such Fund's
average net assets up to $250 million; 0.05% of such Fund's average net assets
of $250 million up to $1 billion, and 0.04% of such Fund's average net assets of
$1 billion or more. Finally, each Acquiring Fund pays a fee to NISI for transfer
agency services equal to $18 per account.
Shares of each of the Acquired Funds and the Acquiring Funds are
distributed by NAS, a registered broker-dealer. The Trust has adopted a
Distribution Plan (the "12b-1 Plan") under Rule 12b-1 of the 1940 Act which
permits the Acquired Funds to compensate NAS, as the Acquired Funds'
distributor, for expenses associated with the distribution of their shares.
Under the 12b-1 Plan, each Acquired Fund is authorized to pay NAS compensation
accrued daily and paid monthly at a maximum annual rate of 0.35% of such
Acquired Fund's average daily net assets. Currently each Acquired Fund accrues
daily and pays monthly to NAS compensation at the annual rate of 0.20% of such
Fund's average daily net assets. NAS will continue to waive the remaining 0.15%
until further written notice to shareholders. NAS, as distributor, also receives
the proceeds of a contingent deferred sales charge imposed on certain
redemptions of shares of the Acquired Funds, as described more fully below under
"COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES." Any contingent
deferred sales load on shares of the Acquired Funds redeemed as a part of the
Reorganization will be waived. The Class D shares of the Acquiring Funds pay no
distribution fees or expenses and are not subject to a contingent deferred sales
charge although such shares are subject to a front-end sales load as described
below.
The expense ratios of the Acquiring Funds subsequent to the Reorganization
are expected to be lower than those of the corresponding Acquired Fund. See "THE
PROPOSED TRANSACTION -- REASONS FOR THE PROPOSED TRANSACTION." The chart below
compares the total annual operating expenses (as a percent of average net
assets) of each Acquired Fund for the fiscal year ended October 31, 1997, to the
total annual operating expenses (as a percent of average net assets) of the
corresponding Acquiring Fund for the fiscal year ending October 31, 1998,
assuming the same level of net assets for such Acquiring Fund after the
Reorganization:
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Nationwide Tax-Free Income Fund New Tax-Free Income Fund
0.96% 0.68%
Nationwide U.S. Government Income Fund New Intermediate Government Bond Fund
1.07% 0.79%
</TABLE>
COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES. Shares of each
of the Acquired and Acquiring Funds are offered through NAS as principal
underwriter. Net asset value of 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
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<PAGE> 74
sufficient trading in the portfolio securities of a Fund to affect materially
the net asset value of that Fund. The minimum initial investment in each of the
Acquired Funds and Acquiring Funds is $1,000 (although such minimum is lowered
for investments made through certain plans) and the minimum subsequent
investment is $100.
Shares of the Acquired Funds are offered at net asset value without any
sales charge, but are subject to a contingent deferred sales charge. A
contingent deferred sales charge is imposed on any redemption which causes the
current value of a shareholder's account to fall below the total amount of all
purchases made during the preceding five years. The contingent deferred sales
charge is never imposed on dividends, whether paid in cash or reinvested, or on
appreciation in value. The contingent deferred sales charge applies only to the
lesser of the original investment or current market value. Where the charge is
imposed, the amount of the charge depends upon the number of months since the
shareholder made the purchase payment from which an amount is being redeemed,
according to the following table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Months since purchase payment was made: 0-12 13-24 25-36 37-48 49-60 61 & over
Contingent deferred sales charge percentage: 5% 4% 3% 2% 1% none
</TABLE>
A sales charge is imposed upon the sale of the Class D shares of the
Acquiring Funds, equal to 4.5% of the public offering price (4.71% of the net
amount invested). Such sales charge is reduced on investments of $50,000 or
more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
AS A
PERCENTAGE OF THE
NET AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION AMOUNT INVESTED OF OFFERING PRICE
- ---------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Less than $100,000........................................ 4.71% 4.5%
$100,000 but less than $250,000........................... 3.63 3.5
$250,000 but less than $500,000........................... 2.56 2.5
$500,000 but less than $1,000,000......................... 1.52 1.5
$1,000,000 or more........................................ 0.50 0.5
</TABLE>
NO FRONT END SALES CHARGE WILL BE IMPOSED ON CLASS D SHARES RECEIVED IN
CONNECTION WITH THE REORGANIZATION.
The front end sales charge on the Class D shares of the Acquiring Funds may
be waived under certain specified conditions.
With respect to the shares of each of the Acquired Funds and the Class D
shares of the Acquiring Funds, there is no sales charge imposed upon the
reinvestment of dividends and distributions.
Redemption orders for shares of both the Acquired Funds and the Acquiring
Funds must be placed with NAS. Investors may redeem shares of the Acquired Funds
or the Acquiring Funds at the net asset value per share next determined
following the receipt by NAS of the properly completed redemption request,
although as discussed above, redemptions of shares of the Acquired Funds may be
subject to a contingent deferred sales load. A request for redemption may be
made by telephone, by mail or by fax.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of an Acquired Fund may be
exchanged for shares of the other Acquired Fund without sales charge. Shares of
the Acquired Funds may also be exchanged for shares of other Nationwide Funds
without the imposition of the applicable contingent deferred sales charge but
only upon payment of the applicable front-end sales charge, if any.
Class D shares of an Acquiring Fund are generally exchangeable without a
sales charge for Class D shares of any other Acquiring Fund or other fund of the
New Trust which offers Class D shares without a sales charge.
COMPARISON OF DIVIDEND POLICIES. Each of the Acquired Funds and the
Acquiring Funds declares dividends of net investment income daily and pay such
dividends monthly. Each of the Acquired Funds and Acquiring Funds will
distribute all of any capital gains at least annually. In addition, shareholders
of the Acquired
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<PAGE> 75
Funds and the Acquiring Funds receive dividends and distributions in the form of
additional shares and not in cash unless otherwise requested by the shareholder
and such dividends and distributions are of $5 or more each.
COMPARISON OF VOTING RIGHTS. Each shareholder of an Acquired Fund and of
an Acquiring Fund is entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held on each matter
submitted to the vote of such Fund's shareholders, regardless of the net asset
value of such share.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies and strategies of each Acquired
Fund and the corresponding Acquiring Fund are substantially similar, the overall
level of investment risk should not materially change as a result of the
Reorganization. There can be no assurance that any Acquired Fund or Acquiring
Fund will achieve its investment objectives. However, in some cases an Acquiring
Fund may invest in certain securities or instruments in which the corresponding
Acquired Fund may not invest. This discussion is qualified in its entirety by
the disclosure set forth in the Acquiring Funds' Prospectus accompanying this
Combined Prospectus/Proxy Statement and the Acquired Funds' Prospectus. For
additional information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
An investment in any of the Acquired Funds or the Acquiring Funds involves
the risk that the net asset value of such Fund's shares will fluctuate in
response to changes in economic conditions, interest rates, and the market's
perception of the securities held by such Fund. An investment in each of the
Acquired Funds and the Acquiring 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 rate. 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. The value of shares of each of
Nationwide Tax-Free Income Fund and the New Tax-Free Income Fund can be affected
by the market's perception of changes in risk associated with specific credits.
As perceived credit risk increases, the value of a specific credit generally
decreases, and the converse is also true.
U.S. Government Securities. As discussed above, each of the Acquiring and
the Acquired 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.
Duration. 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).
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<PAGE> 76
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 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, NAS 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 New
Intermediate Government Bond Fund 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 the New Intermediate Government Bond 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 the New Intermediate Government
Bond Fund may purchase.
Mortgage- and Asset-Backed Securities. Nationwide U.S. Government Income
Fund and the New Intermediate Government Bond Fund may each purchase
mortgage-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 are issued or guaranteed by U.S.
Government, and its agencies or instrumentalities. The underlying mortgage
assets may have fixed rates or adjustable rates of interest. Mortgage-backed
securities in which Nationwide U.S. Government Income Fund and the New
Intermediate Government Bond Fund may invest include both fixed-rate and
adjustable-rate 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 and 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 Nationwide U.S. Government
Income Fund or the New Intermediate Government Bond Fund at a premium
12
<PAGE> 77
also poses a risk of loss of principal because the premium may not have been
fully amortized by the time the principal is prepaid in full.
Unlike fixed rate mortgage securities, adjustable rate mortgage securities
are collateralized by or represent interests in mortgage loans with variable
rates of interest. These variable rates of interest reset periodically to align
themselves with market rates. Nationwide U.S. Government Income Fund and the New
Intermediate Government Bond 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 such Fund would likely decrease. Also, such a 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 changes in
market rates. During periods of declining interest rates, income to Nationwide
U.S. Government Income Fund or the New Intermediate Government Bond 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.
Collateralized Mortgage Obligations. Nationwide U.S. Government Income
Fund and the New Intermediate Government Bond Fund may also acquire CMOs, and
the New Intermediate Government Bond Fund may acquire 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 an "Mortgage Assets"). Payments of principal or interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs. CMOs purchased by such Funds will be issued by agencies or
instrumentalities of the U.S. Government.
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 in which the New Intermediate Government Bond Fund
may invest are issued by U.S. Government agencies. 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.
The New Intermediate Government 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 my be utilized to hedge against a decrease in
value of other fixed-income securities. in a rising interest rate environment.
If the New Intermediate Government Bond 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 underling mortgage
securities experience greater than anticipated prepayments of principal, the New
Intermediate Government Bond Fund may fail to recoup fully its initial
investment in these securities even if the securities are rated in the highest
rating category by a nationally reorganized statistical rating organization (an
"NRSRO") (e.g., S&P or Moody's). Stripped 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 the New Intermediate
Government Bond Fund's total assets will be invested in IOs and in POs.
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<PAGE> 78
Municipal Securities. The two principal classifications of municipal
securities which may be held by Nationwide Tax-Free Income Fund and the New
Tax-Free Income Fund are "general obligation" securities and "revenue"
securities. General obligations securities are secured by the issuer's pledge of
its fully 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 Nationwide Tax-Free
Income Fund and the New 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.
Nationwide Tax-Free Income Fund and the New 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 revenue, 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.
Proposals to restrict or eliminate the federal income tax exemption of
interest on municipal securities have been discussed from time to time and may
be enacted in the future.
Repurchase Agreements. Each of the Acquired Funds and the Acquiring 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, a 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 Funds 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 such Trust's 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.
Investment Companies. As permitted by the 1940 Act, each Acquiring 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 an Acquiring
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 Acquiring 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 such Acquiring Fund.
When-Issued Securities. Each of the Acquiring Funds may invest without
limitation in securities purchased on a when-issued or delayed delivery basis.
Although the payment and terms of these securities are established at the time
the Acquiring 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 an Acquiring Fund to lock in a fixed price or
yield on a security it intends to purchase. However, when the Acquiring 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 an Acquiring Fund's outstanding commitments for these
securities, the greater the exposure to potential fluctuations in the net asset
value of that Acquiring Fund. Purchasing securities on a when-issued basis 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 an Acquiring 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 Acquiring
Funds will set aside liquid assets in a segregated account to secure its
outstanding commitments for when-issued securities.
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<PAGE> 79
Floating and Variable Rate Obligations. The Acquiring Funds may each
invest in floating and variable rate obligations. Variable or floating rate
obligations bear interest at rates that are not fixed, but vary with changes in
specified market rates or indices, such as the prime rate, and at specified
intervals, floating rate obligations vary with changes to an underlying index
whenever such index changes, while variable rate obligations change at preset
fixed times. Certain of the floating or variable rate obligations that may be
purchased by an Acquiring Fund 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 period
adjustments in the interest rate. Each Acquiring Fund will limit its purchase of
floating and variable rate obligations to those of the same quality as it
otherwise is 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 an Acquiring Fund,
such 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 that
Acquiring 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
Acquiring Fund would, 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
Acquiring 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.
Medium Grade Securities. The New Tax-Free Income Fund may invest in
medium-grade obligations. Medium grade securities are obligations rated in the
fourth highest rating category by any NRSRO. Medium-grade 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 grade securities may be more vulnerable to
adverse economic conditions or changing circumstances than issuers of
higher-rated securities.
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, such Fund should take consistent with its investment objective; such
event will not automatically require the sale of the downgraded security.
Zero Coupon Securities. Nationwide U.S. Government Income Fund, the New
Intermediate Government Bond Fund and the New Tax-Free Income Fund may each
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.
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<PAGE> 80
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, such 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.
Lending Portfolio Securities. From time to time, each of the Acquiring
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, an Acquiring 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. An Acquiring
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. An Acquiring Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Acquiring Fund.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION. The Plan provides that all of the
assets of each Acquired Fund as of the Exchange Date (as defined in the Plan)
will be transferred to the corresponding Acquiring Fund in exchange for Class D
shares of the Acquiring Fund and the assumption by the Acquiring Fund of all of
the liabilities of the Acquired Fund. The Exchange Date is expected to be on or
about March 1, 1998; subject, however, to the receipt by the Trust and the New
Trust of any necessary order of exemption from the Commission with respect to
the Reorganization. A copy of the Plan is attached as Exhibit A to this Combined
Prospectus/Proxy Statement. Although portions of the Plan are summarized below,
this summary is qualified in its entirety by reference to the Plan.
Promptly after the Exchange Date, each Acquired Fund will distribute the
Class D shares of the corresponding Acquiring Fund to the Acquired Fund's
shareholders of record as of the close of business on the Exchange Date. The
Class D shares of the corresponding Acquiring Fund which will be issued for
distribution to each Acquired Fund's shareholders will be equal in aggregate
value to the shares of the corresponding Acquired Fund held as of the Valuation
Time (as defined in the Plan). All issued and outstanding shares of the Acquired
Funds will be cancelled on the Trust's books and any certificates representing
such shares will no longer be valid. Class D shares of the Acquiring Funds will
be represented only by book entries; no share certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of each of the Acquired Funds. The Plan also may be terminated and the
Reorganization abandoned by the Acquired Funds and the Acquiring Funds by mutual
consent of their respective trustees.
The Reorganization will not be completed unless the Trust and the New Trust
obtain opinions of counsel to the effect that the Reorganization constitutes a
tax-free reorganization for federal income tax purposes and any necessary
written order of exemption from the Commission exempting the Reorganization from
the provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a
party in connection with the Plan will be paid by the party directly incurring
such costs. NAS will pay 50% of the costs associated with the Reorganization.
Each Acquiring Fund will bear its own organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders, all shareholders of the
Acquired Funds as of the Exchange Date, including those that voted against the
approval of the Plan, will receive Class D shares of the corresponding Acquiring
Fund. All shareholders of the Acquired Funds have the right at any time up to
the next business day preceding the Exchange Date to redeem
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<PAGE> 81
their shares at net asset value, subject to any applicable contingent deferred
sales charge, according to the procedures set forth in the Acquired Funds'
Prospectus.
This summary does not purport to be a complete description of the Plan and
is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in October, 1985. The New Trust was
organized as a series investment company as of October 30, 1997, and on November
7, 1997, its Board of Trustees created the Acquiring Funds with substantially
identical investment objectives and policies of, and restrictions generally
similar to, those of the Acquired Funds. Because of the similarity between the
Acquired Funds and the Acquiring Funds, the considerations and risks involved
with an investment in an Acquiring Fund are expected to be comparable to those
associated with an investment in the corresponding Acquired Fund. Each Acquiring
Fund has been established for purposes of effecting the Reorganization and will
not commence operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for their consideration at a meeting held on November 7,
1997. The Board of Trustees of the Trust concluded unanimously that the
Reorganization is in the best interests of the Trust, the Acquired Funds and
their shareholders and that the interests of the existing shareholders of the
Acquired Funds will not be diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Acquired Funds and the
Trust and the proposed costs of the Acquiring Funds and the New Trust as
provided by NAS, in light of their substantially similar investment objectives,
policies, restrictions, Boards of Trustees, officers and service providers. The
Board also considered the operating and compliance efficiencies that could
result from moving the operation of the Acquired Funds from the Trust to
corresponding separate portfolios of the New Trust, which has been organized
under a more flexible and modern declaration of trust. The investment
restrictions of the Acquiring Funds which were approved by the Board of Trustees
of the New Trust vary somewhat from the restrictions of the Acquired Funds;
however, such differences generally reflect a more uniform and flexible set of
investment restrictions that are currently in place for each of the other series
or portfolios of the New Trust. Such restrictions were approved to help achieve
greater compliance efficiencies by having each series of the New Trust have the
same or substantially the same investment restrictions and, in certain
instances, to provide greater flexibility to NAS in managing the Acquiring
Funds' portfolio assets.
One of the operating efficiencies expected is that certain fixed costs
associated with the operation of the Acquired Funds and the Trust when incurred
by the New Trust and the Acquiring Funds would decrease on a per share basis
since such costs would be spread over a larger pool of assets, e.g., certain
professional and regulatory fees and printing costs.
In particular, the Board considered the anticipated expense ratios of the
Acquiring Funds, the structure of the New Trust, including the provision for
multiple classes of shares, the experience of the service providers of the
Acquiring Funds and the level of service to be provided to the shareholders of
the Acquiring Funds, as represented by NAS, including the greater resources that
could be dedicated to providing administrative and compliance services.
The Trust's Board also considered the lower investment advisory fees
charged to the Acquiring Funds compared to those of the Acquired Funds. The
Board considered the following factors, among others: (1) the nature, scope and
quality of the services provided by NAS, (2) the costs incurred and revenues
generated by NAS in rendering such services, (3) NAS' profitability from its
mutual fund activities, (4) the compensation paid to investment advisers of
mutual funds with similar investment objectives and policies and asset sizes,
(5) the quality of personnel at NAS, (6) comparative expense and performance
information, (7) pro forma expense ratios based upon the proposed level of
investment advisory and administration fees, (8) the need to provide NAS with
adequate financial incentives to maintain and improve its services, and (9) NAS'
planned and proposed additional expenditures in the area of fund administration
services.
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<PAGE> 82
More specifically, the Board considered the significant increases in
expenses that NAS will experience in connection with the general administration
and fund accounting for each of the Acquiring Funds and the fact that the total
expense ratios for each of the Acquiring Funds would decrease and continue to be
at least 24% lower than the average for comparable mutual funds. The Board of
Trustees of the Trust and the New Trust also determined that the proposed
breakpoints in the Acquiring Funds' fees would allow shareholders of the
Acquiring Funds to benefit from certain economies of scale as a Fund's assets
grow.
The Board of Trustees of the Trust based its decision to approve the
proposed transaction upon its consideration of a number of factors, including,
among other things:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
(2) the similarity of the Acquired Funds' investment objectives,
strategies and policies with those of the corresponding Acquiring Funds, as
well as the views of NAS that any differences between the investment
policies and restrictions of the Acquired Funds and their corresponding
Acquiring Fund should not materially increase investment risks;
(3) the experience and resources of NAS with respect to providing
investment management services, and the experience of and quality of
services to be provided by the Acquiring Funds' other service providers;
(4) the projected expense ratios and information regarding fees and
expenses of each Acquiring Fund, each Acquired Fund and other similar funds
and the services being offered to shareholders and the fact that the
overall expense ratios for each Acquiring Fund will be at least 24% lower
than the median expense ratio of its peer group of mutual funds;
(5) the continuity of the portfolio managers for the Acquired Funds;
(6) the conditioning of the Reorganization on the receipt of legal
opinions confirming the absence of any adverse federal tax consequences to
the Acquired Funds or their shareholders resulting from the Reorganization;
and
(7) other factors as it deemed relevant.
In particular, the Board considered the per share operating expense ratios
(total annual operating expenses expressed as a percentage of average net
assets) for shares of the Acquired Funds and as estimated for the Acquiring
Funds. The following are the per share operating expense ratios (total annual
operating expenses expressed as a percentage of average net assets) for shares
of the Acquired Funds for the year ended October 31, 1997, and as estimated for
the Class D shares of the corresponding Acquiring Funds for the period following
the effective date of the Reorganization and ending October 31, 1998, after
giving effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Nationwide Tax-Free Income Fund New Tax-Free Income Fund
0.96% 0.68%
Nationwide U.S. Government Income Fund New Intermediate Government Bond Fund
1.07% 0.79%
</TABLE>
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in each Acquiring
Fund is represented by units of beneficial interest, without par value, of
Nationwide Investing Foundation III, which is an open-end investment company of
the management type, organized as an Ohio business trust on October 30, 1997.
The Acquiring Funds are currently four of nine separate series of the New Trust.
Like the Acquired Funds, each Acquiring Fund is diversified, as that term is
defined in the 1940 Act. Currently there is only one class of shares for the
Acquired Funds. However, each of the Acquiring Funds is expected to offer at
least three classes of shares -- Class A, Class B and Class D shares. Class A
shares of the New Trust will be sold with a front-end sales load and pay
expenses pursuant to a Rule 12b-1 plan. Class B shares of the New Trust will be
subject to a contingent deferred
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<PAGE> 83
sales charge, will be sold without imposition of a front-end sales load and will
pay expenses pursuant to a Rule 12b-1 plan. Except for Rule 12b-1 fees, Class A,
Class B and Class D shares of the New Trust bear the same expenses. All
shareholders of an Acquiring Fund, regardless of class, will generally vote on
the same issues and in the aggregate with respect to matters submitted to the
shareholders of that Fund for their approval as a Fund. However, holders of one
class of shares of an Acquiring Fund will vote as a class and not with holders
of any other class of shares with respect to its respective Rule 12b-1 Plan, if
any. The Class D shares which shareholders of the Acquired Funds will received
pursuant to the Reorganization do not have a Rule 12b-1 Plan. Shareholders of an
Acquiring Fund are entitled to one vote for each share held and a proportionate
fractional vote for any fraction of a share held. See "ADDITIONAL COMPARATIVE
INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the New Trust must receive favorable opinions from
Baker & Hostetler LLP substantially to the effect that, for federal income tax
purposes: (a) the Reorganization will constitute a "tax-free" reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) no gain or loss will be recognized by the Acquiring
Funds or the Acquired Funds as a result of the Reorganization; (c) no gain or
loss will be recognized by shareholders of the Acquired Funds upon the exchange
of their shares of the Acquired Funds for Class D shares of the corresponding
Acquiring Funds; (d) the tax basis of the Acquiring Fund Class D shares received
by shareholders of the Acquired Funds pursuant to the Reorganization will be the
same as the basis of the shares of the corresponding Acquired Fund held
immediately prior to the Reorganization; (e) the holding period of the Acquiring
Funds' Class D shares so received will include the period during which the
Acquired Fund shareholder held shares of the Acquired Fund, provided such shares
were held as a capital asset; (f) the tax basis of each Acquired Fund's assets
acquired by the corresponding Acquiring Fund will be the same as the basis of
such assets immediately prior to the Reorganization; and (g) the holding period
of such assets will include the period during which those assets were held by
the Acquired Fund. The Acquiring Funds and the Acquired Funds do not intend to
seek a private letter ruling with respect to the tax effects of the
Reorganization.
CAPITALIZATION. The following table shows the unaudited capitalization of
the Acquired Funds as of October 31, 1997. Except for certain organizational
activities, the Acquiring Funds have no and will have no assets or liabilities,
and will not commence operations prior to the consummation of the
Reorganization. Therefore, no pro forma financial information giving effect to
the Reorganization is provided.
<TABLE>
<S> <C>
NATIONWIDE TAX-FREE INCOME FUND
(UNAUDITED)
Net assets..................................................................... $256,486,302
Shares outstanding............................................................. 24,412,274
Net asset value per share...................................................... $ 10.51
NATIONWIDE U.S. GOVERNMENT INCOME FUND
(UNAUDITED)
Net assets..................................................................... $ 41,327,786
Shares outstanding............................................................. 4,007,905
Net asset value per share...................................................... $ 10.31
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of each Acquired Fund are substantially similar to those of the corresponding
Acquiring Fund. The investment objectives of each Acquired Fund and Acquiring
Fund are "fundamental," which means that they may not be changed without the
consent of a majority of such Fund's outstanding shares, as defined in the 1940
Act. The investment policies of the Acquired Funds and the Acquiring Funds are,
however, non-fundamental. A "non-fundamental" policy may be changed upon the
vote of the Trustees without shareholder approval.
The investment policies and strategies of each Acquired Fund are generally
the same as those of the corresponding Acquiring Fund, although there are some
differences in the investment restrictions that shareholders should consider.
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<PAGE> 84
NATIONWIDE TAX-FREE INCOME FUND/NEW TAX-FREE INCOME FUND
The investment objective of Nationwide Tax-Free Income Fund is to provide
as high a level of current income exempt from federal income tax (although
investors may be subject to state and local tax and the Federal alternative
minimum tax) as is consistent with the preservation of capital through investing
in a diversified portfolio of high-quality intermediate-term municipal
obligations with maturities ranging from three to 10 years and long-term
municipal obligations with maturities in excess of 10 years. The investment
objective of the New Tax-Free Income Fund is to seek as high a level of current
income exempt from Federal income tax (although investors may be subject to
state and local tax) as is consistent with the preservation of capital through
investing in high quality intermediate- and long-term municipal obligations.
Although there can be no assurance that Nationwide Tax-Free Income Fund
will achieve its investment objective, it seeks to do so by maintaining a
diversified portfolio of municipal obligations that are rated within the three
highest credit categories assigned by Moody's and S&P, or, if not rated, that
are of equivalent investment quality as determined by NAS. Such obligations
include municipal securities backed the full faith and credit of the United
States, municipal bonds rated within the three highest credit categories by
Moody's or S&P, state and municipal notes rates MIG-1, MIG-2, and MIG-3 by
Moody's, and 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
S&P. On a temporary basis or for defensive purposes, Nationwide Tax-Free Income
Fund may also hold and invest up to 20% of its assets in cash or temporary
taxable investments such as Treasury notes, bills and bonds with remaining
maturities of one year or less.
The New Tax-Free Income Fund will invest in the same securities as
described above for Nationwide Tax-Free Income Fund. In addition, the New
Tax-Free Income Fund may invest up to 10% of its net assets in securities rated
BBB by S&P or Baa by Moody's, or if not rated, are of equivalent investment
quality as determined by NAS. The municipal securities in which the New Tax-Free
Income Fund may invest include variable and floating rate securities and such
Fund may acquire securities on a when-issued or delayed-delivery basis.
NATIONWIDE U.S. GOVERNMENT INCOME FUND/NEW INTERMEDIATE
GOVERNMENT BOND FUND
The investment objective of each of Nationwide U.S. Government Income Fund
and the New Intermediate Government Bond Fund is to provide as high a level of
current income as is consistent with the preservation of capital by investing in
securities of the U.S. Government, its agencies and instrumentalities. The
average dollar-weighted maturity of Nationwide U.S. Government Income Fund is
maintained at between three and 10 years. The New Intermediate Government Bond
Fund will attempt to maintain an average duration of between three and one-half
and six years.
Each of these Funds normally invests or will invest all of its net assets
in securities issued by the U.S. Government, its agencies and instrumentalities
or in repurchase agreements collateralized by these securities. Nationwide U.S.
Government Income Fund may invest up to 80% of its net assets in, and the New
Intermediate Government Bond may invest without limitation in, mortgage-related
securities, which represent part ownership of a pool of mortgage loans.
Nationwide U.S. Government Income Fund may invest up to 20% of its assets in,
and the New Intermediate Government Bond may invest without limitation in,
zero-coupon securities that are direct obligations of the U.S. government and
its agencies and instrumentalities. Short-term securities in which such Funds
may invest include repurchase agreements and obligations with remaining
maturities of less than one-year that are issued by the U.S. Government, its
agencies or instrumentalities. Each such Fund concentrates on investing in areas
of the bond market (based on sector, coupon or maturity) that are relatively
undervalued.
In addition, for temporary or emergency purposes, the New Intermediate
Government Bond Fund may invest up to 100% of its total assets in cash and/or
money market obligations.
FUNDAMENTAL INVESTMENT POLICIES. Each Acquired Fund and corresponding
Acquiring Fund have some fundamental investment policies that are the same and
some that are different. The primary purposes for adopting more flexible
investment restrictions for the Acquiring Funds are to promote standardization
of such restrictions
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<PAGE> 85
among all of the Nationwide Funds and to provide the portfolio managers with
greater flexibility in managing the Acquiring Funds' portfolios. The
similarities and differences are described below.
1. Each of the Acquired Funds has a fundamental policy against selling
securities short. Each of the Acquiring Funds has a non-fundamental policy
against selling securities short, unless an Acquiring 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.
2. Each of the Acquired Fund has a fundamental policy against purchasing
securities that are restricted under federal securities laws or that are
illiquid or unmarketable. Each of the Acquired Funds also has a fundamental
policy against entering into any repurchase agreement if, as a result, more than
10% of such Fund's total assets would be subject to repurchase agreements that
mature in more than seven days.
None of the corresponding Acquiring Funds has any similar fundamental
investment restrictions. However, each of the corresponding Acquiring Funds has
a non-fundamental investment policy against purchasing or otherwise acquiring
any security if, as a result, more than 15% of its net assets would be invested
in securities that are illiquid. For purposes of this investment restriction,
illiquid securities include securities which are not readily marketable and
repurchase agreements with maturities in excess of seven days.
3. Each of the Acquired Funds has a fundamental policy against making loans to
others except in connection with purchasing certain debt securities or entering
into certain repurchase agreements. Each corresponding Acquiring Fund has a
similar fundamental policy against making loans to others, except that each such
Fund may purchase or hold debt instruments and lend portfolio securities in
accordance with its investment objective and policies, make time deposits with
financial institutions, and enter into repurchase agreements.
4. Each of the Acquired Funds has a fundamental policy against issuing senior
securities or borrowing money, except that each such Fund may borrow an amount
not in excess of 33 1/3% of the value of the Fund's total assets (calculated
when the loan is made) from banks for temporary purposes to facilitate the
orderly sale of portfolio securities to accommodate unusually heavy redemption
requests, if they should occur. Any such borrowing is not intended to be for
investment purposes, and such Funds will not purchase portfolio securities
during periods in which borrowings are outstanding. Each Acquired Fund may also
borrow an amount equal to no more than 5% of the value of each of such Fund's
total assets (calculated when the loan is made) for temporary, emergency
purposes, or for the clearance of transactions, to provide additional
flexibility in executing routine daily transactions, and to allow for more
efficient cash management. Any such borrowing will not be used to leverage the
Acquired Funds, nor will such borrowing be for an extended period of time.
Each of the corresponding Acquiring Funds also has a fundamental policy
against borrowing money or issuing senior securities, except that each such Fund
may enter into reverse repurchase agreements and may otherwise borrow money and
issue senior securities as and to the extent permitted by the 1940 Act or any
rule, order or interpretation thereunder.
5. Each of the Acquired Funds has a fundamental policy against acting as an
underwriter, except that, in disposing of certain portfolio securities, each
such Fund may be deemed to be an underwriter under certain federal securities
laws. Each of the Acquiring Funds has a fundamental policy that is similar in
all material respects.
6. Each of the Acquired Funds has a fundamental policy against pledging more
than 10% of its assets or pledging such assets for any reason except to secure
temporary borrowings from banks. Each corresponding Acquiring Fund has a
non-fundamental policy against mortgaging, pledging or hypothecating its assets
in excess of one-third of such Fund's total assets.
7. Each of the Acquired Funds has a fundamental policy against writing,
purchasing, or selling puts, calls, straddles, spreads or any combination
thereof. None of the Acquiring Funds is subject to this or any similar
investment restriction.
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8. Each of the Acquired Funds has a fundamental policy against purchasing or
selling securities of other investment companies (except in connection with a
merger, consolidation, acquisition or reorganization).
Each Acquiring Fund has a non-fundamental policy against purchasing
securities of other investment companies, except (a) in connection with a
merger, consolidation, acquisition, reorganization or offer of exchange, and (b)
to the extent permitted by the 1940 Act, or any rules or regulations thereunder,
or pursuant to any exemptions therefrom.
9. Each of the Acquired Funds has a fundamental policy against purchasing or
selling real estate, real estate mortgage loans, commodities or futures
contracts.
Each Acquiring Fund has a fundamental policy against purchasing or selling
real estate, except that each such Fund may acquire real estate through
ownership of securities or instruments and may purchase or sell securities
issued by entities or investment vehicles that own or deal in real estate
(including interests therein) or instruments secured by real estate (including
interests therein). Each Acquiring Fund also has a fundamental policy against
purchasing or selling commodities or commodities contracts, except to the extent
disclosed in such Fund's current Prospectus.
10. Each of the Acquired Funds has a fundamental policy against purchasing
securities on margin; however, each such Fund may obtain such credits as may be
necessary for the clearance of purchases and sales of securities. Each of the
Acquiring Funds has a similar policy regarding purchasing securities on margin,
except that the policy is non-fundamental and each such Fund may make margin
payments in connection with derivative securities transactions.
11. Each of the Acquired Funds has a fundamental policy against dealing with the
Trustees of the Trust in the purchase and sale of securities or investing for
the purpose of making short-term trading profits or exercising control of
management. None of the corresponding Acquiring Funds is subject to these or any
similar restrictions.
12. The Nationwide Tax-Free Income Fund has a fundamental policy against
investing more than 20% of its assets in securities whose interest is subject to
federal income taxes. The New Tax-Free Income Fund has a similar policy.
13. The Nationwide Tax-Free Income Fund has a fundamental policy against
investing more than 5% of its total assets (excluding cash and cash items) in
the securities of any one issuer, except the U.S. government, its agencies and
instrumentalities.
Each of the Acquiring Funds has a fundamental policy against purchasing
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 such Fund's total assets would be invested in such
issuer or such Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that 25% or less of such 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.
14. The Nationwide Tax-Free Income Fund has a fundamental policy against
investing 25% or more of the its total assets in the securities of issuers in
the same industry, except that it may invest more than 25% of the value of its
total assets in municipal bonds and obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Each of the Acquiring Funds has a fundamental policy against purchasing
securities of any one issuer if, as a result of such purchase, more than 25% of
a Fund's total assets would be invested in securities of issuers that are in the
same industry. This investment restriction does not apply to securities issued
by the U.S. Government, its agencies, or instrumentalities or to securities
issued by state, county, or municipal governments. The following industries are
considered separate industries for purposes of this investment restriction:
captive borrowing conduit, equipment finance, premium finance, leasing finance,
consumer sales finance and other finance, electric, natural gas distribution,
natural gas pipeline, combined electric and natural gas, and telephone
utilities.
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<PAGE> 87
15. The Nationwide Tax-Free Income Fund has a fundamental policy against
investing more than 5% of its total assets (taken at cost) in securities whose
issuer or guarantor of principal and interest, including any predecessor, has
been in operation for less than three years. Neither of the Acquiring Funds is
subject to this or a similar restriction.
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in each Acquiring Fund. For a more complete description of the
Acquiring Funds' investment policies and restrictions, including relevant risk
factors, see "OBJECTIVES AND MANAGEMENT" in the Acquiring Funds' Prospectus and
"INVESTMENT OBJECTIVES AND POLICIES" in the Acquiring Funds' Statement of
Additional Information. For a more complete description of the Acquired Funds'
investment policies and restrictions, including relevant risk factors, see
"OBJECTIVES AND MANAGEMENT, in the Acquired Funds' Prospectus and "ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES" in the Acquired
Funds' Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE TRUST
Pursuant to the laws of Massachusetts and the Trust's Declaration of Trust,
the responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Declaration of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants, and other professionals to assist and
advise in such management.
Investment Adviser. The Acquired Funds are advised by Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a wholly
owned subsidiary of Nationwide Life Insurance Company, which in turn is wholly
owned by Nationwide Financial Services, Inc., a holding company ("NFS"). NFS 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. 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. NAS is also the investment adviser, administrator, fund
accountant and distributor of each of the other funds of the Nationwide Family
of Funds. NAS was established as an Ohio corporation on June 28, 1960, and has
been providing investment advisory services to open-end investment management
companies like the Acquired Funds since 1965.
In its capacity as investment adviser, and subject to the ultimate
authority of the Trust's Board of Trustees, NAS, in accordance with the Acquired
Funds' investment objectives and policies, manages the Acquired Funds, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since March, 1986, Alpha Benson, MBA, has been primarily
responsible for the day-to-day management of Nationwide Tax-Free Income Fund's
portfolio. Ms. Benson has been with Nationwide Insurance Enterprise as a
financial analyst in the Securities Investment Department since 1977. Ms. 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.
Wayne Frisbee, CFA, Kimberly Bingle, CFA, FLMI, and Gary Hunt, MBA, are the
portfolio managers of Nationwide U.S. Government Income Fund. Mr. Frisbee joined
Nationwide Insurance Enterprise in 1981 as a securities analyst and has managed
Nationwide U.S. Government Income Fund since its inception in February of 1992.
He received a Bachelor of Science from The Ohio State University and is a
Chartered Financial Analyst.
Ms. Bingle joined Nationwide Insurance Enterprise in 1986 as a securities
analyst and began co-managing Nationwide U.S. Government Income Fund on March
11, 1997. Since April, 1992, she has managed the Fixed Income Fund which is part
of the Nationwide Insurance Enterprise incentive savings plan. Ms. Bingle
received a
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Bachelor of Arts in Finance from The Pennsylvania State University. She is a
Chartered Financial Analyst and a Fellow of the Life Management Institute.
Mr. Hunt joined Nationwide Insurance Enterprise in 1992 as a securities
analyst and began co-managing Nationwide U.S. Government Income Fund on March
11, 1997. In his career at Nationwide Insurance Enterprise, Mr. 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. Mr. Hunt received a
Bachelor of Science in Finance and a Master of Business Administration from The
Ohio State University.
In addition, pursuant to the Investment Advisory Agreement, NAS generally
assists in all aspects of the Acquired Funds' administration and operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Trust, NAS receives a fee from each Acquired Fund,
computed daily and paid monthly, at the annual rate of 0.65% on the first $250
million of average daily net assets, 0.60% on the next $250 million, 0.55% on
the next $250 million and 0.50% on the average daily net assets in excess of
$750 million.
For a complete description of the Acquired Funds' advisory arrangements,
see the sections in the Acquired Funds' Prospectus entitled "OBJECTIVES AND
MANAGEMENT" and "MANAGEMENT OF THE TRUSTS."
Distributor. The Trust has entered into an Underwriting Agreement with
NAS, Three Nationwide Plaza, Columbus, Ohio 43215, pursuant to which shares of
the Acquired Funds continuously are offered on a best efforts basis by NAS and
dealers selected by NAS. Dimon Richard McFerson is Chairman of the Board and
Chief Executive Officer of NAS. Joseph J. Gasper, Robert A. Oakley, Gordon E.
McCutchan and Robert J. Woodward, Jr. are President and a director, Executive
Vice President -- Chief Financial Officer and a director, Executive Vice
President -- Law and Corporate Services and a director, and Executive Vice
President -- Chief Investment Officer and a director, respectively, of NAS.
James F. Laird, Jr. is Vice President -- General Manager of NAS. NAS receives no
compensation from the Acquired Funds in connection with its services under such
Underwriting Agreement but may retain some or all of the contingent deferred
sales charge, if any, imposed upon redemptions of the Acquired Funds' shares. In
addition, pursuant to the 12b-1 Plan, each Acquired Fund is authorized to pay
NAS compensation accrued daily and paid monthly at a maximum annual rate of
0.35% of such Acquired Fund's average daily net assets. Currently each Acquired
Fund accrues daily and pays monthly to NAS compensation at the annual rate of
0.20% of such Fund's average daily net assets. NAS will continue to waive the
remaining 0.15% until further written notice.
Dividend and Transfer Agent. Nationwide Investors Service, Inc., a wholly
owned subsidiary of NAS ("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215,
serves as the Acquired Funds' Dividend and Transfer Agent. In consideration of
such services, the Acquired Funds have agreed to pay NISI an annual fee, paid
monthly, equal to $18 per shareholder account, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Trust, see the section in the Acquired Funds' Prospectus entitled
"MANAGEMENT OF THE TRUSTS."
Custodian. The Acquired Funds have appointed The Fifth Third Bank ("Fifth
Third"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, as the Acquired
Funds' custodian. In such capacity Fifth Third will hold or arrange for the
holding of all portfolio securities and other assets acquired and owned by each
of the Acquired Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Acquired
Funds, and, as such, has audited the annual financial statements of the Acquired
Funds.
Management Discussion of Fund Performance.
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NATIONWIDE TAX-FREE INCOME FUND
Nationwide Tax-Free Income Fund's total return for the year ended October
31, 1997, was 7.72% assuming all distributions were reinvested, while the Lehman
Brothers Municipal Bond Index returned 8.49%.
The Municipal Bond Market experienced an active yet volatile year
characterized by a combination of declining interest rates and a large level of
issuance. The Bond-Buyer 11 General Obligation Municipal Bond Index fell from
5.60% to 5.28%, a 0.32% decline. The decline wasn't a smooth one as the index
rose as high as 5.79% in early April and saw a low of 5.15% by the end of July.
The yield on the most current U.S. Treasury 30-year bond also fell from 6.65% to
6.15%, a 0.50% decline. The most current U.S. Treasury 30-year bond saw its
highest yield of 7.11% during April as well and its low of 6.15% in late
October. Municipal bonds under performed Treasuries during the period.
As 1997 began, a Democratic President and a Republican Majority were
returned to Washington and the economy was growing at a slow, manageable,
noninflationary pace. The markets reacted favorably to these events with stable
to declining interest rates. However, during the first quarter of the calendar
year, economic statistics began to show signs of an economy that may be
overheating, and on March 25, in a preemptive move against inflationary
concerns, the Federal Reserve raised the Federal Funds rate 0.25%. The move
appeared to be justified as during the following months inflationary measures
remained remarkably tame. In late April, the announcement of a balanced budget
agreement also overshadowed concerns about the growth rate.
During the latter part of October, the Equity markets experienced a
sell-off that prompted investors to a flight to quality in U.S. Treasury
securities. This movement helped to sustain the lower yields and higher prices
in the bond markets. This volatility in the worldwide financial markets,
however, has significantly reduced the threat of another preemptive rate hike
from the Federal Reserve to slow the growth in U.S. economy.
Municipal issuers continued to take advantage of the lower interest rates
and propelled municipal volume up 17% for the first 10 months of the calendar
year. This increased supply has kept municipal securities from fully
participating in the bond market rally. As a consequence, particularly in the
long end, municipals have cheapened when compared to Treasury securities.
The management of the Nationwide Tax-Free Income Fund will continue to
monitor developments in the market and to look for opportunities that will
produce positive performance in the long-run. The average credit quality of
Nationwide Tax-Free Income Fund is "AA," average coupon is 6.08% and the average
maturity is approximately 18 years.
NATIONWIDE U.S. GOVERNMENT INCOME FUND
The Nationwide U.S. Government Income Fund's total return for the year
ended October 31, 1997, was 8.86% assuming all distributions were reinvested,
while the Merrill Lynch Government Master Index returned 8.67%.
Shareholders who stayed in the Fund for the entire period were rewarded
after a difficult first six months when intermediate-term interest rates rose
0.4%-0.5%. The second half of the period was more favorable as intermediate
interest rates dropped 0.5%-0.9% and longer rates dropped by approximately 0.8%.
The higher prices for bonds in the second half was the result of several
factors. The most notable factor was the continued release of favorable
inflation reports in spite of low unemployment and significant growth in the
overall economy. Another important factor is the perception that the Federal
Reserve will not act to raise rates until clear signs of inflationary pressures
are present. The Federal Reserve's stance combined with favorable inflation
reports has led to a significantly flatter yield curve. Finally, the U.S.
government market has been the beneficiary of a flight to quality as the result
of increased turmoil in world equity markets.
Nationwide U.S. Government Income Fund benefited from its weighting in
spread product during the period and the shift out of callable into non-callable
agency notes. Approximately 77% of portfolio assets are invested in Treasury and
Agency notes, and 19% of Fund assets are invested in the Collateralized Mortgage
Obligation (CMO) market. The remainder of Fund assets are held in repurchase
agreements.
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THE ACQUIRING FUNDS AND THE NEW TRUST
Except where shareholder action is required by law, all of the authority of
the New Trust is exercised under the direction of the New Trust's Trustees, who
are elected by the shareholders of the New Trust's series or portfolios,
including the Acquiring Funds, and who are empowered to elect officers and
contract with and provide for the compensation of agents, consultants, and other
professionals to assist and advise in its day-to-day operations. The New Trust
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
Investment Adviser. The Acquiring Funds are also advised by NAS. It is
intended that upon completion of the Reorganization, Ms. Benson will be
responsible for the day-to-day management of the New Tax-Free Income Fund's
portfolio, and Messrs. Frisbee and Hunt and Ms. Bingle will be responsible for
the day-to-day management of the New Intermediate Government Bond Fund's
portfolio. For its services as investment adviser, NAS receives a fee for each
Acquiring Fund, which is calculated daily and paid monthly, at the following
annual rates: 0.50% of such Fund's average net assets up to $250 million, 0.475%
of such Fund's average net assets of $250 million up to $1 billion, 0.45% of
such Fund's average net assets of $1 billion up to $2 billion, 0.425% of such
Fund's average net assets of $2 billion up to $5 billion, and 0.40% of such
Fund's average net assets of $5 billion or more.
The New Trust on behalf of the Acquiring Funds has also entered into an
Administration Agreement with NAS whereby NAS provides certain administration
and fund accounting services to the Acquiring Funds. For such services, NAS
receives a fee from each Acquiring Fund, calculated daily and paid periodically
at the following annual rate: 0.07% of such Fund's average net assets up to $250
million; 0.05% of such Fund's average net assets of $250 million up to $1
billion, and 0.04% of such Fund's average net assets of $1 billion or more.
For a complete description of the Acquiring Funds' advisory arrangements,
see the section in the Acquiring Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST -- Investment Management."
Dividend and Transfer Agent. NISI also serves as the Acquiring Funds'
Dividend and Transfer Agent. In consideration of such services, the Acquiring
Funds have each agreed to pay NAS an annual fee, paid monthly, equal to $18 per
shareholder account, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Acquiring Funds, see the sections in the Acquiring Funds'
Prospectus entitled "MANAGEMENT OF THE TRUST -- Other Services" and "-- Transfer
and Dividend Disbursing Agent."
Distributor. NAS also serves as the distributor of the Acquiring Funds'
shares pursuant to a distribution agreement. Pursuant to such agreement, NAS may
retain all or a portion of the front end sales charge, if any, imposed upon
purchases of Class D shares of the Acquiring Funds.
In addition, NAS may enter into, from time to time, agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of the Acquiring Funds' Class D shares.
For a complete description of these arrangements, see the sections in the
Acquiring Funds' Prospectus entitled "HOW TO PURCHASE SHARES."
Custodian. The Acquiring Funds have also appointed Fifth Third as the
Acquiring Funds' custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the New Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Funds, and, as such, will audit the annual financial
statements of the Acquiring Funds.
Management Discussion of Fund Performance. No management discussion of
fund performance is included since the Acquiring Funds have not yet commenced
operations.
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CERTAIN FINANCIAL INFORMATION. The Prospectus for the Trust contains
information on per share income, capital changes and performance calculations
under the caption "FINANCIAL HIGHLIGHTS."
The Acquiring Funds have not yet commenced operations and have no and will
have no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE ADVERTISING FOR THE FUNDS" in
the Acquiring Funds' Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS. The Trust is a Massachusetts
business trust, registered under the 1940 Act as an open-end investment company
of the management type. The Trust was established under a Declaration of Trust
dated October 5, 1985, as amended. The New Trust is an Ohio business trust,
registered under the 1940 Act as an open-end investment company of the
management type and established under a Declaration of Trust dated as of October
30, 1997.
The Acquiring Funds are two of nine series of the New Trust. The other
seven series of the New Trust are Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund, Nationwide Money Market Fund, Nationwide Long-Term U.S.
Government Bond Fund, Nationwide Mid Cap Growth Fund and Nationwide S&P 500
Index Fund.
Both the Trust and the New Trust are authorized to issue an unlimited
number of shares of beneficial interest and to divide their shares of beneficial
interest into one or more series. The New Trust is also authorized to divide its
shares of beneficial interest into one or more classes or sub-series. Each share
of a series of the Trust or New Trust represents a beneficial interest in the
assets of only that series. The consideration received by the Trust or New Trust
for the issuance of shares of a particular series, the assets in which such
consideration is invested, and all income and proceeds from the holding or sale
of such assets belong to that series, subject only to the rights of creditors.
Each share of beneficial interest of a series of the Trust and New Trust
represents an equal proportionate interest in that series of the Trust and New
Trust, respectively, with each other share of the same series. Each such share
is entitled to share on a pro rata basis in any dividends or distributions out
of the income or assets belonging to the particular series of the Trust and New
Trust, as applicable. Such dividends or distributions are declared at the
discretion of the Trustees of the Trust and New Trust. Upon any liquidation of a
series of the Trust, shareholders are entitled to share pro rata in the net
assets that belong to that series and that are available for distribution.
Shares of the Acquiring Funds, once properly issued and outstanding, are
fully paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
Shareholders of the both the Trust and the New Trust are entitled to one
vote for each full share held and a proportionate fractional vote for each
fractional share held, regardless of the net asset value of such shares.
Voting rights for Trust shareholders are not cumulative, so that the
holders of more than 50% of the Trust voting in the election of its Trustees
have the power to elect all of the Trustees of the Trust. The Trust is not
required to, and currently does not, hold an annual meeting of shareholders.
Shareholders of the New Trust have no cumulative voting rights, which means
that the holders of a plurality of the shares voting for the election of the New
Trust's Board of Trustees can elect all of the New Trust's Board of Trustees if
they choose to do so. The New Trust does not intend to hold annual meetings of
shareholders, except as required under its Declaration of Trust or the 1940 Act.
Shareholders of the Acquiring Funds will vote in the aggregate with other
shareholders of the New Trust and not by series or portfolio except as otherwise
expressly required by law. For example, shareholders of an Acquiring Fund will
vote in the aggregate with other shareholders of the New Trust with respect to
the election of Trustees and ratification of the selection of independent
accountants. However, shareholders of an Acquiring Fund will vote as a Fund, and
not in the aggregate with other shareholders of the New Trust, for purposes of
approval of amendments to the Investment Advisory Agreement as it relates to
that Acquiring Fund or any of that Acquiring Fund's fundamental policies.
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<PAGE> 92
For a complete description of the respective attributes of the Trust's and
the New Trust's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Acquired Funds or the Acquiring
Funds, as the case may be, and its shareholders, and dividend and distribution
policies, see the sections in the Acquired Funds' and the Acquiring Funds'
respective Prospectuses entitled "HOW TO PURCHASE SHARES," "HOW TO REDEEM
SHARES," "INVESTOR SERVICES," and "DISTRIBUTIONS AND TAXES." Additional
information about the Trust is included in its Prospectus, dated February 28,
1997, as supplemented on November , 1997, which is incorporated herein by
reference, and in the Trust's Statement of Additional Information dated February
28, 1997. Copies of the Prospectus and the Statement of Additional Information
may be obtained without charge by calling the Trust at 1-800-848-0920.
Additional information about the Acquiring Funds is included in its
Prospectus dated December , 1997, which accompanies this Combined
Prospectus/Proxy Statement and Statement of Additional Information dated
December , 1997, copies of which may be obtained without charge by calling the
New Trust at 1-800-848-0920.
Additional information regarding the Reorganization is contained in the
Statement of Additional Information, dated December , 1997, to this Combined
Prospectus/Proxy Statement. The Statement of Additional Information is
incorporated by reference herein and may be obtained by calling the New Trust at
1-800-848-0920.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the New Trust are each subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act, and in accordance therewith each
files reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne 50% by NAS and the
remainder by the Trust and the New Trust. Proxies will be solicited initially,
and in any supplemental solicitation, by mail and may be solicited in person, by
telephone, telegraph or other electronic means by officers of the Trust.
SUBSTANTIAL SHAREHOLDERS. As of December 18, 1997, to the knowledge of the
Trust, the only persons who own of record or beneficially five percent or more
of the outstanding shares of any of the Acquired Funds are Nationwide Life
Insurance Company and/or Nationwide Life and Annuity Company, One Nationwide
Plaza, Columbus, Ohio 43215, which own through various separate accounts % of
Nationwide U.S. Government Income Fund.
As of the close of business on December 18, 1997, the officers and Trustees
of the Trust as a group beneficially owned less than 1% of the outstanding
shares of the Trust or of any Acquired Fund.
As of the close of business on December 18, 1997, there were no issued and
outstanding shares of the New Trust. As of such date, there were no shareholders
of the Acquiring Funds. It is anticipated, however, that those persons who are
beneficial holders of the Acquired Funds' shares immediately prior to the
Reorganization will be beneficial holders of the same or substantially the same
percentage of the corresponding Acquiring Fund's Class D shares immediately
after the Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Funds dated December , 1997, is incorporated by reference into this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
February 28, 1997, as supplemented November , 1997, is incorporated by
reference into this Combined Prospectus/Proxy Statement and may be obtained by
writing the Trust at Three Nationwide
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<PAGE> 93
Plaza, Columbus, Ohio 43215 or by calling the Trust at 1-800-848-0920. Copies of
documents requested will be sent by first-class mail to the requesting
shareholder within one business day of receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in accordance
with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to introduce
at such meeting. Any shareholder proposals must be presented a reasonable time
before the proxy materials for the next meeting are sent to shareholders. The
submission of a proposal does not guarantee its inclusion in the Trust's proxy
statement and is subject to limitations under the 1934 Act. It is not presently
anticipated that the New Trust will hold regular meetings of shareholders, and
no anticipated date of the next meeting can be provided.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Nationwide Investing Foundation II, a Massachusetts
business trust ("NIF II") and Nationwide Investing Foundation III, an Ohio
business trust ("NIF III").
WHEREAS, NIF II is registered under the Investment Company Act of 1940, as
amended ("1940 Act") as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following two series: Nationwide Tax-Free Income Fund ("NIF II
Tax-Free Income Fund") and Nationwide U.S. Government Income Fund ("NIF II U.S.
Government Income Fund", and together with NIF II's other series described in
this paragraph, the "Acquired Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series:
Nationwide Tax-Free Income Fund ("NIF III Tax-Free Income Fund") and Nationwide
Intermediate U.S. Government Bond Fund ("NIF III Intermediate U.S. Government
Bond Fund," and, together with NIF III's other series described in this
paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets or liabilities
of the corresponding Acquired Series; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares of the
corresponding Acquiring Series ("Acquiring Series Shares"), which are voting
securities, followed by the distribution of the Acquiring Series Shares by each
Acquired Series to the shareholders of the Acquired Series in connection with
the dissolution of NIF II and the Acquired Series, all upon the terms and
provisions of this Agreement (individually and together, the "Reorganization");
and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: NIF II Tax-Free Income Fund corresponds to NIF III Tax-Free
Income Fund and NIF II U.S. Government Income Fund corresponds to NIF III
Intermediate U.S. Government Bond Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of NIF II has determined that the
Reorganization is in the best interests of NIF II, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of NIF II and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as described in Section 9(h) herein), NIF II and the
Acquired Series agree to assign, convey, transfer and deliver to NIF III
and the Acquiring Series, and NIF III and the Acquiring Series agree to
acquire from
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NIF II and the Acquired Series on the Exchange Date (as defined below), all
of the Investments (as defined below), cash and other assets of NIF II in
exchange for that number of full and fractional Acquiring Series Shares of
the corresponding Acquiring Series having an aggregate net asset value
equal to the value of all assets of NIF II transferred to the Acquiring
Series, as provided in Section 4, less the liabilities of NIF II assumed by
the Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring
Series from NIF II shall consist of all of NIF II's property, including,
without limitation, all Investments (as defined below), cash and dividends
or interest receivables which are owned by NIF II and any deferred or
prepaid expenses shown as an asset on the books of NIF II as of the
Valuation Time described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date NIF II will
endeavor to discharge or cause to be discharged, or make provision for the
payment of, all of its known liabilities and obligations. The Acquiring
Series shall assume all liabilities, expenses, costs, charges and reserves
of NIF II, contingent or otherwise, including liabilities reflected in the
unaudited statements of assets and liabilities of NIF II as of the
Valuation Time, prepared by or on behalf of NIF II as of the Valuation Time
in accordance with generally accepted accounting principles consistently
applied from and after October 31, 1996, and including all liabilities of
the NIF II under its registration statement on Form N-1A filed with the
Securities and Exchange Commission ("Commission") under the Securities Act
of 1933, as amended ("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, each Acquired
Series shall distribute to its shareholders of record as of the Exchange
Date the Acquiring Series Shares received by it, each Acquired Series
shareholder of record being entitled to receive that number of Acquiring
Series Shares equal to the proportion which the number of shares of
beneficial interest, par value $1.00 per share, of the Acquired Series held
by such shareholder bears to the total number of such shares of the
Acquired Series outstanding on such date, and shall take such further
action as may be required, necessary or appropriate under NIF II's Amended
Declaration of Trust, Massachusetts law and the Code to effect the complete
liquidation and dissolution of NIF II. NIF II will fulfill all reporting
requirements under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF II. NIF II represents
and warrants to and agrees with NIF III and the Acquiring Series that:
(a) NIF II is a business trust validly existing under the laws of the
Commonwealth of Massachusetts and has power to own all of its properties
and assets and to carry out its obligations under this Agreement.
(b) NIF II is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. NIF II has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for NIF II, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of NIF II, have been furnished to NIF III. Such statements of
assets and liabilities fairly present the financial position of NIF II as
of such date and such statements of operations and changes in net assets
fairly reflect the results of operations and changes in net assets for the
periods covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of NIF II as of
such dates which are not disclosed therein.
(d) The Prospectus of NIF II dated February 28, 1997 and its related
Statement of Additional Information dated February 28, 1997 (together, the
"NIF II Prospectus"), in the forms filed under the 1933 Act with the
Commission and previously furnished to NIF III, did not as of their date
and do not as of the
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date hereof contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of NIF II, threatened against NIF II.
(f) There are no material contracts outstanding to which NIF II is a
party, other than as disclosed in the NIF II Prospectus, and there are no
such contracts or commitments (other than this Agreement) which will be
terminated with liability to NIF II on or prior to the Exchange Date.
(g) NIF II has no known liabilities of a material nature, contingent
or otherwise, other than those shown as belonging to it on its statements
of assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of NIF II's business as an investment company since that
date.
(h) As used in this Agreement, the term "Investments" shall mean NIF
II's investments shown on the statements of assets and liabilities at
October 31, 1996 referred to in Section 2(g) hereof, as supplemented with
such changes as NIF II shall make after October 31, 1996 in the ordinary
course of its business.
(i) NIF II has filed or will file all federal and state tax returns
which, to the knowledge of NIF II's officers, are required to be filed by
NIF II and has paid or will pay all federal and state taxes shown to be due
on said returns or on any assessments received by NIF II. All tax
liabilities of NIF II have been adequately provided for on its books, and
no tax deficiency or liability of NIF II has been asserted, and no question
with respect thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), NIF II
will have full right, power and authority to assign, transfer and deliver
the Investments and any other of its assets and liabilities to be
transferred to NIF III and the Acquiring Series pursuant to this Agreement.
On the Exchange Date, subject only to the delivery of the Investments and
any such other assets and liabilities as contemplated by this Agreement,
NIF III and the Acquiring Series will acquire the Investments and any such
other assets subject to no encumbrances, liens or security interests in
favor of any third party creditor of NIF II and, except as described in
Section 2(k), without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of NIF II or NIF III, except as previously
disclosed to NIF III by NIF II prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by NIF II of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement to be filed by NIF III with the
Commission on Form N-14 (the "N-14 Registration Statement") relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of NIF
II included therein (the "Proxy Statement"), on the effective date of the
N-14 Registration Statement and insofar as they relate to NIF II and the
Acquired Series, (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at
the time of the shareholders' meeting referred to in Section 7 below and on
the Exchange Date, the prospectus contained in the N-14 Registration
Statement of which the Proxy Statement is a part, as amended or
supplemented by any amendments or supplements filed with the Commission by
NIF III (together, the "N-14 Prospectus") insofar as it relates to NIF II
and the Acquired Series, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this Section
2(m) shall apply only
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to statements of fact relating to NIF II and the Acquired Series contained
in the N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, or omissions to state in any thereof a material fact relating to
NIF II or any Acquired Series, as such N-14 Registration Statement, N-14
Prospectus and Proxy Statement shall be furnished to NIF II in definitive
form as soon as practicable following effectiveness of the N-14
Registration Statement and before any public distribution of the N-14
Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with NIF II that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to NIF II
promptly upon the completion thereof and will not as of their date contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of NIF II to be transferred to the
Acquiring Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date, the N-14
Prospectus, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the N-14 Registration Statement, the N-14
Prospectus or the Proxy Statement made in reliance upon
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and in conformity with information furnished by NIF II or any Acquired
Series for use in the N-14 Registration Statement, the N-14 Prospectus or
the Proxy Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end investment
company, nor does NIF III have any plan or intention to redeem or otherwise
reacquire any shares of the Acquiring Series issued to NIF II shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business. NIF III will actively continue NIF
II's business in the same manner that NIF II conducted it immediately
before the Reorganization and has no plan or intention to sell or otherwise
dispose of any of the assets to be acquired by NIF III in the
Reorganization, except for dispositions made in the course of its business
and dispositions necessary to maintain the status of each Acquiring Series
as a regulated investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to NIF II pursuant to
this Agreement will be legally and validly issued by NIF III and will be
fully paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to NIF II a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of NIF II
acquired by the respective Acquiring Series, less the value of the
liabilities of NIF II assumed, determined as hereafter provided in this
Section 4.
(a) The net assets of NIF II and each Acquired Series will be computed
as of the Valuation Time, using the valuation procedures set forth in the
NIF II Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
NIF II on a share deposit receipt registered in the name of NIF II. NIF II
shall distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former NIF II shareholder as
may be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of NIF II,
whether accrued or contingent, described in subsection l(c) hereof in
connection with the acquisition of assets and subsequent dissolution of NIF
II or otherwise, except that recourse for assumed liabilities relating to
an Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of NIF II and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
NIF II will be responsible for proxy solicitation and other costs
associated with the special meeting. Notwithstanding the foregoing,
Nationwide Advisory Services, Inc., investment adviser of NIF II and NIF
III, will be responsible for 50% of NIF II's and NIF III's fees and
expenses of the Reorganization and 50% of NIF II's proxy solicitation and
other costs associated with the special meeting.
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6. EXCHANGE DATE. Delivery of the assets of NIF II to be transferred,
assumption of the liabilities of NIF II to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of NIF
II, at 9:00 A.M. on March 1, 1998, or at such other time, date, and
location agreed to by NIF II and NIF III, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) NIF II agrees to call a special meeting of its shareholders as
soon as is practicable for the purpose of considering the transfer of all
of the assets of NIF II to, and the assumption of all of the liabilities of
NIF II by, the Acquiring Series as herein provided, authorizing and
approving this Agreement, and authorizing and approving the liquidation and
dissolution of NIF II, and it shall be a condition to the obligations of
each of the parties hereto that the holders of shares of beneficial
interest, par value $1.00 per share, of NIF II shall have approved this
Agreement, and the transactions contemplated herein, including the
liquidation and dissolution of NIF II, in the manner required by law and
NIF II's Amended Declaration of Trust at such a meeting on or before the
Valuation Time.
(b) NIF II agrees that the liquidation and dissolution of NIF II will
be effected in the manner provided in NIF II's Amended Declaration of Trust
and in accordance with applicable law, and that it will not make any
constructive distribution of any Acquiring Series Shares to the
shareholders of NIF II without first paying or adequately providing for the
payment of all of NIF II's known debts, obligations and liabilities.
(c) Each of NIF II and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14 Registration Statement, including the N-14 Prospectus
and Proxy Statement included therein.
8. CONDITIONS OF NIF II'S OBLIGATIONS. The obligations of NIF II hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF II,
shall have been approved by the trustees and shareholders of NIF II in the
manner required by law.
(b) NIF III shall have executed and delivered to NIF II an Assumption
of Liabilities dated as of the Exchange Date pursuant to which the
Acquiring Series will assume all of the liabilities, expenses, costs,
charges and reserves of NIF II, contingent or otherwise, including
liabilities existing at the Valuation Time and described in Section 1(c)
hereof in connection with the transactions contemplated by this Agreement;
provided that recourse for assumed liabilities relating to an Acquired
Series shall be limited to the corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to NIF II a statement, dated the Exchange Date, signed by NIF
III's Chairman and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) NIF II shall have received an opinion of Druen, Dietrich, Reynolds
& Koogler in form reasonably satisfactory to NIF II, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to NIF II as provided for by this Agreement are duly authorized
and upon such delivery will be validly issued and will be fully paid and
nonassessable by NIF III and no shareholder of NIF III has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by NIF III, and assuming
due authorization, execution and delivery of this Agreement by NIF II,
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is a valid and binding obligation of NIF III, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) NIF II shall have received an opinion of Baker & Hostetler LLP
addressed to NIF II, NIF III and each Acquiring Series and in a form
reasonably satisfactory to NIF II dated the Exchange Date, with respect to
the matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, NIF II and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF II,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF II, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and NIF II shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF II, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF II,
shall have been approved by the trustees and shareholders of NIF II in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF II made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF II has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to each of
such dates, and NIF II shall have furnished to NIF III a statement, dated
the Exchange Date, signed by NIF II's Chairman and Treasurer (or other
financial officer) certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) NIF II is a business trust
validly existing under the laws of the Commonwealth of Massachusetts, (ii)
this Agreement has been duly authorized, executed and delivered by NIF II
and, assuming due authorization, execution and delivery of this Agreement
by NIF III, is a valid and binding obligation of NIF II, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iii) NIF II
has power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, NIF II
will have
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duly assigned, conveyed, transferred and delivered such Investments and
other assets to NIF III, (iv) the execution and delivery of this Agreement
did not and the consummation of the transactions contemplated hereby will
not, violate NIF II's Amended Declaration of Trust or its Amended Bylaws,
as amended, or any provision of any agreement known to such counsel to
which NIF II is a party or by which it is bound, and (v) to the knowledge
of such counsel no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by NIF II of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or state laws applicable to business trusts. In
rendering such opinion, Druen, Dietrich, Reynolds & Koogler may rely upon
certain reasonable and customary assumptions and certifications of fact
received from NIF II and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and NIF II, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
the Acquired Series' assets in exchange for the Acquiring Series Shares and
the assumption by the Acquiring Series of the liabilities of Acquired
Series will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and each of the Acquiring Series and Acquired Series is
a "party to a reorganization" within the meaning of Section 368(b) of the
Code; (ii) no gain or loss will be recognized by Acquired Series upon the
transfer of the assets of the Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of Acquired Series or upon the distribution of Acquiring Series Shares by
Acquired Series to its shareholders in liquidation; (iii) no gain or loss
will be recognized by the shareholders of Acquired Series upon the exchange
of their shares for Acquiring Series Shares, (iv) the basis of the
Acquiring Series Shares an Acquired Series shareholder receives in
connection with the Reorganization will be the same as the basis of his or
her shares exchanged therefor; (v) an Acquired Series shareholder's holding
period for his or her Acquiring Series Shares will be determined by
including the period for which he or she held Acquired Series Shares
exchanged therefor, provided that he or she held such Shares as capital
assets; (vi) no gain or loss will be recognized by the Acquiring Series
upon the receipt of the assets of the corresponding Acquired Series in
exchange for Acquiring Series Shares and the assumption by the Acquiring
Series of the liabilities of the corresponding Acquired Series (vii) the
basis in the hands of the Acquiring Series of the assets of the
corresponding Acquired Series transferred to the Acquiring Series will be
the same as the basis of the assets in the hands of the corresponding
Acquired Series immediately prior to the transfer and (viii) the Acquiring
Series' holding periods of the assets of the corresponding Acquired Series
will include the period for which such assets of the corresponding Acquired
Series were held by the corresponding Acquired Series. In rendering such
opinion, Baker & Hostetler LLP may rely upon certain reasonable and
customary assumptions and certifications of fact received from NIF III, NIF
II, and certain of its shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by NIF II in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31, 1997 and the short taxable year beginning November
1, 1997 and ending on the Valuation Time (after reduction for any capital
loss carryover).
A-8
<PAGE> 102
(i) NIF II shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
NIF II's entire right, title and interest in and to the Investments and all
other assets of NIF II to the Acquiring Series.
(j) NIF III and NIF II shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF II, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
10. TERMINATION. NIF III and NIF II may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or NIF II, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees may, subject to Section 11 of this
Agreement, waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
NIF II; provided, however, that following the special meeting of NIF II's
shareholders called by NIF II pursuant to Section 7 of this Agreement, no such
amendment may have the effect of altering or changing the amount or kind of
shares received by NIF II, or altering or changing to any material extent the
amount or kind of liabilities assumed by NIF III and the Acquiring Series, or
altering or changing any other terms and conditions of the Reorganization if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect NIF II's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
NATIONWIDE INVESTING FOUNDATION II
By: /s/ JAMES F. LAIRD, JR.
------------------------------------
James F. Laird, Jr.
NATIONWIDE INVESTING FOUNDATION III
By: /s/ CHRISTOPHER A. CRAY
------------------------------------
Christopher A. Cray
A-9
<PAGE> 103
NATIONWIDE INVESTING FOUNDATION II
NATIONWIDE TAX-FREE INCOME FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of Nationwide Tax-Free Income Fund (the
P "Fund") of NATIONWIDE INVESTING FOUNDATION II (the "Trust"), which the
undersigned is entitled to vote, at the Special Meeting of Shareholders of
the Trust to be held Monday, February 16, 1998, at its offices at Three
Nationwide Plaza, Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all
adjournments thereof, on the following proposal and any other matters that
R may properly come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and Plan
of Reorganization by and between Nationwide Investing Foundation III
and the Trust providing for the transfer of all of the assets of the
O Fund to Nationwide Tax-Free Income Fund of Nationwide Investing
Foundation III for shares of Nationwide Tax-Free Income Fund and the
assumption by Nationwide Tax-Free Income Fund of all of the liabilities
of the Fund, followed by the dissolution and liquidation of the Fund
and the Trust and the distribution of shares of Nationwide Tax-Free
X Income Fund to the shareholders of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
Y and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _______________________________
______________________________________
(Signature of Shareholder)
<PAGE> 104
____________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 105
NATIONWIDE INVESTING FOUNDATION II
NATIONWIDE U.S. GOVERNMENT INCOME FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of Nationwide U.S. Government Income Fund
P (the "Fund") of NATIONWIDE INVESTING FOUNDATION II (the "Trust"), which the
undersigned is entitled to vote, at the Special Meeting of Shareholders of
the Trust to be held Monday, February 16, 1998, at its offices at Three
Nationwide Plaza, Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all
adjournments thereof, on the following proposal and any other matters that
R may properly come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Intermediate Government Bond Fund of Nationwide
Investing Foundation III for shares of Nationwide Intermediate
Government Bond Fund and the assumption by Nationwide Intermediate
Government Bond Fund of all of the liabilities of the Fund, followed by
the dissolution and liquidation of the Fund and the Trust and the
X distribution of shares of Nationwide Intermediate Government Bond Fund
to the shareholders of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
Y but if no instructions are given this proxy will be voted FOR the proposal
and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _______________________________
<PAGE> 106
____________________________
(Signature of Shareholder)
____________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 107
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 SUMMARY -- Comparative Expense Information; SUMMARY; SPECIAL
CONSIDERATIONS AND RISK FACTORS
4 THE PROPOSED TRANSACTION
5 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
6 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
7 Front Cover; SUMMARY -- Approval and Consummation of the
Proposed Transaction; SUMMARY -- Comparison of Voting Rights;
THE PROPOSED TRANSACTION; and MISCELLANEOUS -- Solicitation of
Proxies and Payment of Expenses; MISCELLANEOUS -- Substantial
Shareholders
8 SUMMARY -- Proposed Reorganization; SUMMARY -- Comparative
Expense Information; SUMMARY -- Fees and Expenses; THE PROPOSED
TRANSACTIONS -- Reasons for the Proposed Transaction; ADDITIONAL
COMPARATIVE INFORMATION
9 Not Applicable
</TABLE>
<PAGE> 108
Dear Financial Horizons Investment Trust Shareholder:
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998 to consider an important proposal affecting your funds. The
Board unanimously approved this proposal, which is described in detail in the
accompanying Prospectus/Proxy Statement, because they believe it is in the best
interests of shareholders.
The proposal would reorganize the Financial Horizons Investment Trust funds into
a new Ohio-based mutual fund trust, named Nationwide Investing Foundation III,
along with several other Nationwide-managed funds. The main reasons for the
reorganization are:
- To create a single, modern business trust to improve operating
efficiencies,
- To take advantage of Ohio business trust laws, which are more favorable
to shareholders than Massachusetts laws,
- To eliminate outdated investment restrictions, which will expand the
investments available to the portfolio managers while keeping similar
investment objectives and risk profiles,
- To increase the number of funds available within the Nationwide family of
funds, and
- To offer more choices to shareholders through the introduction of
additional share classes.
In addition, the proposal would change the investment advisory fees of the
funds, eliminate the 12b-1 fee, establish a separate fee for fund administration
and implement a schedule under which advisory and administration fees decrease
as assets increase. Under the proposal, the expense ratio of the Growth Fund (to
be renamed the Nationwide Mid Cap Growth Fund) would increase by 0.02%, the
expense ratio of the Cash Reserve Fund (to be combined with the Nationwide Money
Market Fund) would decrease by 0.09%, the expense ratio of the Government Bond
Fund (to be renamed the Nationwide Long-Term U. S. Government Bond Fund) would
decrease by 0.08% and the expense ratio of the Municipal Bond Fund (to be
combined with the Nationwide Tax-Free Income Fund) would decrease by 0.17%. If
the proposed fees are approved the EXPENSE RATIO FOR THE GROWTH FUND (NATIONWIDE
MID CAP GROWTH FUND) WILL BE 33% BELOW THE AVERAGE FOR OTHER GROWTH FUNDS, THE
EXPENSE RATIO FOR THE NATIONWIDE MONEY MARKET FUND (SUCCESSOR TO THE CASH
RESERVE FUND) WILL BE 27% BELOW AVERAGE, THE EXPENSE RATIO FOR THE GOVERNMENT
BOND FUND (NATIONWIDE LONG-TERM U. S. GOVERNMENT BOND FUND) WILL BE 37% BELOW
AVERAGE AND THE EXPENSE RATIO FOR THE TAX-FREE INCOME FUND (SUCCESSOR TO THE
MUNICIPAL BOND FUND) WILL BE 37% BELOW AVERAGE. The Trustees unanimously
approved the proposed fees and believe that they are consistent with our goal of
continuing to provide shareholders with excellent performance and service for
fair and reasonable fees.
Most features of the new funds will be the same as those of the current funds.
For instance, the portfolio managers will remain the same and procedures to
purchase and redeem shares will not change, however, shares received in the new
trust as a part of the reorganization will not be subject to contingent deferred
sales charges when redeemed. If the reorganization is approved, you will receive
shares of the funds in the new trust in exchange for your current Financial
Horizons Investment Trust shares. The shares received will be equal in value to
the shares exchanged and there will be no tax consequences as a result.
The Board of Trustees of the Financial Horizons Investment Trust has determined
that this proposal is in the best interest of the funds and the shareholders and
recommends a vote FOR the proposal.
<PAGE> 109
PROXY STATEMENT SUMMARY
The following Q & A is a brief summary of the proposal to be considered at the
special meeting. The information below is qualified by the more detailed
information included elsewhere in this Prospectus/Proxy Statement. Accordingly,
please read all the enclosed materials before voting. Please remember to vote
your shares as soon as possible.
Q: Why are the Trustees recommending the reorganization?
A: The Financial Horizons Investment Trust (FHIT) was established in 1988 as a
Massachusetts-based business trust. FHIT is not up-to-date with current
industry practices, which causes many operational inefficiencies and
unnecessary limitations on the investment and business practices of the
funds. Also, Nationwide manages six mutual funds in two other trusts,
Nationwide Investing Foundation (NIF) and Nationwide Investing Foundation II
(NIF II). NIF is a Michigan-based trust formed in 1933. NIF II is a
Massachusetts-based trust formed in 1985. The reorganization and
consolidation of all the Nationwide-managed funds into a new, modern,
Ohio-based trust will streamline operations, expand the number of funds
available in the Nationwide Family, eliminate unnecessary investment
restrictions, and permit Nationwide to offer multiple share classes to its
shareholders.
Q: How will the reorganization affect the value of my account?
A: The value of your account will not change. If the reorganization is approved,
you will receive shares in the new trust in exchange for your current shares.
The shares received will be equal in value to the shares exchanged, and there
will be no sales charges, fees, or tax consequences to you as a result of the
reorganization.
Q: Will the proposal significantly affect the way the funds are managed?
A: No. The portfolio managers, investment objectives, and risk profiles of the
funds will not significantly change. The proposal will eliminate certain
investment restrictions that are no longer necessary, which will expand the
range of securities that the portfolio managers can invest in.
Q: What effect will the proposal have on fund expenses?
A: The FHIT Growth Fund will be renamed the Nationwide Mid Cap Growth Fund under
the proposal. Total expenses will increase from 0.95% to 0.97%, but will
remain 34% below the industry averages.
The FHIT Government Bond Fund will be renamed the Nationwide Long-Term
Government Bond Fund. Expenses for this fund will decrease from 0.86% to
0.78%. The new expense figure is 36% below the industry average.
The FHIT Municipal Bond Fund and FHIT Cash Reserve Fund will be combined with
current NIF funds having similar investment objectives. The successor funds
will be named the Nationwide Tax-Free Income Fund and the Nationwide Money
Market Fund, respectively. Estimated expenses for the Nationwide Tax-Free
Income Fund are 0.68%, which compares favorably to the current FHIT Municipal
Bond Fund expense ratio of 0.85%. The estimated expense ratio for the
Nationwide Money Market Fund is 0.60% The FHIT Cash Reserve expense ratio is
currently 0.69%.
Q: The prospectus/proxy mentions that I will receive Class D shares under the
proposed reorganization. Why am I receiving Class D shares in the initial
exchange?
A: All of the funds in the new trust that are part of this reorganization,
except for the Nationwide Money Market Fund, will begin issuing Class A,
Class B, and Class D shares in March 1998. The Nationwide Money Market Fund
has no sales charges, and therefore will issue only a single share class.
Multiple class structures are very common in the mutual fund industry,
providing investors with optional ways to pay sales charges.
Class D is a special class of shares. Unlike the contingent sales charges
(CDSC) associated with your current FHIT fund shares, Class D shares carry a
front-end sales charge, which is waived in certain situations. Class D
shareholders will not be subject to 12b-1 fees or CDSCs.
<PAGE> 110
Q: How do I vote my shares?
A: You can vote by mail or in person at the special meeting. To vote by mail,
sign and send us the enclosed proxy voting card in the envelope provided. Or
you can vote in person at the special meeting set for February 16, 1998.
<PAGE> 111
FINANCIAL HORIZONS INVESTMENT TRUST
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
TELEPHONE: (800) 848-0920
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
GROWTH FUND
CASH RESERVE FUND
GOVERNMENT BOND FUND
MUNICIPAL BOND FUND
TO BE HELD ON FEBRUARY 16, 1998
To The Shareholders Of Financial Horizons
Investment Trust:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of all of the funds of Financial Horizons Investment Trust (the
"Trust") will be held on Monday, February 16, 1998, at :00 A.M. (Eastern
Time) concurrently with special meetings of two other trusts of the Nationwide
Funds, at the offices of the Trust, Three Nationwide Plaza, Columbus, Ohio
43215. The Meeting is being called for the following purposes:
(1) To approve an Agreement and Plan of Reorganization dated as of
November 24, 1997 (the "Plan"), between the Trust and Nationwide Investing
Foundation III (the "New Trust"), and the transactions contemplated
thereby, which include:
(a) the transfer of all of the assets of Growth Fund to the Mid Cap
Growth Fund series of the New Trust (the "New Mid Cap Growth Fund"), in
exchange for Class D shares of the New Mid Cap Growth Fund, and the
assumption by the New Mid Cap Growth Fund of all of the liabilities of
Growth Fund, followed by the distribution to shareholders of Growth Fund
of such Class D shares of the New Mid Cap Growth Fund so received;
(b) the transfer of all of the assets of Cash Reserve Fund to the
Nationwide Money Market Fund series of the New Trust (the "New Money
Market Fund"), in exchange for shares of the New Money Market Fund, and
the assumption by the New Money Market Fund of all of the liabilities of
Cash Reserve Fund, followed by the distribution to shareholders of Cash
Reserve Fund of such shares of the New Money Market Fund so received;
(c) the transfer of all of the assets of Government Bond Fund to
the Nationwide Long-Term U.S. Government Bond Fund series of the New
Trust (the "New Long-Term Government Bond Fund"), in exchange for Class
D shares of the New Long-Term Government Bond Fund, and the assumption
by the New Long-Term Government Bond Fund of all of the liabilities of
Government Bond Fund, followed by the distribution to shareholders of
Government Bond Fund of such Class D shares of the New Long-Term
Government Bond Fund so received; and
(d) the transfer of all of the assets of Municipal Bond Fund to the
Nationwide Tax-Free Income Fund series of the New Trust (the "New
Tax-Free Income Fund"), in exchange for Class D shares of the New
Tax-Free Income Fund, and the assumption by the New Tax-Free Income Fund
of all of the liabilities of Municipal Bond Fund, followed by the
distribution to shareholders of Municipal Bond Fund of such Class D
shares of the New Tax-Free Income Fund so received; and
(2) To transact such other business as may properly come before the
Meeting, or any adjournment(s) thereof, including any adjournment(s)
necessary to obtain requisite quorums and/or approvals.
<PAGE> 112
The Board of Trustees of the Trust has fixed the close of business on
December 18, 1997, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or any
adjournments thereof. The enclosed Combined Prospectus/Proxy Statement contains
further information regarding the Meeting and the proposals to be considered.
The enclosed Proxy Card is intended to permit you to vote even if you do not
attend the Meeting in person.
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT
LEAST A MAJORITY OF EACH FUND'S SHARES OUTSTANDING AND ENTITLED TO VOTE MUST BE
PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED
BUT UNMARKED PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS
PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSALS.
BY ORDER OF THE BOARD OF TRUSTEES
,
December , 1997
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
<PAGE> 113
COMBINED PROSPECTUS/PROXY STATEMENT
December , 1997
Acquisition and Assumption of All of the Assets and
Liabilities of Growth Fund of
Financial Horizons Investment Trust
In Exchange for Class D Shares of Nationwide Mid Cap Growth Fund of
Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and
Liabilities of Cash Reserve Fund of
Financial Horizons Investment Trust
In Exchange for Shares of Nationwide Money Market Fund of
Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and
Liabilities of Government Bond Fund of
Financial Horizons Investment Trust
In Exchange for Class D Shares of Nationwide Long-Term U.S. Government
Bond Fund of Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and
Liabilities of Municipal Bond Fund of
Financial Horizons Investment Trust
In Exchange for Class D Shares of Nationwide Tax-Free Income Fund of
Nationwide Investing Foundation III
<TABLE>
<S> <C>
Financial Horizons Investment Trust Nationwide Investing Foundation III
Three Nationwide Plaza Three Nationwide Plaza
Columbus, Ohio 43215 Columbus, Ohio 43215
(800) 848-0920 (800) 848-0920
</TABLE>
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Growth Fund, Cash Reserve Fund, Government Bond Fund and Municipal Bond Fund
(collectively, the "Acquired Funds," and individually, an "Acquired Fund") of
Financial Horizons Investment Trust, a Massachusetts business trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at a Special Meeting of Shareholders of the
Trust (the "Meeting"), to be held at Three Nationwide Plaza, Columbus, Ohio
43215, on Monday, February 16, 1998, beginning at :00 A.M. (Eastern Time).
The Trustees of the Trust are seeking your approval of an Agreement and
Plan of Reorganization (the "Plan"), which contemplates that:
(i) Nationwide Mid Cap Growth Fund of Nationwide Investing Foundation
III (the "New Mid Cap Growth Fund") will acquire all of the assets and
assume all of the liabilities of Growth Fund of the Trust;
(ii) Nationwide Money Market Fund of Nationwide Investing Foundation
III (the "New Money Market Fund") will acquire all of the assets and assume
all of the liabilities of Cash Reserve Fund of the Trust;
<PAGE> 114
(iii) Nationwide Long-Term U.S. Government Bond Fund of Nationwide
Investing Foundation III (the "New Long-Term Government Bond Fund") will
acquire all of the assets and assume all of the liabilities of Government
Bond Fund of the Trust; and
(iv) Nationwide Tax-Free Income Fund of Nationwide Investing
Foundation III (the "New Tax-Free Income Fund") will acquire all of the
assets and assume all of the liabilities of Municipal Bond Fund of the
Trust.
The New Mid Cap Growth Fund, the New Money Market Fund, the New Long-Term
Government Bond Fund and the New Tax-Free Income Fund of Nationwide Investing
Foundation III (the "New Trust") are sometimes collectively referred to herein
as the "Acquiring Funds," and individually as an "Acquiring Fund." Following
such exchange, the shares of the corresponding Acquiring Funds received by each
Acquired Fund will be distributed to the Acquired Funds' shareholders, and each
of the Acquired Funds and the Trust will be liquidated and dissolved.
Shareholders of Growth Fund, Government Bond Fund and Municipal Bond Fund will
receive Class D shares of the corresponding Acquiring Fund, and shareholders of
Cash Reserve Fund will receive shares, with no class designation, of the New
Money Market Fund. Each of these exchange and distribution transactions is
sometimes referred to herein as the "Reorganization," and the shares of the
Acquiring Funds to be received by the respective Acquired Fund are sometimes
referred to herein as "Acquiring Fund Shares."
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Funds
that a prospective investor, including shareholders of the Trust, should know
before investing. Additional information about the Reorganization and the
Acquiring Funds is contained in a separate Statement of Additional Information
which has been filed with the Securities and Exchange Commission (the
"Commission") and is available upon request without charge by calling the New
Trust at (800) 848-0920 or writing to the New Trust at the address set forth
above. The Statement of Additional Information bears the same date as this
Combined Prospectus/Proxy Statement and is incorporated by reference herein.
THE SHARES OF THE ACQUIRING FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN AN ACQUIRING FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
AN INVESTMENT IN THE NEW MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE NEW
MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
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.
Upon completion of the Reorganization, you will receive full and fractional
Acquiring Fund Shares of the corresponding Acquiring Fund equal in value when
issued to the shares of the Acquired Fund owned by you immediately prior to the
Reorganization. No commissions or sales loads will be charged in connection with
the Reorganization, including any contingent deferred sales charge, and there
will be no adverse federal income tax consequences. You should separately
consider any other tax consequences in consultation with your tax advisers.
As discussed in detail herein, the investment objectives and strategy of
each Acquiring Fund are generally similar to those of the corresponding Acquired
Fund. There are some differences between investment policies and restrictions,
as well as differences in fee levels and expenses, which are described in detail
below.
The Prospectus of the Acquiring Funds, dated December , 1997, is
incorporated by reference into this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
2
<PAGE> 115
The Acquired Funds' Prospectus dated February 28, 1997, as supplemented
November , 1997, contains additional information about the Acquired Funds,
has been filed with the Commission, is incorporated by reference herein and is
available without charge by writing the New Trust at Three Nationwide Plaza,
Columbus, Ohio 43215, or by calling the New Trust at (800) 848-0920. Copies of
documents requested will be sent by first-class mail to the requesting
shareholder within one business day of the request.
3
<PAGE> 116
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................ 5
SPECIAL CONSIDERATIONS AND RISK FACTORS............................................ 14
THE PROPOSED TRANSACTION........................................................... 21
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS..................... 24
ADDITIONAL COMPARATIVE INFORMATION................................................. 29
MISCELLANEOUS...................................................................... 35
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION.................................. A-1
</TABLE>
4
<PAGE> 117
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Combined Prospectus/Proxy Statement, the
Plan, a copy of which is attached to this Combined Prospectus/Proxy Statement as
Exhibit A, the accompanying Prospectus of the Acquiring Funds dated December
, 1997, and the Prospectus of the Acquired Funds dated February 28, 1997,
as supplemented November , 1997.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of each Acquired Fund to the corresponding Acquiring Fund in exchange for
shares of such Acquiring Fund and the assumption by the New Trust on behalf of
the Acquiring Funds of all of the liabilities of the corresponding Acquired
Fund. The New Mid Cap Growth Fund, the New Long-Term Government Bond Fund and
the New Tax-Free Income Fund will issue their Class D shares in connection with
the Reorganization. The New Money Market Fund will issue its shares, which are
without class designation, in connection with the Reorganization. The Plan also
calls for the distribution of such Acquiring Fund Shares of the Acquiring Funds
to the corresponding Acquired Fund's shareholders in complete liquidation of
that Acquired Fund. As a result of the Reorganization, each shareholder of an
Acquired Fund will become the owner of that number of full and fractional
Acquiring Fund Shares of the corresponding Acquiring Fund having an aggregate
value equal to the aggregate value of the shareholder's shares of the Acquired
Fund as of the close of business on the day preceding the date that the Acquired
Fund's assets are exchanged for such Acquiring Fund Shares of the corresponding
Acquiring Fund.
Proposals for similar reorganizations are simultaneously being made to
shareholders of Nationwide Investing Foundation and Nationwide Investing
Foundation II, two other trusts within the Nationwide family of funds.
Management of the Trust and the New Trust believes that the Reorganization
is necessary in order to be more efficient in the operation of the Nationwide
Funds, including providing for more consistent investment policies and
restrictions and removing those restrictions which are out-dated or no longer
required by Federal or state law, and to provide shareholders with more options
in purchasing shares of the Nationwide Funds by introducing multiple classes of
shares. The Cash Reserve Fund will be combined with a significantly larger fund
of Nationwide Investing Foundation into the New Money Market Fund. Likewise, the
Municipal Bond Fund will be combined with a significantly larger fund of
Nationwide Investing Foundation II into the New Tax-Free Income Fund, The New
Money Market Fund and the New Tax-Free Income Fund will have substantially
similar investment objectives to those of the Cash Reserve Fund and the
Municipal Bond Fund, and the combination will result in significant economies of
scale. The operating expenses of the Acquiring Fund are expected to be lower
than the current expenses of the Acquired Funds, assuming no fee waivers. In
determining to break out the administrative services provided to each of the
Acquiring Funds and to charge a separate fee for such services, management of
the Trust and the New Trust believes that such fees are needed to cover the
increased costs of improved technology and to maintain high quality compliance
and administrative services in light of the ever-increasing sophistication and
competitiveness of the mutual fund industry.
For these reasons (which are discussed in greater detail under "THE
PROPOSED TRANSACTION -- REASONS FOR THE REORGANIZATION") the Board of Trustees
of the Trust, including the Trustees of the Trust who are not "interested
persons" as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act") (the "Independent Trustees"), at a meeting held on
November 7, 1997, unanimously concluded that the Reorganization would be in the
best interests of the Trust, the Acquired Funds and their shareholders and that
the interests of the Acquired Funds' existing shareholders will not be diluted
as a result of the transactions contemplated by the Reorganization and therefore
has submitted the Plan for approval by the Acquired Funds' shareholders. The
Board of Trustees of the New Trust has reached similar conclusions with respect
to the Acquiring Funds and their shareholders and has also approved the
Reorganization with respect of the Acquiring Funds.
Approval of the Reorganization with respect to an Acquired Fund will
require the affirmative vote of (1) a majority of the outstanding shares of the
Trust and (2) a majority of the outstanding voting securities of that Acquired
Fund which means the lesser of (a) 67% or more of the outstanding shares of such
Acquired Fund that are present in person or by proxy at the meeting, if holders
of more than 50% of the outstanding shares of
5
<PAGE> 118
that Acquired Fund are present in person or by proxy, or (b) more than 50% of
the outstanding shares of such Acquired Fund. See "APPROVAL AND CONSUMMATION OF
THE PROPOSED TRANSACTION" below.
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Acquired Funds in understanding the costs and
expenses that a holder of Acquiring Fund Shares would bear directly or
indirectly. The shareholder transaction expenses for the Acquired Funds are
based upon such expenses for the fiscal year ended October 31, 1997. The
expenses for the Acquiring Fund Shares of each of the Acquiring Funds are
estimated for the fiscal period following the Reorganization and ending October
31, 1998. Because each Acquiring Fund will have no operations prior to
completion of the Reorganization, the information below for the Acquiring Funds
estimated for their first year (the first column) and on a pro forma basis (the
third column) is the same. If the Reorganization is not completed, it is not
anticipated that the Acquiring Funds will commence operations.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES MID CAP
OF THE NEW MID GROWTH FUND
CAP GROWTH ON A
FUND GROWTH FUND PRO FORMA BASIS*
-------------- ----------- ----------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering
price).......................................... 4.50% None 4.50%
Maximum Deferred Sales Charge (as a percentage of
redemption proceeds)............................ None 5.00% None
Annual Fund Expenses (as a percentage of average
net assets)
Investment Advisory Fees........................ 0.60% 0.65% 0.60%
12b-1 Fees...................................... None 0%(1) None
Other Expenses.................................. 0.38(2) 0.31 0.38
----- ----- -----
Total Fund Operating Expenses................... 0.98% 0.96% 0.98%
----- ----- -----
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES MID CAP
OF THE NEW MID GROWTH FUND GROWTH FUND
CAP GROWTH ASSUMING NO ON A
FUND GROWTH FUND REDEMPTION PRO FORMA BASIS*
-------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
One Year.................................. $ 55 $ 60 $ 10 $ 55
Three Years............................... $ 75 $ 71 $ 31 $ 75
Five Years................................ N/A $ 73 $ 53 $ 97
Ten Years................................. N/A $ 118 $ 118 $ 160
</TABLE>
6
<PAGE> 119
<TABLE>
<CAPTION>
NEW MONEY
MARKET FUND
NEW MONEY CASH RESERVE ON A
MARKET FUND FUND PRO FORMA BASIS*
----------- ------------ ----------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering price)... None None None
Maximum Deferred Sales Charge (as a percentage of
redemption proceeds)............................. None None None
Annual Fund Expenses (as a percentage of average
net assets)
Investment Advisory Fees......................... 0.40% 0.40% 0.40%
12b-1 Fees....................................... None None None
Other Expenses................................... 0.20(2) 0.28 0.20
------ ------ ------
Total Fund Operating Expenses.................... 0.60% 0.68% 0.60%
====== ====== ======
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
NEW MONEY
MARKET FUND
NEW MONEY CASH RESERVE ON A
MARKET FUND FUND PRO FORMA BASIS*
----------- ------------ ----------------
<S> <C> <C> <C>
One Year........................................... $ 6 $ 7 $ 6
Three Years........................................ $ 19 $ 22 $ 19
Five Years......................................... N/A $ 38 $ 33
Ten Years.......................................... N/A $ 85 $ 75
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES LONG-TERM
OF THE NEW GOVERNMENT BOND
LONG-TERM FUND ON A
GOVERNMENT GOVERNMENT PRO FORMA
BOND FUND BOND FUND BASIS*
-------------- ---------- ---------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering price)...... 4.50% None 4.50%
Maximum Deferred Sales Charge (as a percentage of
redemption proceeds)................................ None 5.00% None
Annual Fund Expenses (as a percentage of average net
assets)
Investment Advisory Fees.............................. 0.50% 0.65% 0.50%
12b-1 Fees.......................................... None 0%(1) None
Other Expenses...................................... 0.27(2) 0.20 0.27
---- ---- ----
Total Fund Operating Expenses....................... 0.77% 0.85% 0.77%
==== ==== ====
</TABLE>
7
<PAGE> 120
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES LONG-TERM
OF THE NEW GOVERNMENT GOVERNMENT BOND
LONG-TERM BOND FUND FUND ON A
GOVERNMENT GOVERNMENT ASSUMING NO PRO FORMA
BOND FUND BOND FUND REDEMPTION BASIS*
-------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
One Year................................... $ 53 $ 59 $ 9 $ 53
Three Years................................ $ 68 $ 67 $ 27 $ 68
Five Years................................. N/A $ 67 $ 47 $ 86
Ten Years.................................. N/A $ 105 $ 105 $ 136
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES TAX-FREE
OF THE NEW INCOME FUND
TAX-FREE MUNICIPAL ON A
INCOME FUND BOND FUND PRO FORMA BASIS*
-------------- --------- ----------------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering
price)......................................... 4.50% None 4.50%
Maximum Deferred Sales Charge (as a percentage of
redemption proceeds)........................... None 5.00% None
Annual Fund Expenses (as a percentage of average
net assets)
Investment Advisory Fees....................... 0.50% 0.65% 0.50%
12b-1 Fees..................................... None 0.00%(1) None
Other Expenses................................. 0.18(2) 0.20 0.18
---- ---- ----
Total Fund Operating Expenses.................. 0.68% 0.85% 0.68%
==== ==== ====
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
CLASS D SHARES MUNICIPAL TAX-FREE
OF THE NEW BOND FUND INCOME FUND
TAX-FREE MUNICIPAL ASSUMING NO ON A
INCOME FUND BOND FUND REDEMPTIONS PRO FORMA BASIS*
-------------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
One Year............................ $ 52 $ 59 $ 9 $ 52
Three Years......................... $ 66 $ 67 $ 27 $ 66
Five Years.......................... N/A $ 67 $ 47 $ 81
Ten Years........................... N/A $ 105 $ 105 $ 126
</TABLE>
- ---------------
(1) As of November 8, 1996 and until further written notice to shareholders,
Nationwide Advisory Services, Inc. ("NAS"), as the Acquired Funds'
distributor, has agreed to waive all of the 0.75% 12b-1 fee. Absent such
fee waiver, Total Fund Operating Expenses for Growth Fund, Government Bond
Fund and Municipal Bond Fund would have been 1.71%, 1.60% and 1.60%,
respectively.
(2) "Other Expenses" are based upon estimated amounts for the current fiscal
year.
* These calculations reflect the expense information for the relevant
Acquiring Fund after giving effect to the Reorganization.
** The Commission requires use of a 5% annual return figure for purposes of the
example. Actual return for a Fund may be greater or less than 5%.
8
<PAGE> 121
NO CONTINGENT DEFERRED SALES CHARGE WILL BE IMPOSED UPON SHARES OF THE
ACQUIRED FUNDS REDEEMED IN CONNECTION WITH THE REORGANIZATION NOR UPON
ACQUIRING FUND SHARES AT ANY TIME.
The one, three, five and ten year figures in the Examples above for the New
Mid Cap Growth Fund, the New Long-Term Government Bond Fund and the New Tax-Free
Income Fund reflect the deduction of the 4.50% maximum front-end sales charge.
However, Class D shares of such an Acquiring Fund received by a shareholder of
an Acquired Fund pursuant to the Reorganization will not be subject to any such
charge. Absent such front-end sales charge, the one, three, five and ten year
figures for the Class D shares of the New Mid Cap Growth Fund, on a pro forma
basis, would be $10, $31, $54 and $120, respectively, the one, three, five and
ten year figures for the Class D shares of the New Long-Term Government Bond
Fund, on a pro forma basis, would be $8, $25, $43 and $95, respectively, and the
one, three, five and ten year figures for the Class D shares of the New Tax-Free
Income Fund, on a pro forma basis, would be $7, $22, $38 and $85, respectively.
Any Class D shares of an Acquiring Fund purchased after the Reorganization,
other than pursuant to dividend reinvestments, will be subject to the 4.5% sales
load unless the shareholder otherwise qualifies for a waiver or reduction of the
sales load. See the accompanying Prospectus of the Acquiring Funds for further
information regarding sales load reductions and waivers.
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of and as a condition
to the Reorganization, the Acquired Funds and the Trust will have received
opinions of counsel that, upon the consummation of the Reorganization and the
transfer of the assets of the Acquired Funds, no gain or loss will be recognized
by an Acquired Fund or its shareholders for federal income tax purposes. The
holding period and aggregate tax basis for the Acquiring Fund Shares that are
received by an Acquired Fund shareholder will be the same as the holding period
and aggregate tax basis of the shares of the Acquired Fund previously held by
such shareholder. In addition, the holding period and tax basis of the assets of
an Acquired Fund in the hands of the corresponding Acquiring Fund as a result of
the Reorganization will be the same as the holding period and tax basis of the
assets in the hands of the Acquired Fund immediately prior to the
Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Trustees of the Trust, at a meeting held on November 7, 1997, determined
unanimously that the Reorganization is in the best interests of each of the
Acquired Funds and the Trust and that the interests of the existing shareholders
of the Acquired Funds will not be diluted as a result of the Reorganization.
Similarly, on such date the Board of Trustees of the New Trust unanimously
determined that the Reorganization is in the best interests of the New Trust and
the Acquiring Funds. The proposed Reorganization of each of the Acquired Funds
of the Trust with and into the corresponding Acquiring Funds of the New Trust is
part of a larger plan to reorganize each of the Trust, Nationwide Investing
Foundation (which consists of four separate funds) ("NIF I") and Nationwide
Investing Foundation II (which consists of two separate funds) ("NIF II"), each
a separate stand-alone investment company, into separate corresponding funds of
the New Trust. Two funds of the Trust, Cash Reserve Fund and Municipal Bond
Fund, which have similar investment objectives and styles to two other
Nationwide funds, will be combined with such other funds in the New Trust to
avoid duplication of expenses. Cash Reserve Fund will combine with Nationwide
Money Market Fund of NIF I in the New Money Market Fund, and Municipal Bond Fund
will combine with Nationwide Tax-Free Income Fund of NIF II in the New Tax-Free
Income Fund.
Other than the New Money Market Fund, it is anticipated that the Acquiring
Funds will also offer two other classes of shares beginning in March 1998. The
New Money Market Fund offers only one class of shares which is without class
designation.
To be approved, the Plan will require the affirmative vote of (1) a
majority of the outstanding shares of the Trust and (2) a majority of the
outstanding voting securities of each Acquired Fund, as defined above under
"SUMMARY -- Proposed Reorganization." The Reorganization with respect to each
Acquired Fund is contingent on the approval of the Reorganization with respect
to each of the other Acquired Funds and upon the approval of a similar
reorganization by shareholders of NIF I. The Reorganization, however, is not
contingent upon the approval of a similar reorganization by shareholders of NIF
II. If the proposed Reorganization is not approved, the Trust's and the New
Trust's Boards of Trustees will consider what other alternatives would be in the
shareholders' best interests. If the Plan is approved at the Meeting by the
shareholders of each Acquired Fund,
9
<PAGE> 122
the effective date of the Reorganization (the "Closing Date") is expected to be
on or about March 1, 1998, subject, however, to the receipt by the Trust and the
New Trust of an order of exemption from the Commission with respect to the
Reorganization, if such an order is necessary. However, the Closing Date may be
such earlier or later date as may be determined by the Trust and the New Trust.
Shareholders of record of the Acquired Funds at the close of business on
December 18, 1997 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting or any adjournment thereof. As of the Record Date, there were
outstanding shares of all four series of the Trust. Of those shares,
the following constituted the issued and outstanding shares of each Acquired
Fund on the Record Date:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FUND SHARES OUTSTANDING
--------------------------------------------------------- ------------------
<S> <C>
Growth Fund..............................................
Cash Reserve Fund........................................
Government Bond Fund.....................................
Municipal Bond Fund......................................
</TABLE>
As of the Record Date, there were no outstanding shares of any of the nine
series of the New Trust, including the Acquiring Funds. Each of the Acquiring
Funds has been created specifically for the purpose of acquiring the assets and
assuming the liabilities of its corresponding Acquired Fund. The Acquiring
Funds, prior to the effective date of the Reorganization, will not have
commenced operations.
Each shareholder of the Acquired Fund will be entitled to one vote for each
share, and a fractional vote for each fractional share, held by such
shareholder. Shareholders entitled to cast a majority of the shares of each of
the Acquired Funds at the close of business on the Record Date will be deemed to
constitute a quorum for the transaction of business at the Meeting.
Any proxy which is properly executed and received in time to be voted at
the Meeting will be counted in determining whether a quorum is present and will
be voted in accordance with the instructions marked thereon. In the absence of
any instruction, such proxy will be voted in favor of the approval of the Plan.
Abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a particular matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will not be counted for or against any proposal to which they relate, but
abstentions will be counted for purposes of determining whether a quorum is
present. Broker non-votes will not be counted for purposes of determining
whether a quorum is present. Because approval of the Plan requires the
affirmative vote of a majority of the Trust's issued and outstanding shares as
of the Record Date, abstentions and broker non-votes will have the effect of a
vote against the proposal to approve the Plan.
The duly appointed Proxies may, in their discretion, vote upon such other
matters as properly may come before the Meeting or any adjournment(s) thereof,
including any proposal to adjourn a meeting, whether or not a quorum is present,
to permit the continued solicitation of proxies in favor of the Reorganization.
In case any such adjournment is proposed with respect to the Plan, the duly
appointed Proxies will vote those proxies required to be voted against the Plan
against adjournment. A shareholder of an Acquired Fund may revoke his or her
proxy at any time prior to its exercise by delivering written notice of
revocation or by executing and delivering a later-dated proxy to the Secretary
of the Trust, at Three Nationwide Plaza, Columbus, Ohio 43215, or by attending
the Meeting in person to vote the shares of the Acquired Funds held by such
shareholder. The date of the first mailing of this Combined Prospectus/Proxy
Statement to shareholders is on or about December , 1997.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Funds and the
corresponding Acquiring Funds have substantially similar investment objectives,
and generally have the same investment policies and restrictions, although there
are some differences shareholders should consider. Growth Fund seeks long-term
capital appreciation through investing in equity securities with above average,
long-term growth potential. In order to achieve this objective, Growth Fund
focuses on investments that are seen to unfold over the long term, and will
avoid investing on the basis of cyclical opportunity. Generally, long term would
mean a period of between two and five years.
10
<PAGE> 123
The New Mid Cap Growth Fund seeks long-term capital appreciation. The New
Mid Cap Growth Fund will invest primarily in equity securities of mid-cap
companies.
Growth Fund looks at a long term investment as one that will likely provide
total return greater than that of the market in general over the relevant
investment horizon. This total return would be composed of dividends paid plus
increase price valuation of the securities compared to its purchase price
valuation. In evaluating the prospects for the earnings or asset growth that
should provide increased price valuation, Growth Fund normally considers: (a)
quality of management and sufficient financial wherewithal to successfully
exploit the company's business opportunities, (b) social, economic, demographic,
and/or technological trends that present the company with significant future
business opportunities, and (c) the degree to which there are barriers to
competition in the company's business, with higher barriers tending to increase
the company's opportunity to achieve superior growth. While it is generally
intended to invest in common stocks or in issues convertible to common stock,
there are no restrictive provisions covering the portion of one or another lass
of securities that may be held which in any way inhibit management in the
selection of appropriate investments to reach objectives.
For the New Mid Cap Growth Fund, 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
New Mid Cap Growth Fund will invest at least 65% of its total assets in equity
securities of mid cap companies. The New Mid Cap Growth 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 New Mid Cap Growth
Fund will invest are generally common stocks or securities convertible into
common stocks. Investments are made in different types of equity securities
among many companies and industries which provide diversification to help
minimize risk.
Cash Reserve Fund seeks as high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity, through
investment in a diversified portfolio of high-quality money market instruments
maturing in 397 days or less. The New Money Market Fund seeks as high a level of
current income as is consistent with preservation of capital and maintenance of
liquidity. The New Money Market Fund will invest in high quality money market
instruments maturing in 397 days or less.
Each of the Cash Reserve Fund and the New Money Market Fund are required to
maintain a dollar weighted average maturity of 90 days or less.
Government Bond Fund seeks as high a level of income as is consistent with
preservation of capital. Government Bond Fund seeks to achieve such objectives
by normally investing at least 65% of its assets in bonds issued by the U.S.
Government, its agencies and instrumentalities. These bonds pay interest at
regular intervals, usually semi-annually, and pay principal at maturity. The New
Long-Term Government Bond Fund seeks as high a level of current income as is
consistent with preservation of capital. The New Long-Term Government Bond Fund
will normally invest all of its assets in securities of the U.S. Government, its
agencies and instrumentalities and repurchase agreements secured by these
securities. The average duration of the New Long-Term Government Bond Fund will
be greater than six years.
Municipal Bond Fund seeks to provide as high a level of municipal income as
is consistent with the preservation of capital. Municipal income is defined to
mean income earned on municipal obligations. Municipal Bond Fund normally
invests 65% of the value of its total assets in debt securities generally called
bonds and 80% of its assets in municipal bonds rated within the four highest
credit categories by Moody's Investors Services, Inc. ("Moody's") and Standard &
Poor's Corporation ("S&P"), state and municipal notes rated in the two highest
credit categories for municipal notes by Moody's and S&P, and other types of
short-term municipal securities such as commercial paper that is rated in the
two highest credit categories by Moody's and S&P. The Municipal Bond Fund will
not normally invest more than 20% of its assets in short-term debt securities.
The New Tax-Free Income Fund seeks as high a level of current income exempt
from Federal income tax (although shareholders may be subject to state and local
tax) as is consistent with the preservation of capital through investing in a
diversified portfolio of high-quality intermediate- and long-term municipal
obligations.
11
<PAGE> 124
The major emphasis in portfolio securities selection for the New Tax-Free
Income Fund is on a diversified portfolio of municipal obligations rated within
the three highest credit categories assigned by Moody's and S&P, or if not
rated, are of equivalent investment quality as determined by NAS. The New
Tax-Free Income Fund may also invest up to 10% of its net assets in securities
rated BBB by S&P or Baa by Moody's.
For a discussion of the differences between the investment policies and
restrictions of the Acquired Funds and the corresponding Acquiring Funds, see
"COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS -- INVESTMENT
RESTRICTIONS."
FEES AND EXPENSES. Each of the Acquired Funds pays an investment advisory
and management fee, computed daily and paid monthly, to NAS, the Trust's
investment adviser, at the following annual rates: for Cash Reserve Fund, 0.40%
of the value of its average daily net assets; and for each of the other Acquired
Funds, 0.65% of the value of its average daily net assets. Nationwide Investors
Services, Inc., a wholly owned subsidiary of NAS ("NISI"), serves as transfer
agent for each of the Acquired Funds and receives a fee from those Funds equal
to: $16 per account for Growth Fund; $18 per account for Government Bond Fund
and Municipal Bond Fund; and $18 per account for the Cash Reserve Fund.
With respect to the Acquiring Funds, NAS also provides investment advisory
services to those Funds for a fee computed daily and paid monthly at the
following annual rates: for the New Mid Cap Growth Fund, 0.60% of such Fund's
average net assets up to $250 million, 0.575% of such Fund's average net assets
of $250 million up to $1 billion, 0.55% of such Fund's average net assets of $1
billion up to $2 billion, 0.525% of such Fund's average net assets of $2 billion
up to $5 billion, and 0.50% of such Fund's average net assets of $5 billion or
more; for each of the New Long-Term Government Bond Fund and the New Tax-Free
Income Fund, 0.50% of such Fund's average net assets up to $250 million, 0.475%
of such Fund's average net assets of $250 million up to $1 billion, 0.45% of
such Fund's average net assets of $1 billion up to $2 billion, 0.425% of such
Fund's average net assets of $2 billion up to $5 billion, and 0.40% of such
Fund's average net assets of $5 billion or more; and for the New Money Market
Fund, 0.40% of such Fund's average net assets up to $1 billion, 0.38% of such
Fund's average net assets of $1 billion up to $2 billion, 0.36% of such Fund's
average net assets of $2 billion up to $5 billion, and 0.34% of such Fund's
average net assets of $5 billion or more. Each of the Acquiring Funds also pays
NAS an administration fee of 0.07% of such Fund's average net assets up to $250
million; 0.05% of such Fund's average net assets of $250 million up to $1
billion, and 0.04% of such Fund's average net assets of $1 billion or more.
Finally, the Acquiring Funds pay an annual fee to NISI for transfer agency
services equal to: $16 per account for the New Mid Cap Growth Fund; $18 per
account for the New Long-Term Government Bond Fund and the New Tax-Free Income
Fund; and $27 per account for the New Money Market Fund.
Shares of each of the Acquired Funds and the Acquiring Funds are
distributed by NAS, a registered broker-dealer. The Trust has adopted a
Distribution Plan (the "12b-1 Plan") under Rule 12b-1 of the 1940 Act which
permits each of the Acquired Funds, other than Cash Reserves Fund (the "12b-1
Plan Funds"), to compensate NAS, as the 12b-1 Plan Funds' distributor, for
expenses associated with the distribution of its shares. Under the Plan, each
12b-1 Plan Fund is authorized to pay NAS compensation accrued daily and paid
monthly at a maximum annual rate of up to 0.75% of such 12b-1 Plan Fund's
average daily net assets. Currently NAS is waiving all of such Rule 12b-1 fees
for each 12b-1 Plan Fund until further written notice. NAS, as distributor, also
receives the proceeds of a contingent deferred sales charge imposed on certain
redemptions of shares of the 12b-1 Plan Funds, as described more fully below
under "COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES." Any
contingent deferred sales load on shares of the Acquired Funds redeemed as a
part of the Reorganization will be waived. The Acquiring Fund Shares of the
Acquiring Funds pay no distribution fees or expenses although such Shares,
except those of the New Money Market Fund, are subject to a front-end sales load
as described below.
The expense ratios of the Acquiring Funds subsequent to the Reorganization
are expected to be lower than that of the corresponding Acquired Fund. See "THE
PROPOSED TRANSACTION -- REASONS FOR THE PROPOSED TRANSACTION." The chart below
compares the total annual operating expenses (as a percent of average net
assets) of each Acquired Fund for the fiscal year ended October 31, 1997, to the
total annual operating
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expenses (as a percent of average net assets) of the corresponding Acquiring
Fund for the fiscal year ending October 31, 1998, assuming the same level of net
assets for such Acquiring Fund after the Reorganization:
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Growth Fund New Mid Cap Growth Fund
0.96% 0.98%
Cash Reserve Fund New Money Market Fund
0.68% 0.60%
Government Bond Fund New Long-Term Government Bond Fund
0.85% 0.77%
Municipal Bond Fund New Tax-Free Income Fund
0.85% 0.68%
</TABLE>
COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES. Shares of each
of the Acquired and Acquiring Funds are offered through NAS as principal
underwriter. Net asset value of 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 the
portfolio securities of a Fund to affect materially the net asset value of that
Fund. The minimum initial investment in the New Mid Cap Growth Fund is $250
(although such minimum is lowered for investments made through certain plans)
and the minimum subsequent investment is $25. The minimum initial investment in
each of the Acquired Funds and each of the other Acquiring Funds is $1,000
(although such minimum is lowered for investments made through certain plans)
and the minimum subsequent investment is $100.
Shares of the Acquired Funds are offered at net asset value without any
sales charge. However, shares of each of the Acquired Funds, other than Cash
Reserve Fund, are subject to a contingent deferred sales charge. A contingent
deferred sales charge is imposed on any redemption which causes the current
value of a shareholder's account to fall below the total amount of all purchases
made during the preceding six years. The contingent deferred sales charge is
never imposed on dividends, whether paid in cash or reinvested, or on
appreciation in value. The contingent deferred sales charge applies only to the
lesser of the original investment or current market value. Where the charge is
imposed, the amount of the charge depends upon the number of months since the
shareholder made the purchase payment from which an amount is being redeemed,
according to the following table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
73 &
Months since purchase payment was made:....... 0-12 13-24 25-36 37-48 49-60 61-72 over
Contingent deferred sales charge
percentage:................................. 5% 5% 4% 3% 2% 1% none
</TABLE>
No sales charge is imposed upon the purchase or redemption of shares of
either Cash Reserve Fund or the New Money Market Fund.
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<PAGE> 126
A sales charge is imposed upon the sale of the Class D shares of each of
the New Mid-Cap Growth Fund, the New Long-Term Government Bond Fund and the New
Tax-Free Income Fund equal to 4.5% of the public offering price (4.71% of the
net amount invested). Such sales charge is reduced on investments of $100,000 or
more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
AS A
PERCENTAGE
OF THE NET AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION AMOUNT INVESTED OF OFFERING PRICE
- ---------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Less than $100,000.............................................. 4.71% 4.50%
$100,000 but less than $250,000................................. 3.63 3.50
$250,000 but less than $500,000................................. 2.56 2.50
$500,000 but less than $1,000,000............................... 1.52 1.50
$1,000,000 or more.............................................. 0.50 0.50
</TABLE>
NO FRONT END SALES CHARGE WILL BE IMPOSED ON ACQUIRING FUND SHARES RECEIVED
IN CONNECTION WITH THE REORGANIZATION.
With respect to the shares of each of the Acquired Funds and the Acquiring
Fund Shares of the Acquiring Funds, there is no sales charge imposed upon the
reinvestment of dividends and distributions. The front end sales charge on the
Class D shares of the New Mid Cap Growth Fund, the New Long-Term Government Bond
Fund and the New Tax-Free Income Fund may be waived under certain specified
conditions.
Redemption orders for shares of both the Acquired Funds and the Acquiring
Funds must be placed with NAS. Investors may redeem shares of the Acquired Funds
or the Acquiring Funds at the net asset value per share next determined
following the receipt by NAS of the properly completed redemption request,
although as discussed above redemptions of shares of Growth Fund, Government
Bond Fund and Municipal Bond Fund may be subject to a contingent deferred sales
load. A request for redemption may be made by telephone or by mail or, with
respect to each of the Acquiring Funds, by fax. For the New Money Market Fund,
redemptions may also be made by check.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of an Acquired Fund may be
exchanged for shares of any other Acquired Fund.
Class D shares of an Acquiring Fund may generally be exchangeable without a
sales charge for Class D shares of any other Acquiring Fund or other fund of the
New Trust which offers Class D shares. Shares of the New Money Market Fund may
be exchanged for shares of any other fund of the New Trust, including the
Acquiring Funds, upon payment of the applicable sales charge.
COMPARISON OF DIVIDEND POLICIES. Growth Fund declares and pays dividends
of net investment income semi-annually. The New Mid Cap Growth Fund declares and
pays dividends of net investment income quarterly. Each of the other Acquired
and Acquiring Funds declare dividends of net investment income daily and pay
such dividends monthly. Each of the Acquired Funds and Acquiring Funds will
distribute all of any capital gains at least annually. In addition, shareholders
of the Acquired Funds and the Acquiring Funds receive dividends and
distributions in the form of additional shares and not in cash unless otherwise
requested by the shareholder.
COMPARISON OF VOTING RIGHTS. Each shareholder of an Acquired Fund and of
an Acquiring Fund is entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held on each matter
submitted to the vote of such Fund's shareholders, regardless of the net asset
value of such share.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies and strategies of each Acquired
Fund and the corresponding Acquiring Fund are generally similar, the overall
level of investment risk should not materially change as a result of the
Reorganization. There can be no assurance that any Acquired Fund or Acquiring
Fund will achieve its investment objectives. However, in some cases an Acquiring
Fund may invest in certain securities or instruments in which the corresponding
Acquired Fund may not invest. This discussion is qualified in its entirety by
the
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<PAGE> 127
disclosure set forth in the Acquiring Funds' Prospectus accompanying this
Combined Prospectus/Proxy Statement and the Acquired Funds' Prospectus. For
additional information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
An investment in any of the Acquired Funds or the Acquiring Funds (except
for Cash Reserve Fund and the New Money Market Fund) involves the risk that the
net asset value of such Fund's shares will fluctuate in response to changes in
economic conditions, interest rates, and the market's perception of the
securities held by such Fund. An investment in Growth Fund and the New Mid Cap
Growth Fund 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 Government Bond Fund, the New
Long-Term Government Bond Fund, Municipal Bond Fund and the New Tax-Free Income
Fund 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 rate. 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. The value of shares of Municipal Bond Fund and the New Tax-Free
Income Fund can be affected by the market's perception of changes in risk
associated with specific credits. As perceived credit risk increases, the value
of a specific credit generally decreases, and the converse is also true.
Special Situation Companies. The New 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 New
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. The New Mid Cap Growth 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. Each of Growth Fund and the New Mid Cap Growth
Fund 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 investment
in common stock of the same issuer.
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<PAGE> 128
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 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.
Duration. 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 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, NAS 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 New
Long-Term Government Bond Fund 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
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<PAGE> 129
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 the New Long-Term Government Bond 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 the New Long-Term Government
Bond Fund may purchase.
Mortgage-Backed Securities. Government Bond Fund and the New Long-Term
Government Bond Fund may each purchase mortgage-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 ("CMOs"). Such securities are issued or guaranteed by U.S.
Government, and its agencies or instrumentalities. The underlying mortgage
assets may have fixed rates or adjustable rates of interest. Mortgage-backed
securities in which Government Bond Fund and the New Long-Term Government Bond
Fund may invest include both fixed-rate and adjustable-rate 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-backed
securities, usually monthly and that principal may be prepaid at any time
because the underlying mortgage loans another and 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 Government Bond Fund or the
New Long-Term Government Bond Fund at a premium also poses a risk of loss of
principal because the premium may not have been fully amortized by the time the
principal is prepaid in full.
Unlike fixed rate mortgage securities, adjustable rate mortgage securities
are collateralized by or represent interests in mortgage loans with variable
rates of interest. These variable rates of interest reset periodically to align
themselves with market rates. Government Bond Fund and the New Long-Term
Government Bond 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 such
Fund would likely decrease. Also, such a 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 changes in market rates. During periods of
declining interest rates, income to Government Bond Fund or the New Long-Term
Government Bond 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.
Collateralized Mortgage Obligations. Government Bond Fund and the New
Long-Term Government Bond Fund may also acquire CMOs, and the New Long-Term
Government Bond Fund may acquire 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 an "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 purchased by such Funds will be issued by agencies or instrumentalities of
the U.S. Government.
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 in which the New Long-Term Government Bond Fund may
invest are issued by U.S. Government agencies. As interest rates rise and fall,
the
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value of IOs tends to more 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.
The New Long-Term Government 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 my be utilized to hedge against a decrease in
value of other fixed-income securities in a rising interest rate environment. If
the New Long-Term Government Bond 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 underling mortgage securities
experience greater than anticipated prepayments of principal, the New Long-Term
Government Bond 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 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 the New Long-Term Government 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 Municipal Bond Fund and the New Tax-Free Income
Fund are "general obligation" securities and "revenue" securities. General
obligations securities are secured by the issuer's pledge of its fully 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 Municipal Bond Fund and the New
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.
Municipal Bond Fund and the New 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 revenue, 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.
Proposals to restrict or eliminate the federal income tax exemption of
interest on municipal securities have been discussed from time to time and may
be enacted in the future.
Repurchase Agreements. Each of the Acquired Funds and the Acquiring 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, a 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 Funds 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 such Trust's 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.
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Investment Companies. As permitted by the 1940 Act, each Acquiring 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 an Acquiring
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 Acquiring 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 such Acquiring Fund.
When-Issued Securities. Each of Government Bond Fund, Municipal Bond Fund
and the Acquiring Funds may invest without limitation in securities purchased on
a when-issued or delayed delivery basis. Although the payment and terms of these
securities are established at the time the Acquiring 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 that
Fund. Purchasing securities on a when-issued basis 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 a 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. Such Funds will set aside liquid assets in a
segregated account to secure its outstanding commitments for when-issued
securities.
Floating and Variable Rate Obligations. The New Money Market Fund and the
New Long-Term Government Bond Fund may each invest in floating and variable rate
obligations. Variable or floating rate obligations bear interest at rates that
are not fixed, but vary with changes in specified market rates or indices, such
as the prime rate, and at specified intervals, floating rate obligations vary
with changes to an underlying index whenever such index changes, while variable
rate obligations change at preset fixed times. Certain of the floating or
variable rate obligations that may be purchase by such Fund's 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 period adjustments in the interest rate. Each such Fund will limit
its purchase of floating and variable rate obligations to those of the same
quality as it otherwise is 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 the New Money
Market Fund or the New Long-Term Government Bond Fund, each such 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 that 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 would, 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 amortized cost or par value, as the case may be.
Variable and floating rate obligations for which no readily available
market exists and which are not subject to a demand feature that will permit a
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 such Fund's limitation on
investments in illiquid securities.
Medium Grade Securities. Each of Municipal Bond Fund and the New Tax-Free
Income Fund may invest in medium-grade obligations. Medium grade securities are
obligations rated in the fourth highest rating category
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by any NRSRO. Medium-grade 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 grade
securities may be more vulnerable to adverse economic conditions or changing
circumstances than issuers of higher-rated securities.
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, such Fund should take consistent with its investment objective; such
event will not automatically require the sale of the downgraded security.
U.S. Government Securities. As discussed above, each of the Acquiring and
the Acquired 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.
Zero Coupon Securities. Government Bond Fund, the New Long-Term Government
Bond Fund and the New Tax-Free Income Fund may each 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, such 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.
Canadian and Provincial Obligations. Cash Reserve Fund and the New Money
Market Fund may each invest in Canadian and Provincial obligations. Such
obligations are unsecured, discounted bills and notes that 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 Section 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.
Lending Portfolio Securities. From time to time, each of the Acquiring
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, an Acquiring Fund will receive
collateral consisting of cash, U.S.
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<PAGE> 133
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. An Acquiring 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. An Acquiring
Fund might experience risk of loss if the institution with which it has engaged
in a portfolio loan transaction breaches its agreement with the Acquiring Fund.
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 the New Mid Cap Growth
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.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION. The Plan provides that all of the
assets of each Acquired Fund as of the Exchange Date (as defined in the Plan)
will be transferred to the corresponding Acquiring Fund in exchange for
Acquiring Fund Shares of that Acquiring Fund and the assumption by that
Acquiring Fund of all of the liabilities of the Acquired Fund. The Exchange Date
is expected to be on or about March 1, 1998; subject, however, to the receipt by
the Trust and the New Trust of any necessary order of exemption from the
Commission with respect to the Reorganization. A copy of the Plan is attached as
Exhibit A to this Combined Prospectus/Proxy Statement. Although portions of the
Plan are summarized below, this summary is qualified in its entirety by
reference to the Plan.
Promptly after the Exchange Date, each Acquired Fund will distribute the
Acquiring Fund Shares of the corresponding Acquiring Fund to the Acquired Fund's
shareholders of record as of the close of business on the Exchange Date. The
Acquiring Fund Shares of the corresponding Acquiring Fund will be equal in
aggregate value to the shares of the corresponding Acquired Fund held as of the
Valuation Time (as defined in the Plan). All issued and outstanding shares of
the Acquired Funds will be cancelled on the Trust's books and any certificates
representing such shares will no longer be valid. Shares of the Acquiring Funds
will be represented only by book entries; no share certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of each of the Acquired Funds. The Plan also may be terminated and the
Reorganization abandoned by the Acquired Funds and the Acquiring Funds by mutual
consent of their respective trustees.
The Reorganization will not be completed unless the Trust and the New Trust
obtain opinions of counsel to the effect that the Reorganization constitutes a
tax-free reorganization for federal income tax purposes and any necessary
written order of exemption from the Commission exempting the Reorganization from
the provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a
party in connection with the Plan will be paid by the party directly incurring
such costs. NAS will pay 50% of the costs associated with the Reorganization,
including 50% of the costs associated with this proxy solicitation. Each
Acquiring Fund will bear its own organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders, all shareholders of the
Acquired Funds as of the Exchange Date, including those that voted against the
approval of the Plan, will receive Acquiring Fund Shares of the corresponding
Acquiring Fund. All shareholders of the Acquired Funds have the right at any
time up to the next business day preceding the Exchange Date to redeem their
shares at net asset value, subject to any applicable contingent deferred sales
charge, according to the procedures set forth in the Acquired Funds' Prospectus.
This summary does not purport to be a complete description of the Plan and
is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in 1988. The New Trust was organized as
a series investment company on October 30, 1997,
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<PAGE> 134
and on November 7, 1997, its Board of Trustees created the Acquiring Funds with
substantially similar investment objectives, policies and restrictions to those
of the Acquired Funds. Because of the similarity between the Acquired Funds and
the Acquiring Funds, the considerations and risks involved with an investment in
an Acquiring Fund are expected to be comparable to those associated with an
investment in the corresponding Acquired Fund. Each Acquiring Fund has been
established for purposes of effecting the Reorganization and will not commence
operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for their consideration at a meeting held on November 7,
1997. The Board of Trustees of the Trust concluded unanimously that the
Reorganization is in the best interests of the Trust, the Acquired Funds and
their shareholders and that the interests of the existing shareholders of the
Acquired Funds will not be diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Acquired Funds and the
Trust and the proposed costs of the Acquiring Funds and the New Trust as
provided by NAS, in light of their substantially similar investment objectives,
policies, restrictions, Boards of Trustees, officers and service providers. The
Board also considered the operating and compliance efficiencies that could
result from moving the operation of the Acquired Funds from the Trust to
corresponding separate portfolios of the New Trust, which has been organized
under a more flexible and modern declaration of trust. The investment
restrictions of the Acquiring Funds which were approved by the Board of Trustees
of the New Trust vary somewhat from the restrictions of the Acquired Funds;
however, such differences reflect a more uniform and flexible set of investment
restrictions that are currently in place for each of the other series or
portfolios of the New Trust. Such restrictions were approved to help achieve
greater compliance efficiencies by having each series of the New Trust have the
same or substantially the same investment restrictions and, in certain
instances, to provide greater flexibility to NAS in managing the Acquiring
Funds' portfolio assets.
One of the operating efficiencies expected is that certain fixed costs
associated with the operation of the Acquired Funds and the Trust when incurred
by the New Trust and the Acquiring Funds would decrease on a per share basis
since such costs would be spread over a larger pool of assets, e.g., certain
professional and regulatory fees and printing costs.
In particular, the Board considered the anticipated expense ratios of the
Acquiring Funds, the structure of the New Trust, including the provision for
multiple classes of shares, the experience of the service providers of the
Acquiring Funds and the level of service to be provided to the shareholders of
the Acquiring Funds, as represented by NAS, including the greater resources that
could be dedicated to managing the Acquiring Funds and providing administrative
and compliance services.
The Trust's Board also considered the lower fees charged to the Acquiring
Funds compared to those of the Acquired Funds. The Board considered the
following factors: (1) the nature, scope and quality of the services provided by
NAS, (2) the costs incurred and revenues generated by NAS in rendering such
services, (3) NAS' profitability from its mutual fund activities, (4) the
compensation paid to investment advisers of mutual funds with similar investment
objectives and policies and asset sizes, (5) the quality of personnel at NAS,
(6) comparative expense and performance information, (7) pro forma expense
ratios based upon the proposed level of investment advisory and administration
fees, (8) the need to provide NAS with adequate financial incentives to maintain
and improve its services, and (9) NAS' planned and proposed additional
expenditures in the area of fund administration services.
More specifically, the Board considered the significant increases in
expenses that NAS will experience in connection with the general administration
and fund accounting for each of the Acquiring Funds and the fact that the total
expense ratios for each of the Acquiring Funds would decrease and continue to be
at least 27% lower than the average for comparable mutual funds. The Board of
Trustees of the Trust and the New Trust also determined that the proposed
breakpoints in the Acquiring Funds' fees would allow shareholders of the
Acquiring Funds to benefit from certain economies of scale as a Fund's assets
grow.
The Board of Trustees of the Trust based its decision to approve the
proposed transaction upon its consideration of a number of factors, including,
among other things:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
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<PAGE> 135
(2) the similarity of the Acquired Funds' investment objectives,
strategies and policies with those of the corresponding Acquiring Funds, as
well as the views of NAS that any differences between the investment
objectives, policies and restrictions of the Acquired Funds and their
corresponding Acquiring Fund should not materially increase investment
risks;
(3) the experience and resources of NAS with respect to providing
investment management services, and the experience of and quality of
services to be provided by the Acquiring Funds' other service providers;
(4) the projected expense ratios and information regarding fees and
expenses of each Acquiring Fund, each Acquired Fund and other similar funds
and the services being offered to shareholders and the fact that the
overall expense ratios for each Acquiring Fund will be at least 27% lower
than the median expense ratio of its peer group of mutual funds;
(5) the continuity of certain of the portfolio managers for the
Acquired Funds;
(6) the conditioning of the Reorganization on the receipt of legal
opinions confirming the absence of any adverse federal tax consequences to
the Acquired Funds or their shareholders resulting from the Reorganization;
and
(7) other factors as it deemed relevant.
In particular, the Board considered the per share operating expense ratios
(total annual operating expenses expressed as a percentage of average net
assets) for shares of the Acquired Funds and as estimated for the Acquiring
Funds. The following are the per share operating expense ratios for shares of
the Acquired Funds for the year ended October 31, 1997, and as estimated for the
Acquiring Fund Shares of the corresponding Acquiring Funds for the period
following the effective date of the Reorganization and ending October 31, 1998,
after giving effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<S> <C>
ACQUIRED FUND ACQUIRING FUND
Growth Fund New Mid Cap Growth Fund
0.96% 0.98%
Government Bond Fund New Long-Term Government Bond Fund
0.85% 0.68%
Municipal Bond Fund New Tax-Free Income Fund
0.85% 0.77%
Cash Reserve Fund New Money Market Fund
0.68% 0.60%
</TABLE>
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in each Acquiring
Fund is represented by units of beneficial interest, without par value, of
Nationwide Investing Foundation III, which is an open-end investment company of
the management type, organized as an Ohio business trust on October 30, 1997.
The Acquiring Funds are currently four of nine separate series of the New Trust.
Like the Acquired Funds, each Acquiring Fund is diversified, as that term is
defined in the 1940 Act. Currently there is only one class of shares for the
Acquired Funds. The New Money Market Fund of the New Trust offers only one class
of shares, which is without designation. However, each of the Acquiring Funds,
other than the New Money Market Fund, is expected to offer at least three
classes of shares -- Class A, Class B and Class D shares. Class A shares of the
New Trust will be sold with a front-end sales load and pay expenses pursuant to
a Rule 12b-1 plan. Class B shares of the New Trust will be subject to a
contingent deferred sales charge, will be sold without imposition of a front-end
sales load and will pay expenses pursuant to a Rule 12b-1 plan. Except for Rule
12b-1 fees, Class A, Class B and Class D shares of the New Trust bear the same
expenses.
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All shareholders of an Acquiring Fund, regardless of class, will generally
vote on the same issues and in the aggregate with respect to matters submitted
to the shareholders of that Fund for their approval as a Fund. However, holders
of one class of shares of an Acquiring Fund will vote as a class and not with
holders of any other class of shares with respect to its respective Rule 12b-1
Plan, if any. The Acquiring Fund Shares which shareholders of the Acquired Funds
will receive pursuant to the Reorganization do not have a Rule 12b-1 Plan.
Shareholders of an Acquiring Fund are entitled to one vote for each share held
and a proportionate fractional vote for any fraction of a share held. See
"ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the New Trust must receive favorable opinions from
Baker & Hostetler LLP substantially to the effect that, for federal income tax
purposes: (a) the Reorganization will constitute a "tax-free" reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) no gain or loss will be recognized by the Acquiring
Funds or the Acquired Funds as a result of the Reorganization; (c) no gain or
loss will be recognized by shareholders of the Acquired Funds upon the exchange
of their shares of the Acquired Funds for Acquiring Fund Shares of the
corresponding Acquiring Funds; (d) the tax basis of the Acquiring Fund shares
received by shareholders of the Acquired Funds pursuant to the Reorganization
will be the same as the basis of the shares of the corresponding Acquired Fund
held immediately prior to the Reorganization; (e) the holding period of the
Acquiring Funds Shares so received will include the period during which the
Acquired Fund shareholder held shares of the Acquired Fund, provided such shares
were held as a capital asset; (f) the tax basis of each Acquired Fund's assets
acquired by the corresponding Acquiring Fund will be the same as the basis of
such assets immediately prior to the Reorganization; and (g) the holding period
of such assets will include the period during which those assets were held by
the Acquired Fund. The Acquiring Funds and the Acquired Funds do not intend to
seek a private letter ruling with respect to the tax effects of the
Reorganization.
CAPITALIZATION. The following table shows the unaudited capitalization of
the Acquired Funds as of October 31, 1997. Except for certain organizational
activities, the Acquiring Funds have no, and will have no, assets or liabilities
and will not commence operations prior to the consummation of the
Reorganization. Therefore, no pro forma financial information giving effect to
the Reorganization is provided.
GROWTH FUND
(UNAUDITED)
<TABLE>
<S> <C>
Net assets...................................................................... $ 9,540,707
Shares outstanding.............................................................. 417,133
Net asset value per share....................................................... $ 22.87
GOVERNMENT BOND FUND
(UNAUDITED)
Net assets...................................................................... $48,548,881
Shares outstanding.............................................................. 4,338,857
Net asset value per share....................................................... $ 11.19
MUNICIPAL BOND FUND
(UNAUDITED)
Net assets...................................................................... $16,821,447
Shares outstanding.............................................................. 1,513,368
Net asset value per share....................................................... $ 11.12
CASH RESERVE FUND
(UNAUDITED)
Net assets...................................................................... $ 4,050,789
Shares outstanding.............................................................. 4,050,907
Net asset value per share....................................................... $ 1.00
</TABLE>
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COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of each Acquired Fund are generally similar to those of the corresponding
Acquiring Fund. The investment objectives of each Acquired Fund and Acquiring
Fund are "fundamental," which means that they may not be changed without the
consent of a majority of such Fund's outstanding shares, as defined in the 1940
Act. The investment policies of the Acquired Funds and the Acquiring Funds are,
however, non-fundamental. A "non-fundamental" policy may be changed upon the
vote of the Trustees without shareholder approval.
The investment policies and strategies of each Acquired Fund are generally
the same as those of the corresponding Acquiring Fund, although there are some
differences in the investment restrictions that shareholders should consider.
GROWTH FUND/NEW MID CAP GROWTH FUND
Growth Fund seeks long-term capital appreciation through investing in
equity securities with above average, long-term growth potential. In order to
achieve this objective, Growth Fund focuses on investments that are seen to
unfold over the long term, and will avoid investing on the basis of cyclical
opportunity. Generally, long term would mean a period of between two and five
years. The investment objective of New Mid Cap Growth Fund is to achieve
long-term capital appreciation.
Growth Fund looks at a long term investment as one that will likely provide
total return greater than that of the market in general over the relevant
investment horizon. This total return would be composed of dividends paid plus
increase price valuation of the security compared to its purchase price
valuation. In evaluating the prospects for the earnings or asset growth that
should provide increased price valuation, Growth Fund normally considers: (a)
quality of management and sufficient financial wherewithal to successfully
exploit the company's business opportunities, (b) social, economic, demographic,
and/or technological trends that present the company with significant future
business opportunities, and (c) the degree to which there are barriers to
competition in the company's business, with higher barriers tending to increase
the company's opportunity to achieve superior growth. While it is generally
intended to invest in common stocks or in issues convertible to common stock,
there are no restrictive provisions covering the portion of one or another class
of securities that may be held which in any way inhibit management in the
selection of appropriate investments to reach objectives.
For the New Mid Cap Growth Fund, 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
New Mid Cap Growth Fund will invest at least 65% of its total assets in equity
securities of mid cap companies. The New Mid Cap Growth 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.
In seeking appreciation in price valuations, Growth Fund may, for example,
invest in a developmental stage company. Such an investment may not pay a
dividend or produce the anticipated price valuation. It could even experience a
reduction in price valuation with no capital gain resulting from its sale. In no
event, however, may Growth Fund invest more than 5% of its assets in companies
which have a record of less than three years continuous operation or in
securities for which market quotations are not readily available.
The equity securities in which the New Mid Cap Growth Fund may invest
include common stock, preferred stock, convertible securities and warrants of
both domestic and foreign issuers. Foreign securities may be acquired directly
or through depository receipts. In addition to equity securities, the New Mid
Cap Growth Fund may invest in index futures, options and other derivatives, and
securities which are not readily marketable or are restricted as to disposition.
The New Mid Cap Growth Fund may also purchase shares of other investment
companies, enter into repurchase agreements and purchase securities on a
when-issued or delayed-delivery basis. For emergency or temporary purposes, the
New Mid Cap Growth Fund may invest up to 100% of its total assets in cash and/or
U.S. Government securities, short-term fixed income securities and money market
obligations ("Money Market Obligations").
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GOVERNMENT BOND FUND/NEW U.S. GOVERNMENT BOND FUND
The Government Bond Fund seeks as high a level of income as is consistent
with capital preservation from securities issued or guaranteed as to principal
and interest by the U.S. Government, its agencies, authorities or
instrumentalities. Such Fund seeks to achieve its objectives by normally
investing at least 65% of its assets in bonds issued by the U.S. Government, its
agencies and instrumentalities. These bonds pay interest at regular intervals,
usually semi-annually, and pay principal at maturity.
The investment objective of the New Long-Term Government Bond Fund is to
seek as high a level of current income as is consistent with the preservation of
capital. Such Fund will invest in securities of the U.S. Government, its
agencies and instrumentalities. The New Long-Term Government Bond Fund will
attempt to maintain an average duration of greater than six years.
The New Long-Term Government Bond Fund normally will invest all of its net
assets in securities issued by the U.S. Government, its agencies and
instrumentalities or in repurchase agreements collateralized by these
securities. The New Long-Term Government Bond may invest without limitation in
mortgage-related securities issued by U.S. Government agencies, which include
pass-through securities and 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 New Long-Term
Government Bond may invest without limitation 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. Such Fund concentrates
on investing in areas of the bond market (based on sector, coupon or maturity)
that are relatively undervalued.
In addition, for temporary or emergency purposes, the New Long-Term
Government Bond Fund may invest up to 100% of its total assets in cash and/or
money market obligations.
MUNICIPAL BOND FUND/NEW TAX-FREE INCOME FUND
Municipal Bond Fund seeks to provide as high a level of municipal income as
is consistent with the preservation of capital through investing in a
diversified portfolio of investment grade municipal bonds. Municipal income is
defined to mean income earned on municipal obligations. Municipal Bond Fund
normally invests at least 65% of the value of its total assets in debt
securities generally called bonds and 80% of its assets in municipal bonds rated
within the four highest credit categories by Moody's or S&P, state and municipal
notes rated in the two highest credit categories for municipal notes by Moody's
and S&P, and other types of short-term municipal securities such as commercial
paper that is rated in the two highest credit categories by Moody's and S&P.
Municipal Bond Fund will not normally invest more than 40% of its assets in
securities purchased on a "when-issued" basis or 20% of its assets in short-term
debt securities. Municipal Bond Fund may also invest in securities affected by
alternative minimum tax to the extent that such investments would be
advantageous.
The investment objective of the New Tax-Free Income Fund is to seek as high
a level of current income exempt from Federal income tax (although investors may
be subject to state and local tax) as is consistent with the preservation of
capital through investing in high quality intermediate-term and long-term
municipal obligations. The New Tax-Free Income Fund seeks to achieve its
objective by maintaining a diversified portfolio of municipal obligations that
are rated within the three highest credit categories assigned by Moody's and
S&P, or, if not rated, that are of equivalent investment quality as determined
by NAS. Such obligations include municipal securities backed the full faith and
credit of the United States, municipal bonds rated within the three highest
credit categories by Moody's or S&P, state and municipal notes rates MIG-1,
MIG-2, and MIG-3 by Moody's, and 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 S&P. On a temporary basis or for defensive purposes, the New
Tax-Free Income Fund may also hold and invest up to 20% of its assets in cash or
taxable money market obligations.
In addition, the New Tax-Free Income Fund may invest up to 10% of its net
assets in securities rated BBB by S&P or Baa by Moody's, or if not rated, are of
equivalent investment quality as determined by NAS. The municipal securities in
which the New Tax-Free Income Fund may invest include variable and floating rate
securities and such Fund may acquire securities on a when-issued or
delayed-delivery basis.
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<PAGE> 139
CASH RESERVE FUND/NEW MONEY MARKET FUND
Cash Reserve Fund seeks as high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity through investing
in a diversified portfolio of high-quality money market instruments maturing in
397 days or less. The investment objective of the New Money Market Fund is to
seek as high a level of current income as is consistent with the preservation of
capital and maintenance of liquidity.
Each of Cash Reserves Fund and the New Money Market Fund are required to
maintain a dollar weighted average maturity of 90 days or less.
Cash Reserve Fund intends to accomplish its investment objectives by
investing in instruments receiving a rating in one of the two highest categories
by the following six nationally recognized statistical rating organizations
("NRSROs"): Duff and Phelps, Inc. ("D&P"); Fitch Investors Services, Inc.
("Fitch"); Moody's; S&P; IBCA Limited and its affiliated, IBCA, Inc. ("IBCA");
and Thomson Bank Watch ("Thomson"). Subject to the quality limitations described
above, the types of instruments in which Cash Reserve Fund may invest are
obligations of the U.S. Government, its agencies and its instrumentalities, U.S.
dollar denominated obligations of foreign governments or any federally chartered
corporation, obligations of domestic and foreign banks and savings and loan
associations (including certificates of deposit and bankers' acceptances),
taxable or partly taxable obligations issued by state, county, or municipal
governments, commercial paper, short term corporate obligations, bank loan
participation agreements and repurchase agreements collateralized by any of the
above.
The New Money Market Fund's portfolio will consist of high-quality money
market instruments of the type described above for Cash Reserve Fund. In
addition, the New Money Market Fund may invest in variable rate demand notes.
FUNDAMENTAL INVESTMENT POLICIES. Each Acquired Fund and corresponding
Acquiring Fund have some fundamental investment policies that are the same and
some that are different. The primary purposes for adopting more flexible
investment restrictions for the Acquiring Funds are to promote standardization
of such restrictions among all of the Nationwide Funds and to provide the
portfolio managers with greater flexibility in managing the Acquiring Funds'
portfolios. The similarities and differences are described below.
1. Each of the Acquired Funds has a fundamental policy against dealing with
the Trustees of the Trust in regard to the purchase and sale of securities and
investing for the purpose of making short-term trading profits or for exercising
control of management. None of the Acquiring Funds is subject to any such
restrictions.
2. Each of the Acquired Funds has a fundamental policy against investing more
than 5% of its total assets (excluding cash and cash items) in the securities of
any one issuer or owning more than 10% of any class of voting or non-voting
securities of any issuer (except the U.S. Government, its agencies and
instrumentalities). However, 25% of Cash Reserve Fund's total assets may be
invested in any class of voting or non-voting securities of commercial banks. In
addition, up to 10% of Cash Reserve Fund's assets may be invested in any one
issuer in First Tier Securities, as defined in the 1940 Act, for a period of up
to three business days after the purchase, except that the Cash Reserve Fund may
not make more than one such investment at a time.
Each of the Acquiring Funds has a fundamental policy against purchasing
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 such Fund's total assets would be invested in such
issuer or such Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that 25% or less of such 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 New 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.
3. Each of the Acquired Funds has a fundamental policy against making loans to
others, except that each such Fund may purchase certain debt securities or enter
into certain repurchase agreements. Each Acquiring Fund also has a fundamental
policy against making loans to others, except that each such Fund may purchase
or hold debt instruments and lend portfolio securities in accordance with its
investment objective and policies, make time deposits with financial
institutions, and enter into repurchase agreements.
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<PAGE> 140
4. Each of the Acquired Funds has a fundamental policy against acting as an
underwriter, except that, in disposing of certain portfolio securities, each
such Fund may be deemed to be an underwriter under certain federal securities
laws. Each of the Acquiring Funds has a fundamental policy that is similar in
all material respects to this fundamental policy.
5. Each of the Acquired Funds has a fundamental policy against pledging more
than 10% of its assets or pledging such assets for any reason except to secure
temporary borrowings from banks. Each Acquiring Fund has a non-fundamental
policy against mortgaging, pledging or hypothecating its assets in excess of
one-third of such Fund's total assets.
6. Each of the Acquired Funds has a fundamental policy against investing in
puts, calls, straddles, spreads or any combination thereof, or in oil, gas or
other mineral leases, rights or royalty contracts. None of the Acquiring Funds
is subject to any such restriction.
7. Each of the Acquired Funds has a fundamental policy against investing more
than 5% of its total assets, taken at cost, in securities whose issuer, or whose
guarantor of principal and interest, including any predecessor, has been in
operation for less than three years. None of the Acquiring Funds is subject to
any such restriction.
8. Each of the Acquired Funds has a fundamental policy against purchasing
securities on margin; however, each such Fund may obtain credits when necessary
to clear purchases and sales of securities. Each of the Acquiring Funds has a
non-fundamental policy against purchasing securities on margin, except that each
such Fund may obtain credits as may be necessary to clear purchases and sales of
securities and to make margin payments in connection with derivative securities
transactions.
9. Each of the Acquired Funds has a fundamental policy against selling
securities short. Each of the Acquiring Funds has a non-fundamental policy
against selling securities short, unless an Acquiring 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.
10. Each of the Acquired Funds has a fundamental policy against purchasing
securities for which market quotations are not readily available. Each of the
Acquired Funds also has a fundamental policy against purchasing securities that
are restricted under the federal securities laws if, as a result, more than 5%
of such Fund's net assets would be invested in such securities. None of the
Acquiring Funds is subject to these investment restrictions; however, each of
the Acquiring Funds has a non-fundamental investment policy against purchasing
or otherwise acquiring any security if, as a result, more than 15% (10% with
respect to the New Money Market Fund) of its net assets would be invested in
securities that are illiquid. For purposes of this investment restriction,
illiquid securities include securities which are not readily marketable and
repurchase agreements with maturities in excess of seven days.
11. Each of the Acquired Funds has a fundamental policy against investing 25% or
more of such Fund's total assets in the securities of issuers in the same
industry, except that each such Fund may invest more than 25% of the value of
its assets in municipal notes and bonds and obligations issued, escrowed in, or
guaranteed by the U.S. Government, its agencies, or instrumentalities, and Cash
Reserve Fund may invest more than 25% of its assets in obligations of domestic
branches of U.S. commercial banks. For purposes of this investment restriction,
electric, natural gas distribution, natural gas pipeline, combined electric and
natural gas, captive borrowing conduit, equipment finance, premium finance,
leasing finance, consumer sales finance and other finance are each considered
separate industries.
Each of the Acquiring Funds has a fundamental policy against purchasing
securities of any one issuer if, as a result of such purchase, more than 25% of
a Fund's total assets would be invested in securities of issuers that are in the
same industry. This investment restriction does not apply to securities issued
by the U.S. Government, its agencies, or instrumentalities or to securities
issued by state, county, or municipal governments. The following industries are
considered separate industries for purposes of this investment restriction:
captive borrowing conduit, equipment finance, premium finance, leasing finance,
consumer sales finance and other finance, electric, natural gas distribution,
natural gas pipeline, combined electric and natural gas, and telephone
utilities.
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12. Each of the Acquired Funds has a fundamental policy against issuing senior
securities or borrowing money, except that each such Fund may borrow an amount
not in excess of 33 1/3% of the value of the Fund's total assets (calculated
when the loan is made) from banks for temporary purposes to facilitate the
orderly sale of portfolio securities to accommodate unusually heavy redemption
requests, if they should occur. Any such borrowing is not intended to be for
investment purposes, and such Funds will not purchase portfolio securities
during periods in which borrowings are outstanding. Each such Fund may also
borrow an amount equal to no more than 5% of the value of each of such Fund's
total assets (calculated when the loan is made) for temporary, emergency
purposes, or for the clearance of transactions, to provide NAS additional
flexibility in executing routine daily transactions and to allow for more
efficient cash management. Any such borrowing will not be used to leverage the
Acquired Funds, nor will such borrowing be for an extended period of time.
Each of the Acquiring Funds also has a fundamental policy against borrowing
money or issuing senior securities, except that each such Fund may enter into
reverse repurchase agreements and may otherwise borrow money and issue senior
securities as and to the extent permitted by the 1940 Act or any rule, order or
interpretation thereunder.
13. Each of the Acquired Funds has a fundamental policy against purchasing or
selling securities of other investment companies (except in connection with a
merger, consolidation, acquisition or reorganization). Each Acquiring Fund has a
non-fundamental policy against purchasing securities of other investment
companies, except (a) in connection with a merger, consolidation, acquisition,
reorganization or offer of exchange, and (b) to the extent permitted by the 1940
Act, or any rules or regulations thereunder, or pursuant to any exemptions
therefrom.
14. Each of the Acquired Funds has a fundamental policy against purchasing or
selling real estate, real estate mortgage loans, commodities or futures
contracts. Each Acquiring Fund has a fundamental policy against purchasing or
selling real estate, except that each such Fund may acquire real estate through
ownership of securities or instruments and may purchase or sell securities
issued by entities or investment vehicles that own or deal in real estate
(including interests therein) or instruments secured by real estate (including
interests therein). Each Acquiring Fund also has a fundamental policy against
purchasing or selling commodities or commodities contracts, except to the extent
disclosed in such Fund's current Prospectus.
15. The Government Bond Fund has a fundamental policy against investing more
than 35% of its total assets in mortgage backed securities. The New Long-Term
Government Bond Fund is not subject to any such restriction.
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in each Acquiring Fund. For a more complete description of the
Acquiring Funds' investment policies and restrictions, including relevant risk
factors, see "OBJECTIVES AND MANAGEMENT" in the Acquiring Funds' Prospectus and
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments and Investment Policies" in the Acquiring Funds' Statement of
Additional Information. For a more complete description of the Acquired Funds'
investment policies and restrictions, including relevant risk factors, see
"INVESTMENT OBJECTIVES AND POLICIES" in the Acquired Funds' Prospectus and
Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE TRUST
Pursuant to the laws of Massachusetts and the Trust's Declaration of Trust,
the responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Declaration of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants, and other professionals to assist and
advise in such management.
Investment Adviser. The Acquired Funds are advised by Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a wholly
owned subsidiary of Nationwide Life Insurance Company, which in turn is wholly
owned by Nationwide Financial Services, Inc., a holding company ("NFS"). NFS has
two classes of common stock outstanding with different voting rights enabling
Nationwide Corporation
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(the holder of all of the outstanding Class B common stock) to control NFS. 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. NAS is also the
investment adviser, administrator, fund accountant and distributor of each of
the other funds of the Nationwide Family of Funds. NAS was established as an
Ohio corporation on June 28, 1960, and has been providing investment advisory
services to open-end investment management companies like the Acquired Funds
since 1965.
In its capacity as investment adviser, and subject to the ultimate
authority of the Trust's Board of Trustees, NAS, in accordance with the Acquired
Funds' investment objectives and policies, manages the Acquired Funds, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since , 1997, John M. Schaffner, MBA, CFA, has
been primarily responsible for the day-to-day management of Growth Fund's
portfolio. Mr. Schaffner has been with Nationwide Insurance Enterprise since
1977. Mr. 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.
Since , 1997, Alpha Benson, MBA, has been primarily responsible
for the day-to-day management of Municipal Bond Fund's portfolio. Ms. Benson has
been with Nationwide Insurance Enterprise as a financial analyst in the
Securities Investment Department since 1977. Ms. 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.
Since , 1997, Wayne Frisbee, CFA, Kimberly Bingle, CFA, FLMI, and
Gary Hunt, MBA, have been the portfolio co-managers of Government Bond Fund. Mr.
Frisbee had been the sole portfolio manager of the Government Bond from since
its inception to , 1997. Mr. Frisbee joined Nationwide Insurance
Enterprise in 1981 as a securities analyst and has managed the Nationwide U.S.
Government Income Fund, another fund of the Nationwide Family of Funds, since
its inception in February of 1992. He received a Bachelor of Science from The
Ohio State University and is a Chartered Financial Analyst.
Ms. Bingle joined Nationwide Insurance Enterprise in 1986 as a securities
analyst. From April, 1992 to March 11, 1997, she managed the Fixed Income Fund
which is part of the Nationwide Insurance Enterprise incentive savings plan. Ms.
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.
Mr. Hunt joined Nationwide Insurance Enterprise in 1992 as a securities
analyst. In his career at Nationwide Enterprise, Mr. 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. Mr. Hunt received a Bachelor of Science in
Finance and a Master of Business Administration from The Ohio State University.
Since December, 1989, Cash Reserve Fund's inception, Karen G. Mader has
been primarily responsible for the day-to-day management of that Fund. She has
been a securities portfolio manager with Nationwide Insurance Enterprises since
. Ms. Mader received a Bachelor of Arts degree in Political Science
and a Masters degree in International Business and Political Science, both from
The Ohio State University.
In addition, pursuant to the Investment Advisory Agreement, NAS generally
assists in all aspects of the Acquired Funds' administration and operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Trust, NAS receives a fee from the Acquired Funds,
computed daily and paid monthly, at the following annual rates: for Cash Reserve
Fund, 0.40% of the value of its average daily net assets; and for each of the
other Acquired Funds, 0.65% of the value of its average daily net assets.
For a complete description of the Acquired Funds' advisory arrangements,
see the section in the Acquired Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST."
Distributor. The Trust has entered into an Underwriting Agreement with
NAS, Three Nationwide Plaza, Columbus, Ohio 43215, pursuant to which shares of
the Acquired Funds continuously are offered on a best efforts basis by NAS and
dealers selected by NAS. Dimon Richard McFerson is Chairman of the Board and
Chief
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Executive Officer of NAS. Joseph J. Gasper, Robert A. Oakley, Gordon E.
McCutchan and Robert J. Woodward, Jr. are President and a director, Executive
Vice President -- Chief Financial Officer and a director, Executive Vice
President -- Law and Corporate Services and a director, and Executive Vice
President -- Chief Investment Officer and a director, respectively, of NAS.
James F. Laird, Jr. is Vice President -- General Manager of NAS. NAS receives no
compensation from the Acquired Funds in connection with its services under such
Underwriting Agreement but may retain some or all of the contingent deferred
sales charge, if any, imposed upon redemptions of Growth Fund's, Government Bond
Fund's or Municipal Bond Fund's shares. In addition, pursuant to the 12b-1 Plan,
each Acquired Fund, other than Cash Reserve Fund, is authorized to pay NAS
compensation accrued daily and paid monthly at a maximum annual rate of 0.75% of
such Acquired Fund's average daily net assets. Currently NAS is waiving all of
the Rule 12b-1 fees for each of these Acquired Funds. NAS will continue to waive
such fees until further written notice to shareholders.
Dividend and Transfer Agent. Nationwide Investors Service, Inc., a wholly
owned subsidiary of NAS ("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215,
serves as the Acquired Funds' Dividend and Transfer Agent. In consideration of
such services, the Acquired Funds have agreed to pay NISI an annual fee, paid
monthly, equal to: $16 per account for Growth Fund, $18 per account for
Government Bond Fund and Municipal Bond Fund, and $18 per account for Cash
Reserve Fund, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Trust, see the section in the Acquired Funds' Prospectus entitled
"MANAGEMENT OF THE TRUST."
Custodian. The Acquired Funds have appointed The Fifth Third Bank ("Fifth
Third"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, as the Acquired
Funds' custodian. In such capacity Fifth Third will hold or arrange for the
holding of all portfolio securities and other assets acquired and owned by each
of the Acquired Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Acquired
Funds, and, as such, has audited the annual financial statements of the Acquired
Funds.
Management Discussion of Fund Performance.
GROWTH FUND
For the year ended October 31, 1997, Growth Fund had a total return of
23.66%, compared with 32.10% for the S&P 500 over the same period.
The sectors that performed best for Growth Fund this fiscal year included
both drug and financial stocks. Bergen Brunswig, a drug distributor which is
currently the object of a takeover proposal, had excellent returns, as did
Schering-Plough, Merrill Lynch and Banc One. Other individual names that did
well included Schlumberger, Lucent Technologies, Biomet, and HBO & Company.
Unfortunately, these sectors and names were not weighted heavily enough in the
Fund to bring overall results up to the benchmark levels. Growth Fund, as part
of its strategy, has also held a significant portion of its assets in small and
mid-cap stocks. These stocks did very poorly during the first four months of
1997, relative to the S&P 500 index, and although they made a tremendous
comeback after that, they began to trail off again near the end of the fiscal
year, and so, on balance, proved to be a drag on results.
Since resuming management of Growth Fund in August, Mr. Schaffner has made
several changes in its strategic focus. The changes are oriented toward
emphasizing growth stocks to a greater extent, and pruning away at some of the
less attractive, value-oriented stocks Growth Fund holds. For example, the
greatest concentration of new investments has been in the Computer Services and
Software sector. This category represented about 5.6% of Fund assets at June 30,
1997, and as of October 31, 1997, was up to 17.0%. Mr. Schaffner has added
stocks such as Advent software, BMC Software, First Data Corp., Gartner Group,
Radiant Systems and Template Software. The common thread Mr. Schaffner is
looking for in these stocks is that they all sell products or services that help
other businesses improve their own productivity and efficiency, and that they
are focused on solving their customers' problems with efficient solutions that
are difficult to obtain from other sources.
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Mr. Schaffner thinks that a more concentrated focus on growth, while
retaining only the best-positioned of the value-oriented Fund holdings will
improve results over time, and this will be the strategic thrust as Growth Fund
goes forward.
CASH RESERVE FUND
For the year ended October 31, 1997, Cash Reserve Fund had assets of $4.1
million with an average maturity of 20 days. For the year, Fund expenses
remained stable at 0.67% compared to 0.66% in 1996.
Cash Reserve Fund continued to invest in only first-tier money market
instruments. Commercial paper accounted for 94% of the portfolio, followed by
U.S. Government/Agency securities at 6%. The highest portfolio weightings were
in those segments which have a favorable yield advantage including banking,
consumer sales/finance and the broker/dealer industries. These segments
accounted for 14%, 11%, and 11% of the portfolio, respectively.
A credit review is completed on all issuers prior to investment. The yield
on Cash Reserve Fund remained competitive with its peer average for the
periods.
This year marked the seventh year of expansion for the U.S. economy. Growth
for the third quarter was 3.5% compared to a Federal Reserve (Fed) target of
2.5%. Economists are surprised that inflationary pressures have not developed,
particularly with such a high growth rate coupled with low unemployment. The
Federal Open Market Committee raised interest rates in March 1997 by increasing
the Fed funds rate to 5.50% from 5.25%. This was the first increase since
January 1996. Federal Reserve officials will meet two more times this year to
decide on the direction of interest rates.
GOVERNMENT BOND FUND
Government Bond Fund's total return for the year ended October 31, 1997,
was 8.84% assuming all distributions were reinvested, while the Merrill Lynch
Government Master Index returned 8.67%.
Shareholders who stayed in Government Bond Fund for the entire period were
rewarded after a difficult first six months when intermediate-term interest
rates rose 0.4%-0.5%. The second half of the period was more favorable as these
interest rates dropped 0.5%-0.9% and longer rates dropped by approximately 0.8%.
The higher prices for bonds in the second half was the result of several
factors. The most notable factor was the continued release of favorable
inflation reports in spite of low unemployment and significant growth in the
overall economy. Another important factor has been the perception that the
Federal Reserve will not act to raise rates until clear signs of inflationary
pressures are present. The Federal Reserve's stance combined with favorable
inflation reports has led to a significantly flatter yield curve. Finally, the
U.S. government market has been the beneficiary of a flight to quality as the
result of increased turmoil in world equity markets.
Government Bond Fund benefited from its weighting in spread product during
the period and the shift out of callable into non-callable agency notes.
Approximately 62% of portfolio assets are invested in Treasury and Agency notes,
and 35% of Fund assets are invested in the Collateralized Mortgage Obligation
(CMO) market. The remainder of portfolio assets are in repurchase agreements.
MUNICIPAL BOND FUND
For the year ended October 31, 1997, the Bond Buyer 11 Index moved from a
yield of 5.60% to 5.28%. Municipal bonds underperformed treasury securities
during the year. The yield on the most current 30-year treasury bills dropped
from 6.65% to 6.15%. Municipal Bond Fund returned 8.37% while the Lehman
Municipal Bond Index returned 8.49%.
Municipal Bond Fund is not currently being marketed to new investors. Net
assets ended the year at $16.8 million. Municipal Bond Fund's average coupon was
5.83% with average principal maturity of 18 years. Municipal Bond Fund seeks to
maximize income by having a long maturity schedule while employing high-quality
issues averaging "AA" credit quality.
As the year began, a Democratic President and a Republican Majority were
returned to Washington and the economy was growing at a slow and manageable
noninflationary pace. The markets reacted favorably to these events with stable
to declining interest rates. However, during the first quarter of the calendar
year, economic
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statistics began to show signs of an economy that may be overheating and on
March 25, in a preemptive move against inflationary concerns, the Federal
Reserve raised the Fed Funds rate 0.25%. The move appeared to be justified as,
during the months that followed, inflationary measures remained remarkably tame.
In late April the announcement of a balanced budget agreement also overshadowed
concerns about the growth rate.
During the latter part of October, the Equity markets experienced a
sell-off that prompted investors to a flight to quality into U.S. treasury
securities. This movement helped to sustain the lower yields and higher prices
in the bond markets. This volatility in the worldwide financial markets,
however, has significantly reduced the threat of another preemptive rate hike
from the Federal Reserve to slow the growth in U.S. economy.
Municipal issuers continued to take advantage of the lower interest rates
and propelled municipal volume up 17% for the first 10 months of the calendar
year. This increased supply has kept municipal securities from fully
participating in the bond market rally. As a consequence, particularly in the
long end, municipals have cheapened when compared to treasury securities.
THE ACQUIRING FUNDS AND THE NEW TRUST
Except where shareholder action is required by law, all of the authority of
the New Trust is exercised under the direction of the New Trust's Trustees, who
are elected by the shareholders of the New Trust's series or portfolios,
including the Acquiring Funds, and who are empowered to elect officers and
contract with and provide for the compensation of agents, consultants, and other
professionals to assist and advise in its day-to-day operations. The New Trust
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
Investment Adviser. The Acquiring Funds are also advised by NAS. It is
intended that upon completion of the Reorganization, Mr. Schaffner will be
responsible for the day-to-day management of the New Mid Cap Growth Fund's
portfolio, Ms. Benson will be responsible for the day-to-day management of the
New Tax-Free Income Fund's portfolio, and Messrs. Frisbee and Hunt and Ms.
Bingle will be responsible for the day-to-day management of the New Long-Term
U.S. Government Bond Fund's portfolio. In addition, it is anticipated that
Patricia Mynster will be responsible for the day-to-day management of the New
Money Market Fund's portfolio. Ms. Mynster, Director of Short-Term Investments,
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
Insurance Enterprise since 1991.
For its services as investment adviser, NAS receives a fee for each
Acquiring Fund, which is calculated daily and paid monthly, at the following
annual rates: for the New Mid Cap Growth Fund, 0.60% of such Fund's average net
assets up to $250 million, 0.575% of such Fund's average net assets of $250
million up to $1 billion, 0.55% of such Fund's average net assets of $1 billion
up to $2 billion, 0.525% of such Fund's average net assets of $2 billion up to
$5 billion, and 0.50% of such Fund's average net assets of $5 billion or more;
for each of the New Long-Term Government Bond Fund and the New Tax-Free Income
Fund, 0.50% of such Fund's average net assets up to $250 million, 0.475% of such
Fund's average net assets of $250 million up to $1 billion, 0.45% of such Fund's
average net assets of $1 billion up to $2 billion, 0.425% of such Fund's average
net assets of $2 billion up to $5 billion, and 0.40% of such Fund's average net
assets of $5 billion or more; and for the New Money Market Fund, 0.40% of such
Fund's average net assets up to $1 billion, 0.38% of such Fund's average net
assets of $1 billion up to $2 billion, 0.36% of such Fund's average net assets
of $2 billion up to $5 billion, and 0.34% of such Fund's average net assets of
$5 billion or more.
The New Trust on behalf of the Acquiring Funds has also entered into an
Administration Agreement with NAS whereby NAS provides certain administration
and fund accounting services to the Acquiring Funds. For such services, NAS
receives a fee from each Acquiring Fund, calculated daily and paid periodically
at the following annual rate: 0.07% of such Fund's average net assets up to $250
million; 0.05% of such Fund's average net assets of $250 million up to $1
billion, and 0.04% of such Fund's average net assets of $1 billion or more.
For a complete description of the Acquiring Funds' advisory arrangements,
see the section in the Acquiring Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST -- Investment Management."
Dividend and Transfer Agent. NISI also serves as the Acquiring Funds'
Dividend and Transfer Agent. In consideration of such services, the Acquiring
Funds have each agreed to pay NAS an annual fee, paid monthly,
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equal to: $16 per account for the New Mid Cap Growth Fund; $18 per account for
the New Long-Term Government Bond Fund and the New Tax-Free Income Fund; and $27
per account for the New Money Market Fund, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Acquiring Funds, see the sections in the Acquiring Funds'
Prospectus entitled "MANAGEMENT OF THE TRUST -- Other Services."
Distributor. NAS also serves as the distributor of the Acquiring Funds'
shares pursuant to a distribution agreement. Pursuant to such agreement, NAS may
retain all or a portion of the front end sales charge, if any, imposed upon
purchases of Class D shares of the New Mid Cap Growth Fund, the New Long-Term
Government Bond Fund and the New Tax-Free Income Fund.
In addition, NAS may enter into, from time to time, agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of the Acquiring Funds' Class D shares.
For a complete description of these arrangements, see the sections in the
Acquiring Funds' Prospectus entitled "HOW TO PURCHASE SHARES."
Custodian. The Acquiring Funds have also appointed Fifth Third as the
Acquiring Funds' custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the New Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Funds, and, as such, will audit the annual financial
statements of the Acquiring Funds.
Management Discussion of Fund Performance. No management discussion of
fund performance is included since the Acquiring Funds have not yet commenced
operations.
CERTAIN FINANCIAL INFORMATION. The Prospectus for the Trust contains
information on per share income, capital changes and performance calculations
under the caption "FINANCIAL HIGHLIGHTS."
The Acquiring Funds have not yet commenced operations and have no and will
have no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE ADVERTISING FOR THE FUNDS" in
the Acquiring Funds' Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS. The Trust is a Massachusetts
business trust, registered under the 1940 Act as an open-end investment company
of the management type and established under an Amended Declaration of Trust
dated May 9, 1988, as amended. The New Trust is an Ohio business trust,
registered under the 1940 Act as an open-end investment company of the
management type and established under a Declaration of Trust dated as of October
30, 1997.
The Acquiring Funds are four of nine series of the New Trust. The other
five series of the New Trust are the Nationwide Growth Fund, the Nationwide
Fund, the Nationwide Bond Fund, the Nationwide Intermediate U.S. Government Bond
Fund, and the Nationwide S&P 500 Index Fund.
Both the Trust and the New Trust are authorized to issue an unlimited
number of shares of beneficial interest and to divide their shares of beneficial
interest into one or more series. The New Trust is also authorized to divide its
shares of beneficial interest into one or more classes or sub-series. Each share
of a series of the Trust or New Trust represents a beneficial interest in the
assets of only that series. The consideration received by the Trust or New Trust
for the issuance of shares of a particular series, the assets in which such
consideration is invested, and all income and proceeds from the holding or sale
of such assets belong to that series, subject only to the rights of creditors.
Each share of beneficial interest of a series of the Trust and New Trust
represents an equal proportionate interest in that series of the Trust and New
Trust, respectively, with each other share of the same series. Each such
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share is entitled to share on a pro rata basis in any dividends or distributions
out of the income or assets belonging to the particular series of the Trust and
New Trust, as applicable. Such dividends or distributions are declared at the
discretion of the Trustees of the Trust and New Trust. Upon any liquidation of a
series of the Trust or New Trust, shareholders are entitled to share pro rata in
the net assets that belong to that series and that are available for
distribution.
Each share of the Trust represents an equal proportionate interest in the
Trust with each other share.
Shares of the Acquiring Funds, once properly issued and outstanding, are
fully paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
Shareholders of both the Trust and the New Trust are entitled to one vote
for each full share held and a proportionate fractional vote for each fractional
share held regardless of the net asset value of such shares.
Voting rights for Trust shareholders are not cumulative, so that the
holders of more than 50% of the Trust voting in the election of its Trustees
have the power to elect all of the Trustees of the Trust. The Trust is not
required to hold an annual meeting of shareholders and currently does not do so.
Shareholders of the New Trust have no cumulative voting rights, which means
that the holders of a plurality of the shares voting for the election of the New
Trust's Board of Trustees can elect all of the New Trust's Board of Trustees if
they choose to do so. The New Trust does not intend to hold annual meetings of
shareholders, except as required under its Declaration of Trust or the 1940 Act.
Shareholders of the Acquiring Funds will vote in the aggregate with other
shareholders of the New Trust and not by series or class except as otherwise
expressly required by law. For example, shareholders of an Acquiring Fund will
vote in the aggregate with other shareholders of the New Trust with respect to
the election of Trustees and ratification of the selection of independent
accountants. However, shareholders of an Acquiring Fund will vote as a Fund, and
not in the aggregate with other shareholders of the New Trust, for purposes of
approval of amendments to the Investment Advisory Agreement as it relates to
that Acquiring Fund or any of that Acquiring Fund's fundamental policies.
For a complete description of the respective attributes of the Trust's and
the New Trust's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Acquired Funds or the Acquiring
Funds, as the case may be, and its shareholders, and dividend and distribution
policies, see the sections in the Acquired Funds' and the Acquiring Funds'
respective Prospectuses entitled "HOW TO INVEST," "HOW TO PURCHASE SHARES," "HOW
TO REDEEM SHARES," "PRIVILEGES AND SERVICES," "INVESTOR SERVICES," "NET INCOME
AND DISTRIBUTIONS" and "DISTRIBUTIONS AND TAXES." Additional information about
the Trust is included in its Prospectus, dated February 28, 1997, as
supplemented on November , 1997, which is incorporated herein by reference,
and in the Trust's Statement of Additional Information dated February 28, 1997.
Copies of the Prospectus and the Statement of Additional Information may be
obtained without charge by calling the Trust at 1-800-848-0920.
Additional information about the Acquiring Funds is included in its
Prospectus dated December , 1997, which accompanies this Combined
Prospectus/Proxy Statement and Statement of Additional Information dated
December , 1997, copies of which may be obtained without charge by calling
the New Trust at 1-800-848-0920.
Additional information regarding the Reorganization is contained in the
Statement of Additional Information, dated December , 1997, to this Combined
Prospectus/Proxy Statement. The Statement of Additional Information is
incorporated by reference herein and may be obtained by calling the New Trust at
1-800-848-0920.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the New Trust are each subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act, and in accordance therewith each
files reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission
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at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials can
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne 50% by NAS and the
remainder by the Trust and the New Trust. Proxies will be solicited initially,
and in any supplemental solicitation, by mail and may be solicited in person, by
telephone, telegraph or other electronic means by officers of the Trust.
SUBSTANTIAL SHAREHOLDERS. As of December 18, 1997, to the knowledge of the
Trust, the only person who owns of record or beneficially five percent or more
of the outstanding shares of any Acquired Fund is Nationwide Life and Annuity
Insurance Company, One Nationwide Plaza, Columbus, Ohio 43215, which owns,
through one of its separate accounts, % of Cash Reserve Fund.
As of the close of business on December 18, 1997, the officers and Trustees
of the Trust as a group beneficially owned less than 1% of the outstanding
shares of the Trust or of any Acquired Fund.
As of the close of business on December 18, 1997, there were no issued and
outstanding shares of the New Trust. As of such date, there were no shareholders
of the Acquiring Funds. It is anticipated, however, that those persons who are
beneficial holders of Growth Fund's and Government Bond Fund's shares
immediately prior to the Reorganization will be beneficial holders of the same
percentage of the corresponding Acquiring Fund's shares immediately after the
Reorganization. Because Cash Reserve Fund and Municipal Bond Fund will be
combining with substantially larger funds to form the New Money Market Fund and
the New Tax-Free Income Fund, respectively, it is anticipated that shareholders
of such Acquired Funds will hold a substantially smaller percentage of the
outstanding shares of the corresponding Acquiring Fund immediately after the
Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Funds dated December , 1997, is incorporated by reference into this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
February 28, 1997, as supplemented November , 1997, is incorporated by
reference into this Combined Prospectus/Proxy Statement and may be obtained by
writing the Trust at Three Nationwide Plaza, Columbus, Ohio 43215 or by calling
the Trust at 1-800-848-0920. Copies of documents requested will be sent by
first-class mail to the requesting shareholder within one business day of
receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in accordance
with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to introduce
at such meeting. Any shareholder proposals must be presented a reasonable time
before the proxy materials for the next meeting are sent to shareholders. The
submission of a proposal does not guarantee its inclusion in the Trust's proxy
statement and is subject to limitations under the 1934 Act. It is not presently
anticipated that the New Trust will hold regular meetings of shareholders, and
no anticipated date of the next meeting can be provided.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Financial Horizons Investment Trust, a Massachusetts
business trust ("FHIT"), and Nationwide Investing Foundation III, an Ohio
business trust ("NIF III").
WHEREAS, FHIT is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following four series: Growth Fund ("FHIT Growth Fund"),
Municipal Bond Fund ("FHIT Municipal Bond Fund"), Government Bond Fund ("FHIT
Government Bond Fund") and Cash Reserve Fund ("FHIT Cash Reserve Fund", and,
together with each of the FHIT's other three series described in this paragraph,
the "Acquired Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series
(Nationwide Money Market Fund will only issue shares of beneficial interest,
without par value, without any class designation): Nationwide Mid-Cap Growth
Fund ("NIF III Mid-Cap Fund"), Nationwide Tax-Free Income Fund ("NIF III
Tax-Free Income Fund"), Nationwide Long-Term U.S. Government Bond Fund ("NIF III
Long-Term U.S. Government Bond Fund"), and Nationwide Money Market Fund ("NIF
III Money Market Fund", and, together with each of NIF III's other three series
described in this paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets and liabilities
of the corresponding Acquired Shares; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares (or, in
the case of NIF III Money Market Fund, shares of beneficial interest, without
par value, without any class designation) of the corresponding Acquiring Series
("Acquiring Series Shares"), which are voting securities, followed by the
distribution of the Acquiring Series Shares by each Acquired Series to the
shareholders of the Acquired Series in connection with the dissolution of FHIT
and the Acquired Series, all upon the terms and provisions of this Agreement
(individually and together, the "Reorganization"); and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: FHIT Growth Fund corresponds to NIF III Mid-Cap Fund, FHIT
Municipal Bond Fund corresponds to NIF III Tax-Free Income Fund, FHIT Government
Bond Fund corresponds to NIF III Long-Term U.S. Government Bond Fund, and FHIT
Cash Reserve Fund corresponds to NIF III Money Market Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of FHIT has determined that the
Reorganization is in the best interests of FHIT, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of FHIT and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as
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described in Section 9(h) herein), FHIT and the Acquired Series agree to
assign, convey, transfer and deliver to NIF III and the Acquiring Series,
and NIF III and the Acquiring Series agree to acquire from FHIT and the
Acquired Series on the Exchange Date (as defined below), all of the
Investments (as defined below), cash and other assets of FHIT in exchange
for that number of full and fractional Acquiring Series Shares of the
corresponding Acquiring Series having an aggregate net asset value equal to
the value of all assets of FHIT transferred to the Acquiring Series, as
provided in Section 4, less the liabilities of FHIT assumed by the
Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring
Series from FHIT shall consist of all of FHIT's property, including,
without limitation, all Investments (as defined below), cash and dividends
or interest receivables which are owned by FHIT and any deferred or prepaid
expenses shown as an asset on the books of FHIT as of the Valuation Time
described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date, FHIT will
endeavor to discharge or cause to be discharged, or make provision for the
payment of, all of its known liabilities and obligations. The Acquiring
Series shall assume all liabilities, expenses, costs, charges and reserves
of FHIT, contingent or otherwise, including liabilities reflected in the
unaudited statements of assets and liabilities of FHIT as of the Valuation
Time, prepared by or on behalf of FHIT as of the Valuation Time in
accordance with generally accepted accounting principles consistently
applied from and after October 31, 1996, and including all liabilities of
FHIT under its registration statement on Form N-1A filed with the
Securities and Exchange Commission ("Commission") under the Securities Act
of 1933, as amended ("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, each Acquired
Series shall distribute to its shareholders of record as of the Exchange
Date the Acquiring Series Shares received by it, each Acquired Series
shareholder of record being entitled to receive that number of Acquiring
Series Shares equal to the proportion which the number of shares of
beneficial interest, par value $1.00 per share, of the Acquired Series held
by such shareholder bears to the total number of such shares of the
Acquired Series outstanding on such date, and shall take such further
action as may be required, necessary or appropriate under FHIT's Amended
Declaration of Trust, Massachusetts law and the Code to effect the complete
liquidation and dissolution of FHIT. FHIT will fulfill all reporting
requirements under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FHIT. FHIT represents and
warrants to and agrees with NIF III and the Acquiring Series that:
(a) FHIT is a business trust validly existing under the laws of the
Commonwealth of Massachusetts and has power to own all of its properties
and assets and to carry out its obligations under this Agreement.
(b) FHIT is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. FHIT has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for FHIT, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of FHIT, have been furnished to NIF III. Such statements of assets
and liabilities fairly present the financial position of FHIT as of such
date and such statements of operations and changes in net assets fairly
reflect the results of operations and changes in net assets for the periods
covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of FHIT as of such
dates which are not disclosed therein.
(d) The Prospectus of FHIT dated February 28, 1997, as amended by
supplements dated March 17, 1997, March 17, 1997 and September 5, 1997, and
its related Statement of Additional Information dated February 28, 1997
(together, the "FHIT Prospectus"), in the form filed under the 1933 Act
with the
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Commission and previously furnished to NIF III, did not as of their date
and do not as of the date hereof contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of FHIT, threatened against FHIT.
(f) There are no material contracts outstanding to which FHIT is a
party, other than as disclosed in the FHIT Prospectus, and there are no
such contracts or commitments (other than this Agreement) which will be
terminated with liability to FHIT on or prior to the Exchange Date.
(g) FHIT has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statements of
assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of FHIT's business as an investment company since that
date.
(h) As used in this Agreement, the term "Investments" shall mean
FHIT's investments shown on the statements of assets and liabilities at
October 31, 1996 referred to in Section 2(g) hereof, as supplemented with
such changes as FHIT shall make after October 31, 1996 in the ordinary
course of its business.
(i) FHIT has filed or will file all federal and state tax returns
which, to the knowledge of FHIT's officers, are required to be filed by
FHIT and has paid or will pay all federal and state taxes shown to be due
on said returns or on any assessments received by FHIT. All tax liabilities
of FHIT have been adequately provided for on its books, and no tax
deficiency or liability of FHIT has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), FHIT will
have full right, power and authority to assign, transfer and deliver the
Investments and any other of its assets and liabilities to be transferred
to NIF III and the Acquiring Series pursuant to this Agreement. On the
Exchange Date, subject only to the delivery of the Investments and any such
other assets and liabilities as contemplated by this Agreement, NIF III and
the Acquiring Series will acquire the Investments and any such other assets
subject to no encumbrances, liens or security interests in favor of any
third party creditor of FHIT and, except as described in Section 2(k),
without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of FHIT or NIF III, except as previously
disclosed to NIF III by FHIT prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FHIT of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement (the "N-14 Registration Statement") to
be filed with the Commission by NIF III on Form N-14 relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of FHIT
included therein (the "Proxy Statement"), on the effective date of the N-14
Registration Statement and insofar as they relate to FHIT and the Acquired
Series, (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in the N-14 Registration Statement
of which the Proxy Statement is a part, as amended or supplemented by any
amendments or supplements filed with the Commission by NIF III, (together,
the "N-14 Prospectus") insofar as it relates to FHIT and the Acquired
Series, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the
representations and warranties in this Section 2(m) shall apply only to
statements of fact relating to FHIT and the Acquired Series contained in
the N-14 Registration Statement,
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the N-14 Prospectus or and the Proxy Statement, or omissions to state in
any thereof a material fact relating to FHIT or any Acquired Series, as
such Registration Statement, N-14 Prospectus and Proxy Statement shall be
furnished to FHIT in definitive form as soon as practicable following
effectiveness of the N-14 Registration Statement and before any public
distribution of the N-14 Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with FHIT that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to FHIT promptly
upon the completion thereof and will not as of their date contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of FHIT to be transferred to the
Acquiring Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date, the N-14
Prospectus, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the N-14 Registration Statement, the N-14
Prospectus or the Proxy Statement made in reliance upon and in conformity
with information furnished by FHIT or any Acquired Series for use in the
N-14 Registration Statement, the N-14 Prospectus or the Proxy Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end
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investment company, nor does NIF III have any plan or intention to redeem
or otherwise reacquire any shares of the Acquiring Series issued to FHIT
shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business. NIF III will actively
continue FHIT's business in the same manner that FHIT conducted it
immediately before the Reorganization and has no plan or intention to sell
or otherwise dispose of any of the assets to be acquired by NIF III in the
Reorganization, except for dispositions made in the course of its business
and dispositions necessary to maintain the status of each Acquiring Series
as a regulated investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to FHIT pursuant to
this Agreement will be legally and validly issued by NIF III and will be
fully paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to FHIT a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of FHIT acquired
by the respective Acquiring Series, less the value of the liabilities of
FHIT assumed, determined as hereafter provided in this Section 4.
(a) The net assets of FHIT and each Acquired Series will be computed
as of the Valuation Time, using the valuation procedures set forth in the
FHIT Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time, provided that the net asset value per share of
the NIF III Tax-Free Income Fund shares utilized to acquire the assets and
liabilities of FHIT Municipal Bond Fund shall be set at the net asset value
per share of the NIF III Tax-Free Income Fund shares utilized to acquire
the assets and liabilities of Nationwide Tax-Free Income Fund, a series of
Nationwide Investing Foundation II.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
FHIT on a share deposit receipt registered in the name of FHIT. FHIT shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former FHIT shareholder as may
be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of FHIT, whether
accrued or contingent, described in subsection l(c) hereof in connection
with the acquisition of assets and subsequent dissolution of FHIT or
otherwise, except that recourse for assumed liabilities relating to an
Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of FHIT and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
FHIT will be responsible for proxy solicitation and other costs associated
with the special meeting. Notwithstanding the foregoing, Nationwide
Advisory Services, Inc., investment adviser of FHIT and NIF III, will be
responsible for 50% of FHIT's and NIF III's fees and expenses of the
Reorganization and 50% of FHIT's proxy solicitation and other costs
associated with the special meeting.
6. EXCHANGE DATE. Delivery of the assets of FHIT to be transferred,
assumption of the liabilities of FHIT to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of FHIT,
at
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9:00 A.M. on March 1, 1998, or at such other time, date, and location
agreed to by FHIT and NIF III, the date and time upon which such delivery
is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) FHIT agrees to call a special meeting of its shareholders as soon
as is practicable for the purpose of considering the transfer of all of the
assets of FHIT to, and the assumption of all of the liabilities of FHIT by,
the Acquiring Series as herein provided, authorizing and approving this
Agreement, and authorizing and approving the liquidation and dissolution of
FHIT, and it shall be a condition to the obligations of each of the parties
hereto that the holders of shares of beneficial interest, par value $1.00
per share, of FHIT shall have approved this Agreement, and the transactions
contemplated herein, including the liquidation and dissolution of FHIT, in
the manner required by law and FHIT's Amended Declaration of Trust at such
a meeting on or before the Valuation Time.
(b) FHIT agrees that the liquidation and dissolution of FHIT will be
effected in the manner provided in FHIT's Amended Declaration of Trust and
in accordance with applicable law, and that it will not make any
constructive distribution of any Acquiring Series Shares to the
shareholders of FHIT without first paying or adequately providing for the
payment of all of FHIT's known debts, obligations and liabilities.
(c) Each of FHIT and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14-Registration Statement, including the N-14 Prospectus
and N-14 Proxy Statement included therein.
8. CONDITIONS OF FHIT'S OBLIGATIONS. The obligations of FHIT hereunder shall
be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of FHIT,
shall have been approved by the trustees and shareholders of FHIT in the
manner required by law.
(b) NIF III shall have executed and delivered to FHIT an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of FHIT, contingent or otherwise, including liabilities existing
at the Valuation Time and described in Section 1(c) hereof in connection
with the transactions contemplated by this Agreement; provided that
recourse for assumed liabilities relating to an Acquired Series shall be
limited to the corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to FHIT a statement, dated the Exchange Date, signed by NIF III's
Chairman and Treasurer (or other financial officer) certifying those facts
as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) FHIT shall have received an opinion of Druen, Dietrich, Reynolds &
Koogler in form reasonably satisfactory to FHIT, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to FHIT as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be fully paid and
nonassessable by NIF III and no shareholder of NIF III has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by NIF III, and assuming
due authorization, execution and delivery of this Agreement by FHIT, is a
valid and binding obligation of NIF III, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
A-6
<PAGE> 155
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) FHIT shall have received an opinion of Baker & Hostetler LLP
addressed to FHIT, NIF III and each Acquiring Series and in a form
reasonably satisfactory to FHIT dated the Exchange Date, with respect to
the matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, FHIT and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to FHIT,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of FHIT, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and FHIT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and FHIT, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of FHIT,
shall have been approved by the trustees and shareholders of FHIT in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of FHIT made in this Agreement are true and
correct in all material respects as if made at and as of such dates, FHIT
has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to each of such dates,
and FHIT shall have furnished to NIF III a statement, dated the Exchange
Date, signed by FHIT's Chairman and Treasurer (or other financial officer)
certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) FHIT is a business trust validly
existing under the laws of the Commonwealth of Massachusetts, (ii) this
Agreement has been duly authorized, executed and delivered by FHIT and,
assuming due authorization, execution and delivery of this Agreement by NIF
III, is a valid and binding obligation of FHIT, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iii) FHIT
has power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, FHIT
will have duly assigned, conveyed, transferred and delivered such
Investments and other assets to NIF III, (iv) the execution and delivery of
this Agreement did not and the consummation of the transactions
contemplated hereby will not, violate FHIT's Amended Declaration of Trust
or its Amended Bylaws, as amended, or any provision of any agreement known
to such counsel to which FHIT is a party or by which it is bound, and (v)
to the knowledge of such counsel no consent, approval, authorization or
order of any court or governmental
A-7
<PAGE> 156
authority is required for the consummation by FHIT of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
1934 Act and 1940 Act and such as may be required under state securities or
blue sky laws or state laws applicable to business trusts. In rendering
such opinion, Druen, Dietrich, Reynolds & Koogler may rely upon certain
reasonable and customary assumptions and certifications of fact received
from FHIT and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and FHIT, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
Acquired Series' assets in exchange for the Acquiring Series Shares and the
assumption by the Acquiring Series of the liabilities of Acquired Series
will constitute a "reorganization" within the meaning of Section 368(a) of
the Code, and each of the Acquiring Series and Acquired Series is a "party
to a reorganization" within the meaning of Section 368(b) of the Code; (ii)
no gain or loss will be recognized by Acquired Series upon the transfer of
the assets of the Acquired Series in exchange for Acquiring Series Shares
and the assumption by the Acquiring Series of the liabilities of Acquired
Series or upon the distribution of Acquiring Series Shares by Acquired
Series to its shareholders in liquidation; (iii) no gain or loss will be
recognized by the shareholders of Acquired Series upon the exchange of
their shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) an Acquired Series shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the
period for which he or she held Acquired Series Shares exchanged therefor,
provided that he or she held such Shares as capital assets; (vi) no gain or
loss will be recognized by the Acquiring Series upon the receipt of the
assets of the corresponding Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of the corresponding Acquired Series (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of the
assets in the hands of the corresponding Acquired Series immediately prior
to the transfer and (viii) the Acquiring Series' holding periods of the
assets of the corresponding Acquired Series will include the period for
which such assets of the corresponding Acquired Series were held by the
corresponding Acquired Series. In rendering such opinion, Baker & Hostetler
LLP may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF III, FHIT, and certain of its
shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by FHIT in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31, 1997 and the short taxable year beginning November
1, 1997 and ending on the Valuation Time (after reduction for any capital
loss carryover).
(i) FHIT shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
FHIT's entire right, title and interest in and to the Investments and all
other assets of FHIT to the Acquiring Series.
(j) NIF III and FHIT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and FHIT, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
A-8
<PAGE> 157
10. TERMINATION. NIF III and FHIT may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or FHIT, after consultation
with counsel and by consent of their respective trustees or an officer
authorized by such trustees may, subject to Section 11 of this Agreement,
waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
FHIT; provided, however, that following the special meeting of FHIT's
shareholders called by FHIT pursuant to Section 7 of this Agreement, no such
amendment may have the effect of altering or changing the amount or kind of
shares received by FHIT, or altering or changing to any material extent the
amount or kind of liabilities assumed by NIF III and the Acquiring Series, or
altering or changing any other terms and conditions of the Reorganization if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect FHIT's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
FINANCIAL HORIZONS INVESTMENT TRUST
By /s/ JAMES F. LAIRD, JR.
------------------------------------
NATIONWIDE INVESTING FOUNDATION III
By /s/ CHRISTOPHER A. CRAY
------------------------------------
A-9
<PAGE> 158
FINANCIAL HORIZONS INVESTMENT TRUST
GROWTH FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of the Growth Fund (the "Fund") of
P FINANCIAL HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, at its offices at Three Nationwide Plaza,
Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all adjournments
thereof, on the following proposal and any other matters that may properly
R come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Mid Cap Growth Fund of Nationwide Investing
Foundation III for shares of Nationwide Mid Cap Growth Fund and the
assumption by Nationwide Mid Cap Growth Fund of all of the liabilities
of the Fund, followed by the dissolution and liquidation of the Fund
and the Trust and the distribution of shares of Nationwide Mid Cap
X Growth Fund to the shareholders of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
Y and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _______________________________
______________________________________
(Signature of Shareholder)
<PAGE> 159
____________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 160
FINANCIAL HORIZONS INVESTMENT TRUST
CASH RESERVE FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of the Cash Reserve Fund (the "Fund") of
P FINANCIAL HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, at its offices at Three Nationwide Plaza,
Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all adjournments
thereof, on the following proposal and any other matters that may properly
R come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Money Market Fund of Nationwide Investing
Foundation III for shares of Nationwide Money Market Fund and the
assumption by Nationwide Money Market Fund of all of the liabilities of
the Fund, followed by the dissolution and liquidation of the Fund and
the Trust and the distribution of shares of Nationwide Money Market
X Fund to the shareholders of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
Y and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _______________________________
<PAGE> 161
____________________________
(Signature of Shareholder)
____________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 162
FINANCIAL HORIZONS INVESTMENT TRUST
GOVERNMENT BOND FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of the Government Bond Fund (the "Fund")
P of FINANCIAL HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned
is entitled to vote, at the Special Meeting of Shareholders of the Trust to
be held Monday, February 16, 1998, at its offices at Three Nationwide Plaza,
Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all adjournments
thereof, on the following proposal and any other matters that may properly
R come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Long-Term Government Bond Fund of Nationwide
Investing Foundation III for shares of Nationwide Long-Term Government
Bond Fund and the assumption by Nationwide Long-Term Government Bond
Fund of all of the liabilities of the Fund, followed by the dissolution
and liquidation of the Fund and the Trust and the distribution of
X shares of Nationwide Long-Term Government Bond Fund to the shareholders
of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
Y but if no instructions are given this proxy will be voted FOR the proposal
and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _______________________________
<PAGE> 163
____________________________
(Signature of Shareholder)
____________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 164
FINANCIAL HORIZONS INVESTMENT TRUST
MUNICIPAL BOND FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig
Alvey, and each of them, with full power of substitution, proxies to vote
and act with respect to all Shares of the Municipal Bond Fund (the "Fund")
P of FINANCIAL HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned
is entitled to vote, at the Special Meeting of Shareholders of the Trust to
be held Monday, February 16, 1998, at its offices at Three Nationwide Plaza,
Columbus, Ohio, at __:00 A.M. E.S.T. and at any and all adjournments
thereof, on the following proposal and any other matters that may properly
R come before the meeting.
(1) FOR [ ] AGAINST [ ] ABSTAIN [ ] approval of the Agreement and
Plan of Reorganization by and between Nationwide Investing Foundation
III and the Trust providing for the transfer of all of the assets of
O the Fund to Nationwide Tax-Free Income Fund of Nationwide Investing
Foundation III for shares of Nationwide Tax-Free Income Fund and the
assumption by Nationwide Tax-Free Income Fund of all of the liabilities
of the Fund, followed by the dissolution and liquidation of the Fund
and the Trust and the distribution of shares of Nationwide Tax-Free
X Income Fund to the shareholders of the Fund.
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder,
but if no instructions are given this proxy will be voted FOR the proposal
Y and in accordance with the best judgment of the proxies on any other matter
which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated December __, 1997, and the Combined
Prospectus/Proxy Statement attached thereto.
</TABLE>
DATED: _______________________________
<PAGE> 165
____________________________
(Signature of Shareholder)
____________________________
(Signature of Shareholder)
(Please sign legibly exactly as the name is printed on the left or as it
appears on your stock certificate.)
If the certificate or certificates are registered in joint name, both
parties must sign the proxy. If the registration is as attorney, executor,
administrator, trustee, or guardian, please sign full title as such.
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 166
STATEMENT OF ADDITIONAL INFORMATION
NATIONWIDE GROWTH FUND
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE FUND
NATIONWIDE BOND FUND
NATIONWIDE LONG-TERM GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE GOVERNMENT BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE MONEY MARKET FUND
Eight Funds of
NATIONWIDE INVESTING FOUNDATION III
This Statement of Additional Information is not a prospectus and contains
information which may be of interest to investors but which is not included in
the Combined Prospectus/Proxy Statements (the "Prospectuses") of Nationwide
Investing Foundation III (the "Trust") dated December __, 1997, relating to the
transfer of assets from Nationwide Growth Fund, Nationwide Fund, Nationwide
Bond Fund and Nationwide Money Market Fund of Nationwide Investing Foundation
("NIF I"), Nationwide Tax-Free Income Fund and Nationwide Government Income
Fund of Nationwide Investing Foundation II ("NIF II"), and the Growth Fund, the
Cash Reserve Fund, the Government Bond Fund and the Municipal Bond Fund of
Financial Horizons Investment Trust ("FHIT") (collectively the "Acquired
Funds") to Nationwide Fund, Nationwide Bond Fund, Nationwide Long-Term
Government Bond Fund, Nationwide Intermediate Government Bond Fund, Nationwide
Tax-Free Income Fund and Nationwide Money Market Fund of Nationwide Investing
Foundation III (collectively the "Acquiring Funds") in the manner described in
the Prospectuses. The Statements of Additional Information for the Acquired
Funds each dated February 28, 1997, and the Statement of Additional Information
for the Acquiring Funds dated December __, 1997, have been filed with the
Securities and Exchange Commission and are incorporated herein by reference.
This Statement of Additional Information is not a Prospectus and is authorized
for distribution only when it accompanies or follows delivery of the
Prospectuses. This Statement of Additional Information should be read in
conjunction with the Prospectuses. Copies of the December __, 1997
Prospectuses may be obtained, without charge, by writing the Trust, Three
Nationwide Plaza, Columbus, Ohio 43215, or by calling 1-800-848-0920.
The date of this Statement of Additional Information is December __, 1997.
<PAGE> 167
Registration Statement
of
NATIONWIDE INVESTING FOUNDATION III
on
Form N-14
PART C. OTHER INFORMATION
Item 15. Indemnification
---------------
The information required by this item is incorporated by
reference to Item 27 of Registrant's Registration Statement on
Form N-1A (File No. 33-40455) filed on November 18, 1997,
under the Securities Act of 1933 and the Investment Company
Act of 1940 (File No. 811-08495).
Item 16. Exhibits
--------
(1) Declaration of Trust is incorporated by reference
to Exhibit (1) to Registrant's Registration
Statement on Form N-1A (File No. 33-40455) filed on
November 18, 1997.
(2) By-Laws are incorporated by reference to Exhibit (2)
to Registrant's Registration Statement on Form N-1A
(File No. 33-40455) filed on November 18,
1997.
(3) Not Applicable.
(4) (a) Agreement and Plan of Reorganization
dated as of November 24, 1997, between
Registrant and Nationwide Investing
Foundation.
(b) Agreement and Plan of Reorganization dated
as of November 24, 1997, between Registrant
and Nationwide Investing Foundation II.
(c) Agreement and Plan of Reorganization dated
as of November 24, 1997, between Registrant
and Financial Horizons Investment Trust.
(5) Certificates for shares are not issued. Articles V,
VI, VII and VIII of the Declaration of Trust,
incorporated by reference to Exhibit (1) hereto,
define rights of holders of shares.
(6) Proposed Investment Advisory Agreement between
Registrant and Nationwide Advisory Services, Inc. is
incorporated by reference to Exhibit (5) to
Registrant's Registration Statement on Form N-1A
(File No. 33-40455) filed on November 18, 1997.
(7) Proposed Underwriting Agreement between Registrant
and Nationwide Advisory Services, Inc. is
incorporated by reference to Exhibit (6) to
<PAGE> 168
Registrant's Registration Statement on Form N-1A
(File No. 33-40455) filed on November 18, 1997.
(8) Not Applicable.
(9) Proposed Custody Agreement between Registrant and The
Fifth Third Bank is incorporated by reference to
Exhibit (8) to Registrant's Registration Statement on
Form N-1A (File No. 33-40455) filed on November 18,
1997.
(10) Proposed Distribution Plan is incorporated by
reference to Exhibit (15) to Registrant's
Registration Statement on Form N-1A (File No. 33-
40455) filed on November 18, 1997.
(11) Opinion and Consent of Druen, Dietrich, Reynolds &
Koogler as to the shares offered hereby.
(12) Opinions and Consents of Baker & Hostetler LLP as to
Tax Matters to be filed by amendment.
(13) (a) Proposed Fund Administration Agreement
between Registrant and Nationwide Advisory
Services, Inc. is incorporated by reference
to Exhibit (9)(b) to Registrant's
Registration Statement on Form N-1A (File
No. 33-40455) filed on November 18, 1997.
(b) Proposed Transfer and Dividend Disbursing
Agent Agreement between Registrant and
Nationwide Investors Services, Inc. is
incorporated by reference to Exhibit (9)(b)
to Registrant's Registration Statement on
Form N-1A (File No. 33-40455) filed on
November 18, 1997.
(14) (a) Consent of KPMG Peat Marwick LLP
(b) Consent of Druen, Dietrich, Reynolds &
Koogler
(c) Consent of Baker & Hostetler LLP
(15) Not Applicable.
(16) Powers of Attorney of Sue A. Doody, Dimon R.
McFerson, Nancy C. Thomas, Harold W. Weihl, Douglas
F. Kridler, John C. Bryant, C. Brent DeVore, Charles
L. Fuellgraf, Jr., David C. Wetmore and Thomas J.
Kerr, IV.
(17) (a) Declaration pursuant to Rule 24f-2 under
the Investment Company Act of 1940 for the
Registrant dated November 18, 1997.
C-2
<PAGE> 169
(b) Current form of Prospectus dated December
__, 1997, and Statement of Additional
Information dated December __, 1997, for
Nationwide Investing Foundation III, with
respect to Nationwide Mid-Cap Growth Fund,
Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund, Nationwide Tax-Free
Income Fund, Nationwide Long-Term U.S.
Government Bond Fund, Nationwide
Intermediate U.S. Government Bond Fund and
Nationwide Money Market Fund in the form
filed with the Securities and Exchange
Commission on November 18, 1997, as part of
Registrant's Registration Statement on Form
N-1A.
(c) Prospectus dated February 28, 1997, and
Statement of Additional Information dated
February 28, 1997, for each of Nationwide
Investing Foundation and Nationwide
Investing Foundation II with respect to
Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund, Nationwide Tax-Free
Income Fund, Nationwide U.S. Government
Income Fund and Nationwide Money Market
Fund.
(d) Prospectus dated February 28, 1997, as
supplemented on March 17, 1997 and September
5, 1997 and Statement of Additional
Information dated February 28, 1997, for
Financial Horizons Investment Trust with
respect to Growth Fund, Cash Reserve Fund,
Government Bond Fund and Municipal Bond
Fund.
(e) Financial Data Schedules for each of
Nationwide Investing Foundation with respect
to Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund and Nationwide Money
Market Fund, Nationwide Investing Foundation
II with respect to Nationwide Tax-Free
Income Fund and Nationwide U.S. Government
Income Fund and Financial Horizons
Investment Trust with respect to Growth
Fund, Cash Reserve Fund, Government Bond
Fund and Municipal Bond Fund.
Item 17. Undertakings
------------
(1) Registrant agrees that prior to any public
reoffering of the securities registered through the
use of a prospectus which is a part of this
registration statement by any person or party who
is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information
C-3
<PAGE> 170
called for by the applicable registration form for
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of
an amendment to the registration statement and will
not be used until the amendment is effective, and
that, in determining any liability under the
Securities Act of 1933, each post-effective amendment
shall be deemed to be a new registration statement
for the securities offered therein, and the offering
of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) Registrant hereby undertakes to file by
post-effective amendment the opinions of Baker &
Hostetler LLP supporting the tax consequences of the
proposed reorganization described herein within a
reasonable time after receipt of such opinions.
C-4
<PAGE> 171
SIGNATURES
----------
As required by the Securities Act of 1933, 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 the 26th
day of November, 1997.
NATIONWIDE INVESTING FOUNDATION III
By /s/ James F. Laird, Jr.
---------------------------------
James F. Laird, Jr.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/*Dimon R. McFerson Chairman (Principal November 26, 1997
- ---------------------------- Executive Officer)
Dimon R. McFerson and Trustee
/s/*John C. Bryant Trustee November 26, 1997
- ---------------------------
John C. Bryant
/s/*C. Brent Devore Trustee November 26, 1997
- ----------------------------
C. Brent Devore
Trustee November 26, 1997
- ----------------------------
Robert M. Duncan
/s/*Sue A. Doody Trustee November 26, 1997
- ----------------------------
Sue A. Doody
/s/*Charles L. Fuellgraf, Jr. Trustee November 26, 1997
- ----------------------------
Charles L. Fuellgraf, Jr.
/s/*Thomas J. Kerr, IV Trustee November 26, 1997
- ----------------------------
Thomas J. Kerr, IV
/s/*Douglas F. Kridler Trustee November 26, 1997
- ----------------------------
Douglas F. Kridler
/s/*Nancy C. Thomas Trustee November 26, 1997
- ----------------------------
Nancy C. Thomas
/s/*Harold W. Weihl Trustee November 26, 1997
- ----------------------------
Harold W. Weihl
/s/*David C. Wetmore Trustee November 26, 1997
- ----------------------------
David C. Wetmore
/s/ James F. Laird, Jr. Treasurer (Principal November 26, 1997
- --------------------------- Financial and Accounting
James F. Laird, Jr. Officer)
*By /s/James F. Laird, Jr. November 26, 1997
------------------------
James F. Laird, Jr.
Attorney-In-Fact
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<PAGE> 172
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- -------------------------------------------------------- -------
(1) Declaration of Trust was filed as Exhibit (1) to
Registrant's Registration Statement on Form N-1A (File
No. 33-40455) on November 18, 1997.
(2) By-Laws were filed as Exhibit (2) to Registrant's
Registration Statement on Form N-1A (File No. 33-40455)
on November 18, 1997.
(4)(a) Agreement and Plan of Reorganization dated as of November
24, 1997, between Registrant and Nationwide Investing
Foundation.
(b) Agreement and Plan of Reorganization dated as of November
24, 1997, between Registrant and Nationwide Investing
Foundation II.
(c) Agreement and Plan of Reorganization dated as of November
24, 1997, between Registrant and Financial Horizons
Investment Trust.
(6) Proposed Investment Advisory Agreement between Registrant
and Nationwide Advisory Services, Inc. was filed as
Exhibit (5) to Registrant's Registration Statement on
Form N-1A (File No. 33-40455) filed on November 18, 1997.
(7) Proposed Underwriting Agreement between Registrant and
Nationwide Advisory Services, Inc. was filed as Exhibit
(6) to Registrant's Registration Statement on Form N-1A
(File No. 33-40455) filed on November 18, 1997.
(9) Proposed Custody Agreement between Registrant and The
Fifth Third Bank was filed as Exhibit (8) to Registrant's
Registration Statement on Form N-1A (File No. 33-40455)
filed on November 18, 1997.
(10) Proposed Distribution Plan was filed as Exhibit (15) to
Registrant's Registration Statement on Form N-1A (File
No. 33-40455) filed on November 18, 1997.
(11) Opinion and Consent of Druen, Dietrich, Reynolds &
Koogler as to the shares offered hereby.
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<PAGE> 173
Exhibit No. Description Page
- ----------- -------------------------------------------------------- -------
(12) Opinions and Consents of Baker & Hostetler LLP as to Tax
Matters to be filed by amendment.
(13)(a) Proposed Fund Administration Agreement between Registrant
and Nationwide Advisory Services, Inc. was filed as
Exhibit (9)(b) to Registrant's Registration Statement on
Form N-1A (File No. 33-40455) filed on November 18,
1997.
(b) Proposed Transfer and Dividend Disbursing Agent Agreement
between Registrant and Nationwide Investors Services,
Inc. was filed as Exhibit (9)(b) to Registrant's
Registration Statement on Form N-1A (File No. 33-40455)
filed on November 18, 1997.
(14)(a) Consent of KPMG Peat Marwick LLP
(b) Consent of Druen, Dietrich, Reynolds & Koogler
(c) Consent of Baker & Hostetler LLP
(16) Powers of Attorney of Sue A. Doody, Dimon R. McFerson, Nancy C.
Thomas, Harold W. Weihl, Douglas F. Kridler, John C. Bryant, C.
Brent DeVore, Charles L. Fuellgraf, Jr., David C. Wetmore and
Thomas J. Kerr, IV.
(17)(a) Declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 for the Registrant dated November 18,
1997.
(b) Current form of Prospectus dated December __, 1997, and Statement
of Additional Information dated December __, 1997, for Nationwide
Investing Foundation III, with respect to Nationwide Mid Cap Growth
Fund, Nationwide Growth Fund, Nationwide Fund, Nationwide Bond
Fund, Nationwide Tax-Free Income Fund, Nationwide Long-Term U.S.
Government Bond Fund, Nationwide Intermediate U.S. Government Bond
Fund and Nationwide Money Market Fund in the form filed with the
Securities and Exchange Commission on November 18, 1997, as part of
Registrant's Registration Statement on Form N-1A.
(c) Prospectus dated February 28, 1997, and Statements of Additional
Information dated February 28, 1997, for each of Nationwide
C-7
<PAGE> 174
Exhibit No. Description Page
- ----------- -------------------------------------------------------- -------
Investing Foundation and Nationwide Investing Foundation
II with respect to Nationwide Growth Fund, Nationwide
Fund, Nationwide Bond Fund, Nationwide Tax-Free Income
Fund, Nationwide U.S. Government Income Fund and
Nationwide Money Market Fund.
(d) Prospectus dated February 28, 1997, as supplemented on
March 17, 1997 and September 5, 1997, and Statement of
Additional Information dated February 28, 1997, for
Financial Horizons Investment Trust with respect to
Growth Fund, Cash Reserve Fund, Government Bond Fund and
Municipal Bond Fund.
(e) Financial Data Schedules for each of Nationwide Investing
Foundation with respect to Nationwide Growth Fund,
Nationwide Fund, Nationwide Bond Fund and Nationwide
Money Market Fund, Nationwide Investing Foundation II
with respect to Nationwide Tax-Free Income Fund and
Nationwide U.S. Government Income Fund and Financial
Horizons Investment Trust with respect to Growth Fund,
Cash Reserve Fund, Government Bond Fund and Municipal
Bond Fund.
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<PAGE> 175
As filed with the Securities and Exchange Commission November 26, 1997
1933 Act Registration No. 33-______
EXHIBITS TO
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
Nationwide Investing Foundation III
(Exact Name of Registrant as Specified in Charter)
Three Nationwide Plaza
Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 848-0920
<PAGE> 1
EXHIBIT 4(a)
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Nationwide Investing Foundation, a Michigan business trust
("NIF") and Nationwide Investing Foundation III, an Ohio business trust ("NIF
III").
WHEREAS, NIF is registered under the Investment Company Act of 1940, as
amended ("1940 Act") as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following four series: Nationwide Growth Fund ("NIF Growth
Fund"), Nationwide Fund ("NIF Fund"), Nationwide Bond Fund ("NIF Bond Fund"),
and Nationwide Money Market Fund ("NIF Money Market Fund", and, together with
each of the NIF's other three series described in this paragraph, the "Acquired
Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series
(Nationwide Money Market Fund will only issue shares of beneficial interest,
without par value, without any class designation): Nationwide Growth Fund ("NIF
III Growth Fund"), Nationwide Fund ("NIF III Fund"), Nationwide Bond Fund ("NIF
III Bond Fund"), and Nationwide Money Market Fund ("NIF III Money Market Fund",
and, together with each of NIF III's other three series described in this
paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets and liabilities
of the corresponding Acquired Series; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares (or, in
the case of NIF III Money Market Fund, shares of beneficial interest, without
par value, without any class designation) of the corresponding Acquiring Series
("Acquiring Series Shares"), which are voting securities, followed by the
distribution of the Acquiring Series Shares by each Acquired Series to the
shareholders of the Acquired Series in connection with the dissolution of NIF
and the Acquired Series, all upon the terms and provisions of this Agreement
(individually and together, the "Reorganization"); and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: NIF Growth Fund corresponds to NIF III Growth Fund, NIF Fund
corresponds to NIF III Fund, NIF Bond Fund corresponds to NIF III Bond Fund, and
NIF Money Market Fund corresponds to NIF III Money Market Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of NIF has determined that the
Reorganization is in the best interests of NIF, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
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<PAGE> 2
1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of NIF and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as described in Section 9(h) herein), NIF and the
Acquired Series agree to assign, convey, transfer and deliver to NIF III
and the Acquiring Series, and NIF III and the Acquiring Series agree to
acquire from NIF and the Acquired Series on the Exchange Date (as defined
below), all of the Investments (as defined below), cash and other assets of
NIF in exchange for that number of full and fractional Acquiring Series
Shares of the corresponding Acquiring Series having an aggregate net asset
value equal to the value of all assets of NIF transferred to the Acquring
Series, as provided in Section 4, less the liabilities of NIF assumed by
the Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring Series
from NIF shall consist of all of NIF's property, including, without
limitation, all Investments (as defined below), cash and dividends or
interest receivables which are owned by NIF and any deferred or prepaid
expenses shown as an asset on the books of NIF as of the Valuation Time
described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date NIF will endeavor
to discharge or cause to be discharged, or make provision for the payment
of, all of its known liabilities and obligations. The Acquiring Series
shall assume all liabilities, expenses, costs, charges and reserves of NIF,
contingent or otherwise, including liabilities reflected in the unaudited
statements of assets and liabilities of NIF as of the Valuation Time,
prepared by or on behalf of NIF as of the Valuation Time in accordance with
generally accepted accounting principles consistently applied from and
after October 31, 1996, and including all liabilities of the NIF under its
registration statement on Form N-1A filed with the Securities and Exchange
Commission ("Commission") under the Securities Act of 1933, as amended
("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the transactions
described in Section 1(a), 1(b) and 1(c) above, each Acquired Series shall
distribute to its shareholders of record as of the Exchange Date the
Acquiring Series Shares received by it, each Acquired Series shareholder of
record being entitled to receive that number of Acquiring Series Shares
equal to the proportion which the number of shares of beneficial interest,
par value $1.00 per share, of the Acquired Series held by such shareholder
bears to the total number of such shares of the Acquired Series outstanding
on such date, and shall take such further action as may be required,
necessary or appropriate under NIF's Amended Trust Indenture, Michigan law
and the Code to effect the complete liquidation and dissolution of NIF. NIF
will fulfill all reporting requirements under the 1940 Act, both before and
after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF. NIF represents and
warrants to and agrees with NIF III and the Acquiring Series that:
(a) NIF is a business trust validly existing under the laws of the
State of Michigan and has power to own all of its properties and assets and
to carry out its obligations under this Agreement.
(b) NIF is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. NIF has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for NIF, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of NIF, have been furnished to NIF III. Such statements of assets
and liabilities fairly present the financial position of NIF as of such
date and such statements of operations and changes in net assets fairly
reflect the results of operations and changes in net assets for the
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<PAGE> 3
periods covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of NIF as of such
dates which are not disclosed therein.
(d) The Prospectus of NIF dated February 28, 1997 and its related
Statement of Additional Information dated February 28, 1997 (together, the
"NIF Prospectus"), in the form filed under the 1933 Act with the Commission
and previously furnished to NIF III, did not as of their date and do not as
of the date hereof contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of NIF, threatened against NIF.
(f) There are no material contracts outstanding to which NIF is a
party, other than as disclosed in the NIF Prospectus, and there are no such
contracts or commitments (other than this Agreement) which will be
terminated with liability to NIF on or prior to the Exchange Date.
(g) NIF has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statements of
assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of NIF's business as an investment company since that date.
(h) As used in this Agreement, the term "Investments" shall mean NIF's
investments shown on the statements of assets and liabilities at October
31, 1996 referred to in Section 2(g) hereof, as supplemented with such
changes as NIF shall make after October 31, 1996 in the ordinary course of
its business.
(i) NIF has filed or will file all federal and state tax returns
which, to the knowledge of NIF's officers, are required to be filed by NIF
and has paid or will pay all federal and state taxes shown to be due on
said returns or on any assessments received by NIF. All tax liabilities of
NIF have been adequately provided for on its books, and no tax deficiency
or liability of NIF has been asserted, and no question with respect thereto
has been raised, by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), NIF will
have full right, power and authority to assign, transfer and deliver the
Investments and any other of its assets and liabilities to be transferred
to NIF III and the Acquiring Series pursuant to this Agreement. On the
Exchange Date, subject only to the delivery of the Investments and any such
other assets and liabilities as contemplated by this Agreement, NIF III and
the Acquiring Series will acquire the Investments and any such other assets
subject to no encumbrances, liens or security interests in favor of any
third party creditor of NIF and, except as described in Section 2(k),
without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of NIF or NIF III, except as previously
disclosed to NIF III by NIF prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by NIF of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement (the "N-14 Registration Statement") to
be filed with the Commission by NIF III on Form N-14 relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of NIF
included therein (the "Proxy Statement"), on the effective date of the N-14
Registration Statement and insofar as they relate to NIF and the Acquired
Series, (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in
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<PAGE> 4
the N-14 Registration Statement of which the Proxy Statement is a part, as
amended or supplemented by any amendments or supplements filed with the
Commission by NIF III, (together, the "N-14 Prospectus") insofar as it
relates to NIF and the Acquired Series, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that the representations and warranties in
this Section 2(m) shall apply only to statements of fact relating to NIF
and the Acquired Series contained in the N-14 Registration Statement, the
N-14 Prospectus or and the Proxy Statement, or omissions to state in any
thereof a material fact relating to NIF or any Acquired Series, as such
Registration Statement, N-14 Prospectus and Proxy Statement shall be
furnished to NIF in definitive form as soon as practicable following
effectiveness of the N-14 Registration Statement and before any public
distribution of the N-14 Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with NIF that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to NIF promptly
upon the completion thereof and will not as of their date contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of NIF to be transferred to the Acquiring
Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date,
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<PAGE> 5
the N-14 Prospectus, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that none of the representations and warranties in this subsection shall
apply to statements in or omissions from the N-14 Registration Statement,
the N-14 Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by NIF or any Acquired Series for use
in the N-14 Registration Statement, the N-14 Prospectus or the Proxy
Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end investment
company, nor does NIF III have any plan or intention to redeem or otherwise
reacquire any shares of the Acquiring Series issued to NIF shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business. NIF III will actively continue NIF's
business in the same manner that NIF conducted it immediately before the
Reorganization and has no plan or intention to sell or otherwise dispose of
any of the assets to be acquired by NIF III in the Reorganization, except
for dispositions made in the course of its business and dispositions
necessary to maintain the status of each Acquiring Series as a regulated
investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to NIF pursuant to this
Agreement will be legally and validly issued by NIF III and will be fully
paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to NIF a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of NIF acquired
by the respective Acquiring Series, less the value of the liabilities of
NIF assumed, determined as hereafter provided in this Section 4.
(a) The net assets of NIF and each Acquired Series will be computed as
of the Valuation Time, using the valuation procedures set forth in the NIF
Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
NIF on a share deposit receipt registered in the name of NIF. NIF shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former NIF shareholder as may
be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of NIF, whether
accrued or contingent, described in subsection l(c) hereof in connection
with the acquisition of assets and subsequent dissolution of NIF or
otherwise, except that recourse for assumed liabilities relating to an
Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of NIF and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
NIF will be responsible for proxy solicitation and other costs associated
with the special meeting.
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<PAGE> 6
Notwithstanding the foregoing, Nationwide Advisory Services, Inc.,
investment adviser of NIF and NIF III, will be responsible for 50% of NIF's
and NIF III's fees and expenses of the Reorganization and 50% of NIF's
proxy solicitation and other costs associated with the special meeting.
6. EXCHANGE DATE. Delivery of the assets of NIF to be transferred, assumption
of the liabilities of NIF to be assumed, and the delivery of Acquiring
Series Shares to be issued shall be made at the offices of NIF, at 9:00
A.M. on March 1, 1998, or at such other time, date, and location agreed to
by NIF and NIF III, the date and time upon which such delivery is to take
place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) NIF agrees to call a special meeting of its shareholders as soon
as is practicable for the purpose of considering the transfer of all of the
assets of NIF to, and the assumption of all of the liabilities of NIF by,
the Acquiring Series as herein provided, authorizing and approving this
Agreement, and authorizing and approving the liquidation and dissolution of
NIF, and it shall be a condition to the obligations of each of the parties
hereto that the holders of shares of beneficial interest, par value $1.00
per share, of NIF shall have approved this Agreement, and the transactions
contemplated herein, including the liquidation and dissolution of NIF, in
the manner required by law and NIF's Amended Trust Indenture at such a
meeting on or before the Valuation Time.
(b) NIF agrees that the liquidation and dissolution of NIF will be
effected in the manner provided in NIF's Amended Trust Indenture and in
accordance with applicable law, and that it will not make any constructive
distribution of any Acquiring Series Shares to the shareholders of NIF
without first paying or adequately providing for the payment of all of
NIF's known debts, obligations and liabilities.
(c) Each of NIF and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14-Registration Statement, including the N-14 Prospectus
and N-14 Proxy Statement included therein.
8. CONDITIONS OF NIF'S OBLIGATIONS. The obligations of NIF hereunder shall be
subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF,
shall have been approved by the trustees and shareholders of NIF in the
manner required by law.
(b) NIF III shall have executed and delivered to NIF an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of NIF, contingent or otherwise, including liabilities existing at
the Valuation Time and described in Section 1(c) hereof in connection with
the transactions contemplated by this Agreement; provided that recourse for
assumed liabilities relating to an Acquired Series shall be limited to the
corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to NIF a statement, dated the Exchange Date, signed by NIF III's
Chairman and Treasurer (or other financial officer) certifying those facts
as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) NIF shall have received an opinion of Druen, Dietrich, Reynolds &
Koogler in form reasonably satisfactory to NIF, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to NIF as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be
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fully paid and nonassessable by NIF III and no shareholder of NIF III has
any preemptive right to subscription or purchase in respect thereof, (iii)
this Agreement has been duly authorized, executed and delivered by NIF III,
and assuming due authorization, execution and delivery of this Agreement by
NIF, is a valid and binding obligation of NIF III, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) NIF shall have received an opinion of Baker & Hostetler LLP
addressed to NIF, NIF III and each Acquiring Series and in a form
reasonably satisfactory to NIF dated the Exchange Date, with respect to the
matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, NIF and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and NIF shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF,
shall have been approved by the trustees and shareholders of NIF in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF made in this Agreement are true and
correct in all material respects as if made at and as of such dates, NIF
has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to each of such dates,
and NIF shall have furnished to NIF III a statement, dated the Exchange
Date, signed by NIF's Chairman and Treasurer (or other financial officer)
certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) NIF is a business trust validly
existing under the laws of the State of Michigan, (ii) this Agreement has
been duly authorized, executed and delivered by NIF and, assuming due
authorization, execution and delivery of this Agreement by NIF III, is a
valid and binding obligation of NIF, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
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creditors' rights generally and other equitable principles, (iii) NIF has
power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, NIF
will have duly assigned, conveyed, transferred and delivered such
Investments and other assets to NIF III, (iv) the execution and delivery of
this Agreement did not and the consummation of the transactions
contemplated hereby will not, violate NIF's Amended Trust Indenture or its
Code of Regulations, as amended, or any provision of any agreement known to
such counsel to which NIF is a party or by which it is bound, and (v) to
the knowledge of such counsel no consent, approval, authorization or order
of any court or governmental authority is required for the consummation by
NIF of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, 1934 Act and 1940 Act and such as may be
required under state securities or blue sky laws or state laws applicable
to business trusts. In rendering such opinion, Druen, Dietrich, Reynolds &
Koogler may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and NIF, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
Acquired Series' assets in exchange for the Acquiring Series Shares and the
assumption by the Acquiring Series of the liabilities of Acquired Series
will constitute a "reorganization" within the meaning of Section 368(a) of
the Code, and each of the Acquiring Series and Acquired Series is a "party
to a reorganization" within the meaning of Section 368(b) of the Code; (ii)
no gain or loss will be recognized by Acquired Series upon the transfer of
the assets of the Acquired Series in exchange for Acquiring Series Shares
and the assumption by the Acquiring Series of the liabilities of Acquired
Series or upon the distribution of Acquiring Series Shares by Acquired
Series to its shareholders in liquidation; (iii) no gain or loss will be
recognized by the shareholders of Acquired Series upon the exchange of
their shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) an Acquired Series shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the
period for which he or she held Acquired Series Shares exchanged therefor,
provided that he or she held such Shares as capital assets; (vi) no gain or
loss will be recognized by the Acquiring Series upon the receipt of the
assets of the corresponding Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of the corresponding Acquired Series (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of the
assets in the hands of the corresponding Acquired Series immediately prior
to the transfer and (viii) the Acquiring Series' holding periods of the
assets of the corresponding Acquired Series will include the period for
which such assets of the corresponding Acquired Series were held by the
corresponding Acquired Series. In rendering such opinion, Baker & Hostetler
LLP may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF III, NIF, and certain of its
shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by NIF in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31, 1997 and the short taxable year beginning November
1, 1997 and ending on the Valuation Time (after reduction for any capital
loss carryover).
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(i) NIF shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
NIF's entire right, title and interest in and to the Investments and all
other assets of NIF to the Acquiring Series.
(j) NIF III and NIF shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
10. TERMINATION. NIF III and NIF may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or NIF, after consultation
with counsel and by consent of their respective trustees or an officer
authorized by such trustees may, subject to Section 11 of this Agreement,
waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
NIF; provided, however, that following the special meeting of NIF's shareholders
called by NIF pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received by
NIF, or altering or changing to any material extent the amount or kind of
liabilities assumed by NIF III and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect NIF's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
NATIONWIDE INVESTING FOUNDATION
By /s/ JAMES F. LAIRD, JR.
------------------------------------
NATIONWIDE INVESTING FOUNDATION III
By /s/ CHRISTOPHER A. CRAY
------------------------------------
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EXHIBIT 4(b)
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Nationwide Investing Foundation II, a Massachusetts
business trust ("NIF II") and Nationwide Investing Foundation III, an Ohio
business trust ("NIF III").
WHEREAS, NIF II is registered under the Investment Company Act of 1940, as
amended ("1940 Act") as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following two series: Nationwide Tax-Free Income Fund ("NIF II
Tax-Free Income Fund") and Nationwide U.S. Government Income Fund ("NIF II U.S.
Government Income Fund", and together with NIF II's other series described in
this paragraph, the "Acquired Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series:
Nationwide Tax-Free Income Fund ("NIF III Tax-Free Income Fund") and Nationwide
Intermediate U.S. Government Bond Fund ("NIF III Intermediate U.S. Government
Bond Fund," and, together with NIF III's other series described in this
paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets or liabilities
of the corresponding Acquired Series; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares of the
corresponding Acquiring Series ("Acquiring Series Shares"), which are voting
securities, followed by the distribution of the Acquiring Series Shares by each
Acquired Series to the shareholders of the Acquired Series in connection with
the dissolution of NIF II and the Acquired Series, all upon the terms and
provisions of this Agreement (individually and together, the "Reorganization");
and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: NIF II Tax-Free Income Fund corresponds to NIF III Tax-Free
Income Fund and NIF II U.S. Government Income Fund corresponds to NIF III
Intermediate U.S. Government Bond Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of NIF II has determined that the
Reorganization is in the best interests of NIF II, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of NIF II and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as described in Section 9(h) herein), NIF II and the
Acquired Series agree to assign, convey, transfer and deliver to NIF III
and the Acquiring Series, and NIF III and the Acquiring Series agree to
acquire from
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NIF II and the Acquired Series on the Exchange Date (as defined below), all
of the Investments (as defined below), cash and other assets of NIF II in
exchange for that number of full and fractional Acquiring Series Shares of
the corresponding Acquiring Series having an aggregate net asset value
equal to the value of all assets of NIF II transferred to the Acquiring
Series, as provided in Section 4, less the liabilities of NIF II assumed by
the Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring
Series from NIF II shall consist of all of NIF II's property, including,
without limitation, all Investments (as defined below), cash and dividends
or interest receivables which are owned by NIF II and any deferred or
prepaid expenses shown as an asset on the books of NIF II as of the
Valuation Time described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date NIF II will
endeavor to discharge or cause to be discharged, or make provision for the
payment of, all of its known liabilities and obligations. The Acquiring
Series shall assume all liabilities, expenses, costs, charges and reserves
of NIF II, contingent or otherwise, including liabilities reflected in the
unaudited statements of assets and liabilities of NIF II as of the
Valuation Time, prepared by or on behalf of NIF II as of the Valuation Time
in accordance with generally accepted accounting principles consistently
applied from and after October 31, 1996, and including all liabilities of
the NIF II under its registration statement on Form N-1A filed with the
Securities and Exchange Commission ("Commission") under the Securities Act
of 1933, as amended ("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, each Acquired
Series shall distribute to its shareholders of record as of the Exchange
Date the Acquiring Series Shares received by it, each Acquired Series
shareholder of record being entitled to receive that number of Acquiring
Series Shares equal to the proportion which the number of shares of
beneficial interest, par value $1.00 per share, of the Acquired Series held
by such shareholder bears to the total number of such shares of the
Acquired Series outstanding on such date, and shall take such further
action as may be required, necessary or appropriate under NIF II's Amended
Declaration of Trust, Massachusetts law and the Code to effect the complete
liquidation and dissolution of NIF II. NIF II will fulfill all reporting
requirements under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF II. NIF II represents
and warrants to and agrees with NIF III and the Acquiring Series that:
(a) NIF II is a business trust validly existing under the laws of the
Commonwealth of Massachusetts and has power to own all of its properties
and assets and to carry out its obligations under this Agreement.
(b) NIF II is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. NIF II has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for NIF II, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of NIF II, have been furnished to NIF III. Such statements of
assets and liabilities fairly present the financial position of NIF II as
of such date and such statements of operations and changes in net assets
fairly reflect the results of operations and changes in net assets for the
periods covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of NIF II as of
such dates which are not disclosed therein.
(d) The Prospectus of NIF II dated February 28, 1997 and its related
Statement of Additional Information dated February 28, 1997 (together, the
"NIF II Prospectus"), in the forms filed under the 1933 Act with the
Commission and previously furnished to NIF III, did not as of their date
and do not as of the
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date hereof contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of NIF II, threatened against NIF II.
(f) There are no material contracts outstanding to which NIF II is a
party, other than as disclosed in the NIF II Prospectus, and there are no
such contracts or commitments (other than this Agreement) which will be
terminated with liability to NIF II on or prior to the Exchange Date.
(g) NIF II has no known liabilities of a material nature, contingent
or otherwise, other than those shown as belonging to it on its statements
of assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of NIF II's business as an investment company since that
date.
(h) As used in this Agreement, the term "Investments" shall mean NIF
II's investments shown on the statements of assets and liabilities at
October 31, 1996 referred to in Section 2(g) hereof, as supplemented with
such changes as NIF II shall make after October 31, 1996 in the ordinary
course of its business.
(i) NIF II has filed or will file all federal and state tax returns
which, to the knowledge of NIF II's officers, are required to be filed by
NIF II and has paid or will pay all federal and state taxes shown to be due
on said returns or on any assessments received by NIF II. All tax
liabilities of NIF II have been adequately provided for on its books, and
no tax deficiency or liability of NIF II has been asserted, and no question
with respect thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), NIF II
will have full right, power and authority to assign, transfer and deliver
the Investments and any other of its assets and liabilities to be
transferred to NIF III and the Acquiring Series pursuant to this Agreement.
On the Exchange Date, subject only to the delivery of the Investments and
any such other assets and liabilities as contemplated by this Agreement,
NIF III and the Acquiring Series will acquire the Investments and any such
other assets subject to no encumbrances, liens or security interests in
favor of any third party creditor of NIF II and, except as described in
Section 2(k), without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of NIF II or NIF III, except as previously
disclosed to NIF III by NIF II prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by NIF II of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement to be filed by NIF III with the
Commission on Form N-14 (the "N-14 Registration Statement") relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of NIF
II included therein (the "Proxy Statement"), on the effective date of the
N-14 Registration Statement and insofar as they relate to NIF II and the
Acquired Series, (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at
the time of the shareholders' meeting referred to in Section 7 below and on
the Exchange Date, the prospectus contained in the N-14 Registration
Statement of which the Proxy Statement is a part, as amended or
supplemented by any amendments or supplements filed with the Commission by
NIF III (together, the "N-14 Prospectus") insofar as it relates to NIF II
and the Acquired Series, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this Section
2(m) shall apply only
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to statements of fact relating to NIF II and the Acquired Series contained
in the N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, or omissions to state in any thereof a material fact relating to
NIF II or any Acquired Series, as such N-14 Registration Statement, N-14
Prospectus and Proxy Statement shall be furnished to NIF II in definitive
form as soon as practicable following effectiveness of the N-14
Registration Statement and before any public distribution of the N-14
Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with NIF II that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to NIF II
promptly upon the completion thereof and will not as of their date contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of NIF II to be transferred to the
Acquiring Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date, the N-14
Prospectus, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the N-14 Registration Statement, the N-14
Prospectus or the Proxy Statement made in reliance upon
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and in conformity with information furnished by NIF II or any Acquired
Series for use in the N-14 Registration Statement, the N-14 Prospectus or
the Proxy Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end investment
company, nor does NIF III have any plan or intention to redeem or otherwise
reacquire any shares of the Acquiring Series issued to NIF II shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business. NIF III will actively continue NIF
II's business in the same manner that NIF II conducted it immediately
before the Reorganization and has no plan or intention to sell or otherwise
dispose of any of the assets to be acquired by NIF III in the
Reorganization, except for dispositions made in the course of its business
and dispositions necessary to maintain the status of each Acquiring Series
as a regulated investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to NIF II pursuant to
this Agreement will be legally and validly issued by NIF III and will be
fully paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to NIF II a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of NIF II
acquired by the respective Acquiring Series, less the value of the
liabilities of NIF II assumed, determined as hereafter provided in this
Section 4.
(a) The net assets of NIF II and each Acquired Series will be computed
as of the Valuation Time, using the valuation procedures set forth in the
NIF II Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
NIF II on a share deposit receipt registered in the name of NIF II. NIF II
shall distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former NIF II shareholder as
may be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of NIF II,
whether accrued or contingent, described in subsection l(c) hereof in
connection with the acquisition of assets and subsequent dissolution of NIF
II or otherwise, except that recourse for assumed liabilities relating to
an Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of NIF II and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
NIF II will be responsible for proxy solicitation and other costs
associated with the special meeting. Notwithstanding the foregoing,
Nationwide Advisory Services, Inc., investment adviser of NIF II and NIF
III, will be responsible for 50% of NIF II's and NIF III's fees and
expenses of the Reorganization and 50% of NIF II's proxy solicitation and
other costs associated with the special meeting.
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6. EXCHANGE DATE. Delivery of the assets of NIF II to be transferred,
assumption of the liabilities of NIF II to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of NIF
II, at 9:00 A.M. on March 1, 1998, or at such other time, date, and
location agreed to by NIF II and NIF III, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) NIF II agrees to call a special meeting of its shareholders as
soon as is practicable for the purpose of considering the transfer of all
of the assets of NIF II to, and the assumption of all of the liabilities of
NIF II by, the Acquiring Series as herein provided, authorizing and
approving this Agreement, and authorizing and approving the liquidation and
dissolution of NIF II, and it shall be a condition to the obligations of
each of the parties hereto that the holders of shares of beneficial
interest, par value $1.00 per share, of NIF II shall have approved this
Agreement, and the transactions contemplated herein, including the
liquidation and dissolution of NIF II, in the manner required by law and
NIF II's Amended Declaration of Trust at such a meeting on or before the
Valuation Time.
(b) NIF II agrees that the liquidation and dissolution of NIF II will
be effected in the manner provided in NIF II's Amended Declaration of Trust
and in accordance with applicable law, and that it will not make any
constructive distribution of any Acquiring Series Shares to the
shareholders of NIF II without first paying or adequately providing for the
payment of all of NIF II's known debts, obligations and liabilities.
(c) Each of NIF II and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14 Registration Statement, including the N-14 Prospectus
and Proxy Statement included therein.
8. CONDITIONS OF NIF II'S OBLIGATIONS. The obligations of NIF II hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF II,
shall have been approved by the trustees and shareholders of NIF II in the
manner required by law.
(b) NIF III shall have executed and delivered to NIF II an Assumption
of Liabilities dated as of the Exchange Date pursuant to which the
Acquiring Series will assume all of the liabilities, expenses, costs,
charges and reserves of NIF II, contingent or otherwise, including
liabilities existing at the Valuation Time and described in Section 1(c)
hereof in connection with the transactions contemplated by this Agreement;
provided that recourse for assumed liabilities relating to an Acquired
Series shall be limited to the corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to NIF II a statement, dated the Exchange Date, signed by NIF
III's Chairman and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) NIF II shall have received an opinion of Druen, Dietrich, Reynolds
& Koogler in form reasonably satisfactory to NIF II, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to NIF II as provided for by this Agreement are duly authorized
and upon such delivery will be validly issued and will be fully paid and
nonassessable by NIF III and no shareholder of NIF III has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by NIF III, and assuming
due authorization, execution and delivery of this Agreement by NIF II,
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is a valid and binding obligation of NIF III, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) NIF II shall have received an opinion of Baker & Hostetler LLP
addressed to NIF II, NIF III and each Acquiring Series and in a form
reasonably satisfactory to NIF II dated the Exchange Date, with respect to
the matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, NIF II and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF II,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF II, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and NIF II shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF II, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF II,
shall have been approved by the trustees and shareholders of NIF II in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF II made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF II has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to each of
such dates, and NIF II shall have furnished to NIF III a statement, dated
the Exchange Date, signed by NIF II's Chairman and Treasurer (or other
financial officer) certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) NIF II is a business trust
validly existing under the laws of the Commonwealth of Massachusetts, (ii)
this Agreement has been duly authorized, executed and delivered by NIF II
and, assuming due authorization, execution and delivery of this Agreement
by NIF III, is a valid and binding obligation of NIF II, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iii) NIF II
has power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, NIF II
will have
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duly assigned, conveyed, transferred and delivered such Investments and
other assets to NIF III, (iv) the execution and delivery of this Agreement
did not and the consummation of the transactions contemplated hereby will
not, violate NIF II's Amended Declaration of Trust or its Amended Bylaws,
as amended, or any provision of any agreement known to such counsel to
which NIF II is a party or by which it is bound, and (v) to the knowledge
of such counsel no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by NIF II of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or state laws applicable to business trusts. In
rendering such opinion, Druen, Dietrich, Reynolds & Koogler may rely upon
certain reasonable and customary assumptions and certifications of fact
received from NIF II and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and NIF II, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
the Acquired Series' assets in exchange for the Acquiring Series Shares and
the assumption by the Acquiring Series of the liabilities of Acquired
Series will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and each of the Acquiring Series and Acquired Series is
a "party to a reorganization" within the meaning of Section 368(b) of the
Code; (ii) no gain or loss will be recognized by Acquired Series upon the
transfer of the assets of the Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of Acquired Series or upon the distribution of Acquiring Series Shares by
Acquired Series to its shareholders in liquidation; (iii) no gain or loss
will be recognized by the shareholders of Acquired Series upon the exchange
of their shares for Acquiring Series Shares, (iv) the basis of the
Acquiring Series Shares an Acquired Series shareholder receives in
connection with the Reorganization will be the same as the basis of his or
her shares exchanged therefor; (v) an Acquired Series shareholder's holding
period for his or her Acquiring Series Shares will be determined by
including the period for which he or she held Acquired Series Shares
exchanged therefor, provided that he or she held such Shares as capital
assets; (vi) no gain or loss will be recognized by the Acquiring Series
upon the receipt of the assets of the corresponding Acquired Series in
exchange for Acquiring Series Shares and the assumption by the Acquiring
Series of the liabilities of the corresponding Acquired Series (vii) the
basis in the hands of the Acquiring Series of the assets of the
corresponding Acquired Series transferred to the Acquiring Series will be
the same as the basis of the assets in the hands of the corresponding
Acquired Series immediately prior to the transfer and (viii) the Acquiring
Series' holding periods of the assets of the corresponding Acquired Series
will include the period for which such assets of the corresponding Acquired
Series were held by the corresponding Acquired Series. In rendering such
opinion, Baker & Hostetler LLP may rely upon certain reasonable and
customary assumptions and certifications of fact received from NIF III, NIF
II, and certain of its shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by NIF II in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31, 1997 and the short taxable year beginning November
1, 1997 and ending on the Valuation Time (after reduction for any capital
loss carryover).
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(i) NIF II shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
NIF II's entire right, title and interest in and to the Investments and all
other assets of NIF II to the Acquiring Series.
(j) NIF III and NIF II shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF II, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
10. TERMINATION. NIF III and NIF II may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or NIF II, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees may, subject to Section 11 of this
Agreement, waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
NIF II; provided, however, that following the special meeting of NIF II's
shareholders called by NIF II pursuant to Section 7 of this Agreement, no such
amendment may have the effect of altering or changing the amount or kind of
shares received by NIF II, or altering or changing to any material extent the
amount or kind of liabilities assumed by NIF III and the Acquiring Series, or
altering or changing any other terms and conditions of the Reorganization if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect NIF II's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
NATIONWIDE INVESTING FOUNDATION II
By: /s/ JAMES F. LAIRD, JR.
------------------------------------
James F. Laird, Jr.
NATIONWIDE INVESTING FOUNDATION III
By: /s/ CHRISTOPHER A. CRAY
------------------------------------
Christopher A. Cray
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EXHIBIT 4(c)
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Financial Horizons Investment Trust, a Massachusetts
business trust ("FHIT"), and Nationwide Investing Foundation III, an Ohio
business trust ("NIF III").
WHEREAS, FHIT is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following four series: Growth Fund ("FHIT Growth Fund"),
Municipal Bond Fund ("FHIT Municipal Bond Fund"), Government Bond Fund ("FHIT
Government Bond Fund") and Cash Reserve Fund ("FHIT Cash Reserve Fund", and,
together with each of the FHIT's other three series described in this paragraph,
the "Acquired Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series
(Nationwide Money Market Fund will only issue shares of beneficial interest,
without par value, without any class designation): Nationwide Mid-Cap Growth
Fund ("NIF III Mid-Cap Fund"), Nationwide Tax-Free Income Fund ("NIF III
Tax-Free Income Fund"), Nationwide Long-Term U.S. Government Bond Fund ("NIF III
Long-Term U.S. Government Bond Fund"), and Nationwide Money Market Fund ("NIF
III Money Market Fund", and, together with each of NIF III's other three series
described in this paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets and liabilities
of the corresponding Acquired Shares; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares (or, in
the case of NIF III Money Market Fund, shares of beneficial interest, without
par value, without any class designation) of the corresponding Acquiring Series
("Acquiring Series Shares"), which are voting securities, followed by the
distribution of the Acquiring Series Shares by each Acquired Series to the
shareholders of the Acquired Series in connection with the dissolution of FHIT
and the Acquired Series, all upon the terms and provisions of this Agreement
(individually and together, the "Reorganization"); and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: FHIT Growth Fund corresponds to NIF III Mid-Cap Fund, FHIT
Municipal Bond Fund corresponds to NIF III Tax-Free Income Fund, FHIT Government
Bond Fund corresponds to NIF III Long-Term U.S. Government Bond Fund, and FHIT
Cash Reserve Fund corresponds to NIF III Money Market Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of FHIT has determined that the
Reorganization is in the best interests of FHIT, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of FHIT and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as
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described in Section 9(h) herein), FHIT and the Acquired Series agree to
assign, convey, transfer and deliver to NIF III and the Acquiring Series,
and NIF III and the Acquiring Series agree to acquire from FHIT and the
Acquired Series on the Exchange Date (as defined below), all of the
Investments (as defined below), cash and other assets of FHIT in exchange
for that number of full and fractional Acquiring Series Shares of the
corresponding Acquiring Series having an aggregate net asset value equal to
the value of all assets of FHIT transferred to the Acquiring Series, as
provided in Section 4, less the liabilities of FHIT assumed by the
Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring
Series from FHIT shall consist of all of FHIT's property, including,
without limitation, all Investments (as defined below), cash and dividends
or interest receivables which are owned by FHIT and any deferred or prepaid
expenses shown as an asset on the books of FHIT as of the Valuation Time
described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date, FHIT will
endeavor to discharge or cause to be discharged, or make provision for the
payment of, all of its known liabilities and obligations. The Acquiring
Series shall assume all liabilities, expenses, costs, charges and reserves
of FHIT, contingent or otherwise, including liabilities reflected in the
unaudited statements of assets and liabilities of FHIT as of the Valuation
Time, prepared by or on behalf of FHIT as of the Valuation Time in
accordance with generally accepted accounting principles consistently
applied from and after October 31, 1996, and including all liabilities of
FHIT under its registration statement on Form N-1A filed with the
Securities and Exchange Commission ("Commission") under the Securities Act
of 1933, as amended ("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, each Acquired
Series shall distribute to its shareholders of record as of the Exchange
Date the Acquiring Series Shares received by it, each Acquired Series
shareholder of record being entitled to receive that number of Acquiring
Series Shares equal to the proportion which the number of shares of
beneficial interest, par value $1.00 per share, of the Acquired Series held
by such shareholder bears to the total number of such shares of the
Acquired Series outstanding on such date, and shall take such further
action as may be required, necessary or appropriate under FHIT's Amended
Declaration of Trust, Massachusetts law and the Code to effect the complete
liquidation and dissolution of FHIT. FHIT will fulfill all reporting
requirements under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FHIT. FHIT represents and
warrants to and agrees with NIF III and the Acquiring Series that:
(a) FHIT is a business trust validly existing under the laws of the
Commonwealth of Massachusetts and has power to own all of its properties
and assets and to carry out its obligations under this Agreement.
(b) FHIT is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. FHIT has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for FHIT, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of FHIT, have been furnished to NIF III. Such statements of assets
and liabilities fairly present the financial position of FHIT as of such
date and such statements of operations and changes in net assets fairly
reflect the results of operations and changes in net assets for the periods
covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of FHIT as of such
dates which are not disclosed therein.
(d) The Prospectus of FHIT dated February 28, 1997, as amended by
supplements dated March 17, 1997, March 17, 1997 and September 5, 1997, and
its related Statement of Additional Information dated February 28, 1997
(together, the "FHIT Prospectus"), in the form filed under the 1933 Act
with the
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Commission and previously furnished to NIF III, did not as of their date
and do not as of the date hereof contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of FHIT, threatened against FHIT.
(f) There are no material contracts outstanding to which FHIT is a
party, other than as disclosed in the FHIT Prospectus, and there are no
such contracts or commitments (other than this Agreement) which will be
terminated with liability to FHIT on or prior to the Exchange Date.
(g) FHIT has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statements of
assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of FHIT's business as an investment company since that
date.
(h) As used in this Agreement, the term "Investments" shall mean
FHIT's investments shown on the statements of assets and liabilities at
October 31, 1996 referred to in Section 2(g) hereof, as supplemented with
such changes as FHIT shall make after October 31, 1996 in the ordinary
course of its business.
(i) FHIT has filed or will file all federal and state tax returns
which, to the knowledge of FHIT's officers, are required to be filed by
FHIT and has paid or will pay all federal and state taxes shown to be due
on said returns or on any assessments received by FHIT. All tax liabilities
of FHIT have been adequately provided for on its books, and no tax
deficiency or liability of FHIT has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), FHIT will
have full right, power and authority to assign, transfer and deliver the
Investments and any other of its assets and liabilities to be transferred
to NIF III and the Acquiring Series pursuant to this Agreement. On the
Exchange Date, subject only to the delivery of the Investments and any such
other assets and liabilities as contemplated by this Agreement, NIF III and
the Acquiring Series will acquire the Investments and any such other assets
subject to no encumbrances, liens or security interests in favor of any
third party creditor of FHIT and, except as described in Section 2(k),
without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of FHIT or NIF III, except as previously
disclosed to NIF III by FHIT prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FHIT of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement (the "N-14 Registration Statement") to
be filed with the Commission by NIF III on Form N-14 relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of FHIT
included therein (the "Proxy Statement"), on the effective date of the N-14
Registration Statement and insofar as they relate to FHIT and the Acquired
Series, (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in the N-14 Registration Statement
of which the Proxy Statement is a part, as amended or supplemented by any
amendments or supplements filed with the Commission by NIF III, (together,
the "N-14 Prospectus") insofar as it relates to FHIT and the Acquired
Series, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the
representations and warranties in this Section 2(m) shall apply only to
statements of fact relating to FHIT and the Acquired Series contained in
the N-14 Registration Statement,
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the N-14 Prospectus or and the Proxy Statement, or omissions to state in
any thereof a material fact relating to FHIT or any Acquired Series, as
such Registration Statement, N-14 Prospectus and Proxy Statement shall be
furnished to FHIT in definitive form as soon as practicable following
effectiveness of the N-14 Registration Statement and before any public
distribution of the N-14 Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with FHIT that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to FHIT promptly
upon the completion thereof and will not as of their date contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of FHIT to be transferred to the
Acquiring Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date, the N-14
Prospectus, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the N-14 Registration Statement, the N-14
Prospectus or the Proxy Statement made in reliance upon and in conformity
with information furnished by FHIT or any Acquired Series for use in the
N-14 Registration Statement, the N-14 Prospectus or the Proxy Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end
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<PAGE> 5
investment company, nor does NIF III have any plan or intention to redeem
or otherwise reacquire any shares of the Acquiring Series issued to FHIT
shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business. NIF III will actively
continue FHIT's business in the same manner that FHIT conducted it
immediately before the Reorganization and has no plan or intention to sell
or otherwise dispose of any of the assets to be acquired by NIF III in the
Reorganization, except for dispositions made in the course of its business
and dispositions necessary to maintain the status of each Acquiring Series
as a regulated investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to FHIT pursuant to
this Agreement will be legally and validly issued by NIF III and will be
fully paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to FHIT a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of FHIT acquired
by the respective Acquiring Series, less the value of the liabilities of
FHIT assumed, determined as hereafter provided in this Section 4.
(a) The net assets of FHIT and each Acquired Series will be computed
as of the Valuation Time, using the valuation procedures set forth in the
FHIT Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time, provided that the net asset value per share of
the NIF III Tax-Free Income Fund shares utilized to acquire the assets and
liabilities of FHIT Municipal Bond Fund shall be set at the net asset value
per share of the NIF III Tax-Free Income Fund shares utilized to acquire
the assets and liabilities of Nationwide Tax-Free Income Fund, a series of
Nationwide Investing Foundation II.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
FHIT on a share deposit receipt registered in the name of FHIT. FHIT shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former FHIT shareholder as may
be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of FHIT, whether
accrued or contingent, described in subsection l(c) hereof in connection
with the acquisition of assets and subsequent dissolution of FHIT or
otherwise, except that recourse for assumed liabilities relating to an
Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of FHIT and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
FHIT will be responsible for proxy solicitation and other costs associated
with the special meeting. Notwithstanding the foregoing, Nationwide
Advisory Services, Inc., investment adviser of FHIT and NIF III, will be
responsible for 50% of FHIT's and NIF III's fees and expenses of the
Reorganization and 50% of FHIT's proxy solicitation and other costs
associated with the special meeting.
6. EXCHANGE DATE. Delivery of the assets of FHIT to be transferred,
assumption of the liabilities of FHIT to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of FHIT,
at
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9:00 A.M. on March 1, 1998, or at such other time, date, and location
agreed to by FHIT and NIF III, the date and time upon which such delivery
is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) FHIT agrees to call a special meeting of its shareholders as soon
as is practicable for the purpose of considering the transfer of all of the
assets of FHIT to, and the assumption of all of the liabilities of FHIT by,
the Acquiring Series as herein provided, authorizing and approving this
Agreement, and authorizing and approving the liquidation and dissolution of
FHIT, and it shall be a condition to the obligations of each of the parties
hereto that the holders of shares of beneficial interest, par value $1.00
per share, of FHIT shall have approved this Agreement, and the transactions
contemplated herein, including the liquidation and dissolution of FHIT, in
the manner required by law and FHIT's Amended Declaration of Trust at such
a meeting on or before the Valuation Time.
(b) FHIT agrees that the liquidation and dissolution of FHIT will be
effected in the manner provided in FHIT's Amended Declaration of Trust and
in accordance with applicable law, and that it will not make any
constructive distribution of any Acquiring Series Shares to the
shareholders of FHIT without first paying or adequately providing for the
payment of all of FHIT's known debts, obligations and liabilities.
(c) Each of FHIT and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14-Registration Statement, including the N-14 Prospectus
and N-14 Proxy Statement included therein.
8. CONDITIONS OF FHIT'S OBLIGATIONS. The obligations of FHIT hereunder shall
be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of FHIT,
shall have been approved by the trustees and shareholders of FHIT in the
manner required by law.
(b) NIF III shall have executed and delivered to FHIT an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of FHIT, contingent or otherwise, including liabilities existing
at the Valuation Time and described in Section 1(c) hereof in connection
with the transactions contemplated by this Agreement; provided that
recourse for assumed liabilities relating to an Acquired Series shall be
limited to the corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to FHIT a statement, dated the Exchange Date, signed by NIF III's
Chairman and Treasurer (or other financial officer) certifying those facts
as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) FHIT shall have received an opinion of Druen, Dietrich, Reynolds &
Koogler in form reasonably satisfactory to FHIT, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to FHIT as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be fully paid and
nonassessable by NIF III and no shareholder of NIF III has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by NIF III, and assuming
due authorization, execution and delivery of this Agreement by FHIT, is a
valid and binding obligation of NIF III, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
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<PAGE> 7
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) FHIT shall have received an opinion of Baker & Hostetler LLP
addressed to FHIT, NIF III and each Acquiring Series and in a form
reasonably satisfactory to FHIT dated the Exchange Date, with respect to
the matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, FHIT and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to FHIT,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of FHIT, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and FHIT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and FHIT, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of FHIT,
shall have been approved by the trustees and shareholders of FHIT in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of FHIT made in this Agreement are true and
correct in all material respects as if made at and as of such dates, FHIT
has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to each of such dates,
and FHIT shall have furnished to NIF III a statement, dated the Exchange
Date, signed by FHIT's Chairman and Treasurer (or other financial officer)
certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) FHIT is a business trust validly
existing under the laws of the Commonwealth of Massachusetts, (ii) this
Agreement has been duly authorized, executed and delivered by FHIT and,
assuming due authorization, execution and delivery of this Agreement by NIF
III, is a valid and binding obligation of FHIT, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iii) FHIT
has power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, FHIT
will have duly assigned, conveyed, transferred and delivered such
Investments and other assets to NIF III, (iv) the execution and delivery of
this Agreement did not and the consummation of the transactions
contemplated hereby will not, violate FHIT's Amended Declaration of Trust
or its Amended Bylaws, as amended, or any provision of any agreement known
to such counsel to which FHIT is a party or by which it is bound, and (v)
to the knowledge of such counsel no consent, approval, authorization or
order of any court or governmental
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<PAGE> 8
authority is required for the consummation by FHIT of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
1934 Act and 1940 Act and such as may be required under state securities or
blue sky laws or state laws applicable to business trusts. In rendering
such opinion, Druen, Dietrich, Reynolds & Koogler may rely upon certain
reasonable and customary assumptions and certifications of fact received
from FHIT and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and FHIT, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
Acquired Series' assets in exchange for the Acquiring Series Shares and the
assumption by the Acquiring Series of the liabilities of Acquired Series
will constitute a "reorganization" within the meaning of Section 368(a) of
the Code, and each of the Acquiring Series and Acquired Series is a "party
to a reorganization" within the meaning of Section 368(b) of the Code; (ii)
no gain or loss will be recognized by Acquired Series upon the transfer of
the assets of the Acquired Series in exchange for Acquiring Series Shares
and the assumption by the Acquiring Series of the liabilities of Acquired
Series or upon the distribution of Acquiring Series Shares by Acquired
Series to its shareholders in liquidation; (iii) no gain or loss will be
recognized by the shareholders of Acquired Series upon the exchange of
their shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) an Acquired Series shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the
period for which he or she held Acquired Series Shares exchanged therefor,
provided that he or she held such Shares as capital assets; (vi) no gain or
loss will be recognized by the Acquiring Series upon the receipt of the
assets of the corresponding Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of the corresponding Acquired Series (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of the
assets in the hands of the corresponding Acquired Series immediately prior
to the transfer and (viii) the Acquiring Series' holding periods of the
assets of the corresponding Acquired Series will include the period for
which such assets of the corresponding Acquired Series were held by the
corresponding Acquired Series. In rendering such opinion, Baker & Hostetler
LLP may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF III, FHIT, and certain of its
shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by FHIT in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31, 1997 and the short taxable year beginning November
1, 1997 and ending on the Valuation Time (after reduction for any capital
loss carryover).
(i) FHIT shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
FHIT's entire right, title and interest in and to the Investments and all
other assets of FHIT to the Acquiring Series.
(j) NIF III and FHIT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and FHIT, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
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<PAGE> 9
10. TERMINATION. NIF III and FHIT may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or FHIT, after consultation
with counsel and by consent of their respective trustees or an officer
authorized by such trustees may, subject to Section 11 of this Agreement,
waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
FHIT; provided, however, that following the special meeting of FHIT's
shareholders called by FHIT pursuant to Section 7 of this Agreement, no such
amendment may have the effect of altering or changing the amount or kind of
shares received by FHIT, or altering or changing to any material extent the
amount or kind of liabilities assumed by NIF III and the Acquiring Series, or
altering or changing any other terms and conditions of the Reorganization if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect FHIT's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
FINANCIAL HORIZONS INVESTMENT TRUST
By /s/ JAMES F. LAIRD, JR.
------------------------------------
NATIONWIDE INVESTING FOUNDATION III
By /s/ CHRISTOPHER A. CRAY
------------------------------------
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<PAGE> 1
Exhibit 11
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 26, 1997
Nationwide Investing Foundation III
Three Nationwide Plaza, 26th Floor
Columbus, Ohio 43215
Re: Nationwide Investing Foundation III
Registration Statement on Form N-14
Ladies and Gentlemen:
In connection with the filing of the Registration Statement on Form N-14
("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,
eight separate investment portfolios of 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
<PAGE> 2
Nationwide Investing Foundation III
November 24, 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 14(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
Nationwide Investing Foundation,
Nationwide Investing Foundation II,
Financial Horizons Investment Trust
and Nationwide Investing Foundation III:
We consent to the use of our reports to the Nationwide Investing Foundation,
Nationwide Investing Foundation II and Financial Horizons Investment Trust, all
dated December 13, 1996 and included in the Statements of Additional
Information for the Nationwide Investing Foundation, Nationwide Investing
Foundation II and Financial Horizons Investment Trust, all dated February 28,
1997 which are included herein as exhibits; to the reference to our firm under
the heading "Financial Highlights" in the Prospectuses for the Nationwide
Investing Foundation, Nationwide Investing Foundation II and Financial Horizons
Investment Trust, all dated February 28, 1997 which are incorporated by
reference herein and included herein as exhibits; and to the references to our
firm under the headings "The Trust - Independent Accountants" and "The
Acquiring Funds and the New Trust - Independent Accountants" in the combined
prospectuses/proxy statements included herein.
Columbus, Ohio /S/ KPMG PEAT MARWICK LLP
November 26, 1997
<PAGE> 1
Exhibit 14(b)
DRUEN, DIETRICH, REYNOLDS & KOOGLER
ATTORNEYS AT LAW
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(614) 249-7617
FACSIMILE: (614) 249-2418
November 24, 1997
Nationwide Investing Foundation III
Three Nationwide Plaza, 26th Floor
Columbus, Ohio 43215
Re: Nationwide Investing Foundation III
Registration Statement on Form N-14
Ladies and Gentlemen:
Our firm hereby consents to the inclusion of its name in the Registration
Statement on Form N-14 for Nationwide Investing Foundation III.
Very truly yours,
/s/ DRUEN, DIETRICH, REYNOLDS & KOOGLER
DRUEN, DIETRICH, REYNOLDS & KOOGLER
<PAGE> 1
Exhibit 14(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our firm
under the captions "THE PROPOSED TRANSACTION -- Federal Income Tax
Consequences" included in or made a part of this Registration Statement on Form
N-14, filed under the Securities Act of 1933, as amended, of Nationwide
Investing Foundation III.
BAKER & HOSTETLER LLP
Columbus, Ohio
November 26, 1997
<PAGE> 1
Exhibit 16
POWER OF ATTORNEY
-----------------
Sue A. Doody, whose signature appears below, does hereby constitute and
appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird, Jr., W. Sidney
Druen, and Joseph P. Rath, each individually, his/her true and lawful attorneys
and agents, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorneys and
agents, each individually, may deem necessary or advisable or which may be
required to enable Nationwide Investing Foundation III (the "Fund") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended ("Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Fund's Registration Statement on Form N-14
pursuant to said Acts and any and all amendments thereto (including pre- and
post-effective amendments), including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as trustee and/or officer of the Fund such
Registration Statement and any and all such amendments filed with the Securities
and Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
/s/ SUE A. DOODY
Dated: November 24, 1997 -----------------------------------
Sue A. Doody
<PAGE> 2
POWER OF ATTORNEY
-----------------
Dimon R. McFerson, whose signature appears below, does hereby
constitute and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird,
Jr., W. Sidney Druen, and Joseph P. Rath, each individually, his/her true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ DIMON R. McFERSON
Dated: November 24, 1997 -----------------------------------
Dimon R. McFerson
<PAGE> 3
POWER OF ATTORNEY
-----------------
Nancy C. Thomas, whose signature appears below, does hereby constitute
and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird, Jr., W.
Sidney Druen, and Joseph P. Rath, each individually, his/her true and lawful
attorneys and agents, with power of substitution or resubstitution, to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ NANCY C. THOMAS
Dated: November 24, 1997 -----------------------------------
Nancy C. Thomas
<PAGE> 4
POWER OF ATTORNEY
-----------------
Harold W. Weihl, whose signature appears below, does hereby constitute
and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird, Jr., W.
Sidney Druen, and Joseph P. Rath, each individually, his/her true and lawful
attorneys and agents, with power of substitution or resubstitution, to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ HAROLD W. WEIHL
Dated: November 24, 1997 -----------------------------------
Harold W. Weihl
<PAGE> 5
POWER OF ATTORNEY
-----------------
Douglas F. Kridler, whose signature appears below, does hereby
constitute and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird,
Jr., W. Sidney Druen, and Joseph P. Rath, each individually, his/her true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ DOUGLAS F. KRIDLER
Dated: November 24, 1997 -----------------------------------
Douglas F. Kridler
<PAGE> 6
POWER OF ATTORNEY
-----------------
John C. Bryant, whose signature appears below, does hereby constitute
and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird, Jr., W.
Sidney Druen, and Joseph P. Rath, each individually, his/her true and lawful
attorneys and agents, with power of substitution or resubstitution, to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ JOHN C. BRYANT
Dated: November 24, 1997 -----------------------------------
John C. Bryant
<PAGE> 7
POWER OF ATTORNEY
-----------------
C. Brent DeVore, whose signature appears below, does hereby constitute
and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird, Jr., W.
Sidney Druen, and Joseph P. Rath, each individually, his/her true and lawful
attorneys and agents, with power of substitution or resubstitution, to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ C. BRENT DeVORE
Dated: November 24, 1997 -----------------------------------
C. Brent DeVore
<PAGE> 8
POWER OF ATTORNEY
-----------------
Charles L. Fuellgraf, Jr., whose signature appears below, does hereby
constitute and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird,
Jr., W. Sidney Druen, and Joseph P. Rath, each individually, his/her true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ CHARLES L. FUELLGRAF, JR.
Dated: November 24, 1997 -----------------------------------
Charles L. Fuellgraf, Jr.
<PAGE> 9
POWER OF ATTORNEY
-----------------
David C. Wetmore, whose signature appears below, does hereby constitute
and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird, Jr., W.
Sidney Druen, and Joseph P. Rath, each individually, his/her true and lawful
attorneys and agents, with power of substitution or resubstitution, to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ DAVID C. WETMORE
Dated: November 24, 1997 -----------------------------------
David C. Wetmore
<PAGE> 10
POWER OF ATTORNEY
-----------------
Thomas J. Kerr, IV, whose signature appears below, does hereby
constitute and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird,
Jr., W. Sidney Druen, and Joseph P. Rath, each individually, his/her true and
lawful attorneys and agents, with power of substitution or resubstitution, to do
any and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
/s/ THOMAS J. KERR, IV
Dated: November 24, 1997 -----------------------------------
Thomas J. Kerr, IV
<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> 1
[PHOTO] [NATIONWIDE LOGO] NATIONWIDE
ADVISORY
SERVICES, INC.
NATIONWIDE (R)
FAMILY OF FUNDS
PROSPECTUS
DECEMBER 1997
<PAGE> 2
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> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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
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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
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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
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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
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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
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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
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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> 26
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> 27
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> 28
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> 29
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> 30
Nationwide(R) and LOGO are registered Federal
Service marks of the Nationwide Mutual Insurance
Company.
30
<PAGE> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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> 46
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> 47
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> 48
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.
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<PAGE> 49
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.
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<PAGE> 50
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.
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<PAGE> 51
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,
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<PAGE> 52
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:
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<PAGE> 53
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> 54
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> 55
<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.
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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
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<PAGE> 57
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
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<PAGE> 58
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
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<PAGE> 59
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
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<PAGE> 60
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.
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<PAGE> 61
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
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<PAGE> 62
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.
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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
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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
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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.
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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.
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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.
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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
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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.
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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.
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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
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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,
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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.
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SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market.
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.
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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.
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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.
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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> 78
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> 79
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> 1
[PHOTOGRAPH] [LOGO - NATIONWIDE ADVISORY SERVICES, INC.]
PROSPECTUS
----------
1997
[LOGO - NATIONWIDE ADVISORY SERVICES, INC.]
NATIONWIDE(R) FAMILY OF FUNDS
- -----------------------------
NATIONWIDE(R) GROWTH FUND
NATIONWIDE(R) FUND
NATIONWIDE(R) BOND FUND
NATIONWIDE(R) TAX-FREE INCOME FUND
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND
NATIONWIDE(R) MONEY MARKET FUND
<PAGE> 2
This Prospectus provides
you with information you
should know before
investing in the Funds.
Read it and keep it for
future reference.
Statements of Additional
Information dated February
28, 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 (NIF) and
Nationwide Investing
Foundation II (NIF-II) are
diversified open-end
investment management
companies.
NIF was created under the
laws of Michigan by an
Indenture of Trust, dated
May 5, 1933. NIF-II was
created under the laws of
Massachusetts as a
Massachusetts Business
Trust on October 5, 1985.
The Trusts offer shares in
six separate mutual funds,
each with its own
investment objectives.
NIF FUNDS:
Nationwide(R) Growth Fund
Nationwide(R) Fund
Nationwide(R) Bond Fund
Nationwide(R) Money Market
Fund
NIF-II FUNDS:
Nationwide(R) Tax-Free
Income Fund
Nationwide(R) U.S.
Government
Income Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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
February 28, 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
Financial Highlights....................... 4
Which Fund Is Right for You................ 6
Historical Performance..................... 7
Objectives, Management, Performance and
Holdings................................. 9
Minimum Investment......................... 15
How to Purchase Shares..................... 16
How to Sell (Redeem) Shares................ 17
Investor Strategies........................ 19
Investor Privileges........................ 20
Investor Services.......................... 23
Management of the Trusts................... 24
The Effect of Interest Rates on Bond
Values................................... 24
Distributions and Taxes.................... 25
Tax Advantages of the Tax-Free Income
Fund..................................... 26
Performance Advertising for the Funds...... 27
Additional Information..................... 29
</TABLE>
NATIONWIDE(R)
FAMILY OF
FUNDS
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 --
A-Rated or better
debt securities
NATIONWIDE(R)
TAX-FREE INCOME
FUND
Monthly Income --
Free from Federal taxes
NATIONWIDE(R)
U.S. GOVERNMENT
INCOME FUND
Monthly Income --
U.S. Gov't securities
NATIONWIDE(R)
MONEY MARKET FUND
Monthly Income --
Current rates of return
<PAGE> 3
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.
For a more detailed
explanation of these
expenses, see "Management
of the Trusts" on page 24.
The expenses and fees in
this table are based on
the fiscal year ended
October 31, 1996.
NIF FUNDS:
Nationwide(R) Growth Fund
Nationwide(R) Fund
Nationwide(R) Bond Fund
Nationwide(R) Money Market
Fund
NIF-II FUNDS:
Nationwide(R) Tax-Free
Income Fund
Nationwide(R) U.S.
Government
Income Fund
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
TAX-FREE U.S. GOV'T MONEY
GROWTH FUND BOND INCOME INCOME MARKET
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases* 4.5% 4.5% 4.5% None None None
Maximum Contingent Deferred
Sales Charge on
Redemptions** None None None 5.0% 5.0% None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None None None
Redemption Fees(+) None None None None None None
Exchange Fees 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 page 20.
** The Contingent Deferred Sales Charge declines by 1%
each year, from 5% to 0% after 5 years. See page 18.
(+) Although no redemption fee is charged, applicable
contingent deferred sales charges apply to redemptions
from the Nationwide Tax-Free Income Fund and Nationwide
U.S. Government Income Fund. If you choose to have your
redemption wired to your bank, a $5 wire transfer fee will
be deducted from the proceeds.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets, after expense
reimbursements)
<TABLE>
<CAPTION>
TAX-FREE U.S. GOV'T MONEY
GROWTH FUND BOND INCOME INCOME MARKET
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.65% 0.65% 0.45%*
12b-1 Fees 0% 0% 0% 0.20%+ 0.20%+ 0%
Other Expenses 0.14% 0.11% 0.20% 0.11% 0.21% 0.15%
------ ----- ----- -------- ---------- --------
Total Fund Operating Expenses 0.64% 0.61% 0.70% 0.96%+ 1.06%+ 0.60%*
</TABLE>
(+) For the Tax-Free Income and U.S. Government Income
Funds, the distributor will charge a 12b-1 fee of .20%,
rather than the .35% allowed and waive the remaining .15%
until further written notice.
* The investment manager will waive .05% of the .50%
management fee until further written notice.
Example:
The following example illustrates the expenses you would
pay on a $1,000 investment over various time periods
assuming: (1) a 5% annual return, and (2) redemption at
the end of each time period. Contingent deferred sales
charges apply to redemptions of shares held 5 years or
less in the Tax-Free Income and U.S. Government Income
Funds. For more information see page 18.
<TABLE>
<CAPTION>
TAX-FREE U.S. GOV'T MONEY
GROWTH FUND BOND INCOME INCOME MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 51 $ 51 $ 52 $ 60 $ 10* $ 61 $ 11* $ 6
3 Years $ 65 $ 64 $ 66 $ 61 $ 31* $ 64 $ 34* $ 19
5 Years $ 79 $ 78 $ 82 $ 63 $ 53* $ 68 $ 58* $ 33
10 Years $121 $118 $128 $118 $118* $129 $129* $ 75
</TABLE>
This example should not be considered a representation of
past or future expenses. Actual expenses may be greater or
less than those shown.
* Tax-Free Income and U.S. Government Income expenses
assuming no redemption.
3
<PAGE> 4
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Periods Ended October 31,
<TABLE>
<CAPTION>
Net
Realized Distributions
Net Gain (Loss) from Net Net
Asset and Total Dividends Realized Asset
Value-- Net Unrealized from from Net Gain from Value--
Beginning Investment Appreciation Investment Investment Investment Total End of
of Period Income (Depreciation) Operations Income Transactions Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Growth Fund)
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
$ 9.86 $.27 $ (.28) $ (.01) $ (.30) $ (1.21) $ (1.51) $ 8.34
----------------------------------------------------------------------------------------------------------------------------
8.34 .23 1.70 1.93 (.42) (1.07) (1.49) 8.78
----------------------------------------------------------------------------------------------------------------------------
8.78 .31 .63 .94 (.20) (.34) (.54) 9.18
----------------------------------------------------------------------------------------------------------------------------
9.18 .33 (1.53) (1.20) (.31) (.33) (.64) 7.34
----------------------------------------------------------------------------------------------------------------------------
7.34 .22 2.77 2.99 (.25) (.51) (.76) 9.57
----------------------------------------------------------------------------------------------------------------------------
9.57 .20 .46 .66 (.20) (.09) (.29) 9.94
----------------------------------------------------------------------------------------------------------------------------
9.94 .17 1.41 1.58 (.17) (.21) (.38) 11.14
----------------------------------------------------------------------------------------------------------------------------
11.14 .09 .53 .62 (.19) (.22) (.41) 11.35
----------------------------------------------------------------------------------------------------------------------------
11.35 .21 2.10 2.31 (.20) (.24) (.44) 13.22
----------------------------------------------------------------------------------------------------------------------------
13.22 .16 1.36 1.52 (.16) (1.24) (1.40) 13.34
(Nationwide Fund)
$ 14.54 $.36 $ (.19) $ .17 $ (.37) $ (.81) $ (1.18) $13.53
----------------------------------------------------------------------------------------------------------------------------
13.53 .35 1.63 1.98 (.47) (1.42) (1.89) 13.62
----------------------------------------------------------------------------------------------------------------------------
13.62 .44 2.78 3.22 (.45) (1.51) (1.96) 14.88
----------------------------------------------------------------------------------------------------------------------------
14.88 .37 (1.23) (.86) (.39) (1.31) (1.70) 12.32
----------------------------------------------------------------------------------------------------------------------------
12.32 .38 3.97 4.35 (.40) (.50) (.90) 15.77
----------------------------------------------------------------------------------------------------------------------------
15.77 .37 .98 1.35 (.36) (.45) (.81) 16.31
----------------------------------------------------------------------------------------------------------------------------
16.31 .31 .67 .98 (.33) (.41) (.74) 16.55
----------------------------------------------------------------------------------------------------------------------------
16.55 .37 .41 .78 (.36) (.85) (1.21) 16.12
----------------------------------------------------------------------------------------------------------------------------
16.12 .31 2.49 2.80 (.31) (1.26) (1.57) 17.35
----------------------------------------------------------------------------------------------------------------------------
17.35 .36 3.98 4.34 (.35) (.93) (1.28) 20.41
(Bond Fund)
$ 10.21 $.88 $ (.90) $ (.02) $ (.87) $ (.04) $ (.91) $ 9.28
----------------------------------------------------------------------------------------------------------------------------
9.28 .88 .18 1.06 (.99) -- (.99) 9.35
----------------------------------------------------------------------------------------------------------------------------
9.35 .88 (.02) .86 (.84) -- (.84) 9.37
----------------------------------------------------------------------------------------------------------------------------
9.37 .88 (.36) .52 (.90) -- (.90) 8.99
----------------------------------------------------------------------------------------------------------------------------
8.99 .85 .45 1.30 (.83) -- (.83) 9.46
----------------------------------------------------------------------------------------------------------------------------
9.46 .76 .23 .99 (.85) -- (.87)* 9.58
----------------------------------------------------------------------------------------------------------------------------
9.58 .74 .52 1.26 (.77) -- (.77) 10.07
----------------------------------------------------------------------------------------------------------------------------
10.07 .60 (1.56) (.96) (.65) -- (.65) 8.46
----------------------------------------------------------------------------------------------------------------------------
8.46 .63 1.04 1.67 (.63) -- (.63) 9.50
----------------------------------------------------------------------------------------------------------------------------
9.50 .61 (.15) .46 (.62) -- (.62) 9.34
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net
Investment Average Net Assets
Expenses Income to Commission at End of
Total to Average Average Portfolio Rate Period
Return Net Assets Net Assets Turnover Paid (000's)
<S> <C> <C> <C> <C> <C> <C> <C>
(Growth Fund)
RATIOS & SUPPLEMENTAL DATA ASSETS YEAR
(.3)% .64% 2.70% 69.9% -- $ 192,723 1987
----------------------------------------------------------------------------------------------------------------------------
28.4 .67 2.82 40.8 -- 231,901 1988
----------------------------------------------------------------------------------------------------------------------------
11.2 .67 3.35 38.8 -- 252,456 1989
----------------------------------------------------------------------------------------------------------------------------
(14.1) .68 3.86 36.2 -- 198,691 1990
----------------------------------------------------------------------------------------------------------------------------
43.4 .68 2.54 12.4 -- 277,019 1991
----------------------------------------------------------------------------------------------------------------------------
6.9 .65 1.97 13.1 -- 330,950 1992
----------------------------------------------------------------------------------------------------------------------------
16.2 .68 1.63 10.2 -- 411,853 1993
----------------------------------------------------------------------------------------------------------------------------
5.7 .68 1.71 14.5 -- 464,715 1994
----------------------------------------------------------------------------------------------------------------------------
21.0 .66 1.66 27.1 -- 582,927 1995
----------------------------------------------------------------------------------------------------------------------------
12.4 .64 1.20 25.6 5.3923c 655,616 1996
(Nationwide Fund)
.9% .62% 2.25% 22.2% -- $ 383,099 1987
----------------------------------------------------------------------------------------------------------------------------
17.2 .63 2.79 13.3 -- 407,175 1988
----------------------------------------------------------------------------------------------------------------------------
27.1 .64 3.21 21.9 -- 469,427 1989
----------------------------------------------------------------------------------------------------------------------------
(7.0) .63 2.69 13.4 -- 441,188 1990
----------------------------------------------------------------------------------------------------------------------------
36.5 .61 2.56 13.6 -- 620,113 1991
----------------------------------------------------------------------------------------------------------------------------
8.7 .61 2.32 12.8 -- 726,012 1992
----------------------------------------------------------------------------------------------------------------------------
6.2 .62 1.96 25.8 -- 753,239 1993
----------------------------------------------------------------------------------------------------------------------------
4.9 .63 2.26 15.4 -- 706,674 1994
----------------------------------------------------------------------------------------------------------------------------
19.2 .63 1.95 16.5 -- 795,666 1995
----------------------------------------------------------------------------------------------------------------------------
26.1 .61 1.89 16.7 5.9393c 958,590 1996
(Bond Fund)
(.3)% .70% 8.95% 61.2% -- $ 32,712 1987
----------------------------------------------------------------------------------------------------------------------------
12.0 .66 9.45 73.1 -- 35,759 1988
----------------------------------------------------------------------------------------------------------------------------
9.7 .68 9.38 72.7 -- 36,430 1989
----------------------------------------------------------------------------------------------------------------------------
5.9 .68 9.62 82.1 -- 36,378 1990
----------------------------------------------------------------------------------------------------------------------------
15.1 .67 9.13 93.6 -- 54,187 1991
----------------------------------------------------------------------------------------------------------------------------
10.9 .65 8.63 100.8 -- 90,187 1992
----------------------------------------------------------------------------------------------------------------------------
13.6 .68 7.63 68.5 -- 151,090 1993
----------------------------------------------------------------------------------------------------------------------------
(9.8%) .71 7.11 58.0 -- 124,455 1994
----------------------------------------------------------------------------------------------------------------------------
20.4 .71 7.04 70.4 -- 133,633 1995
----------------------------------------------------------------------------------------------------------------------------
5.1 .70 6.60 39.0 -- 133,253 1996
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $.02 from Paid In Capital.
THE INFORMATION IN THE ABOVE TABLES HAS BEEN AUDITED BY KPMG PEAT MARWICK LLP,
INDEPENDENT AUDITORS, WHOSE REPORTS THEREON INSOFAR AS IT RELATES TO EACH OF THE
YEARS IN THE FIVE YEAR PERIOD ENDED OCTOBER 31, 1996, APPEAR IN THE STATEMENTS
OF ADDITIONAL INFORMATION. THE STATEMENTS OF ADDITIONAL INFORMATION AND THE
ANNUAL REPORT FOR THE FUNDS, WHICH CONTAIN FURTHER INFORMATION ABOUT THE FUNDS'
PERFORMANCE INCLUDING MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE, MAY BE
OBTAINED FREE OF CHARGE BY CALLING 1-800-848-0920.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Periods Ended October 31,
<TABLE>
<CAPTION>
Net
Realized Distributions
Net Gain (Loss) from Net Net
Asset and Total Dividends Realized Asset
Value-- Net Unrealized from from Net Gain from Value--
Beginning Investment Appreciation Investment Investment Investment Total End of
of Period Income (Depreciation) Operations Income Transactions Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Tax-Free Income)
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
$ 9.99 $.61 $(1.35) $ (.74) $ (.61) $ (.03) $ (.64) $ 8.61
----------------------------------------------------------------------------------------------------------------------------
8.61 .62 .75 1.37 (.62) -- (.62) 9.36
----------------------------------------------------------------------------------------------------------------------------
9.36 .62 .08 .70 (.62) -- (.62) 9.44
----------------------------------------------------------------------------------------------------------------------------
9.44 .61 (.13) .48 (.61) -- (.61) 9.31
----------------------------------------------------------------------------------------------------------------------------
9.31 .58 .50 1.08 (.58) -- (.58) 9.81
----------------------------------------------------------------------------------------------------------------------------
9.81 .56 .13 .69 (.56) -- (.56) 9.94
----------------------------------------------------------------------------------------------------------------------------
9.94 .54 1.10 1.64 (.54) (.09) (.63) 10.95
----------------------------------------------------------------------------------------------------------------------------
10.95 .53 (1.45) (.92) (.51) (.12) (.63) 9.40
----------------------------------------------------------------------------------------------------------------------------
9.40 .51 .84 1.35 (.53) -- (.53) 10.22
----------------------------------------------------------------------------------------------------------------------------
10.22 .51 .02 .53 (.51) -- (.51) 10.24
(U.S. Gov't)
$ 10.00 $.46 $ (.03) $ .43 $ (.46) $ -- $ (.46) $ 9.97
----------------------------------------------------------------------------------------------------------------------------
9.97 .53 .45 .98 (.53) (.16) (.69) 10.26
----------------------------------------------------------------------------------------------------------------------------
10.26 .54 (.96) (.42) (.55) (.07) (.62) 9.22
----------------------------------------------------------------------------------------------------------------------------
9.22 .59 .89 1.48 (.58) -- (.58) 10.12
----------------------------------------------------------------------------------------------------------------------------
10.12 .59 (.08) .51 (.59)** -- (.59) 10.04
</TABLE>
<TABLE>
<CAPTION>
Net Net
Investment Investment Net Assets
Expenses Expenses Income to Income to at End of
Total to Average to Average Average Average Portfolio Period
Return Net Assets Net Assets* Net Assets Net Assets* Turnover (000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Tax-Free Income)
RATIOS & SUPPLEMENTAL DATA ASSETS YEAR
(7.9)% .97% 1.32% 6.42% 6.32% 202.8% $ 37,815 1987
----------------------------------------------------------------------------------------------------------------------------
16.3 .86 1.21 6.82 6.45 117.7 51,884 1988
----------------------------------------------------------------------------------------------------------------------------
7.7 .85 1.20 6.62 6.28 79.7 72,097 1989
----------------------------------------------------------------------------------------------------------------------------
5.3 .90 1.16 6.51 6.25 68.9 89,374 1990
----------------------------------------------------------------------------------------------------------------------------
11.9 1.01 1.16 6.05 5.90 45.5 122,005 1991
----------------------------------------------------------------------------------------------------------------------------
7.2 .98 1.13 5.62 5.47 69.8 170,650 1992
----------------------------------------------------------------------------------------------------------------------------
17.0 .98 1.13 5.07 4.92 28.4 253,042 1993
----------------------------------------------------------------------------------------------------------------------------
(8.7) .99 1.14 5.02 4.87 59.2 241,097 1994
----------------------------------------------------------------------------------------------------------------------------
14.7 .98 1.13 5.20 5.05 31.7 262,484 1995
----------------------------------------------------------------------------------------------------------------------------
5.3 .96 1.11 4.98 4.83 24.2 264,642 1996
(U.S. Gov't)
7.3% 1.00% 1.17% 6.38% 6.21% 157.4% $ 18,211 1992#
----------------------------------------------------------------------------------------------------------------------------
10.2 1.10 1.25 5.12 4.97 99.0 38,452 1993
----------------------------------------------------------------------------------------------------------------------------
(4.2) 1.09 1.24 5.62 5.47 67.5 37,749 1994
----------------------------------------------------------------------------------------------------------------------------
16.5 1.00 1.23 5.92 5.77 25.4 39,777 1995
----------------------------------------------------------------------------------------------------------------------------
5.3 1.06 1.21 5.86 5.71 9.3 39,497 1996
</TABLE>
# Period from February 10, 1992 (date of commencement of operations)
through October 31, 1992. Ratio percentages and total return are
annualized for periods of less than twelve months.
<TABLE>
<CAPTION>
Net
Realized Distributions
Net Gain (Loss) from Net Net
Asset and Total Dividends Realized Asset
Value-- Net Unrealized from from Net Gain from Value--
Beginning Investment Appreciation Investment Investment Investment Total End of
of Period Income (Depreciation) Operations Income Transactions Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Tax-Free Income)
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
(Money Market)
$ 1.00 $.06 -- $ .06 $ (.06) -- $ (.06) $ 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .07 -- .07 (.07) -- (.07) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .09 -- .09 (.09) -- (.09) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .08 -- .08 (.08) -- (.08) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .06 -- .06 (.06) -- (.06) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .03 -- .03 (.03) -- (.03) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .03 -- .03 (.03) -- (.03) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .03 -- .03 (.03) -- (.03) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .05 -- .05 (.05) -- (.05) 1.00
----------------------------------------------------------------------------------------------------------------------------
1.00 .05 -- .05 (.05) -- (.05) 1.00
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net Net
Investment Investment Net Assets
Expenses Expenses Income to Income to at End of
Total to Average to Average Average Average Portfolio Period
Return Net Assets Net Assets* Net Assets Net Assets* Turnover (000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Money Market Fund)
RATIOS & SUPPLEMENTAL DATA ASSETS YEAR
5.9% .79% .79% 5.75% 5.75% -- $ 388,750 1987
----------------------------------------------------------------------------------------------------------------------------
6.9 .76 .76 6.71 6.71 -- 421,901 1988
----------------------------------------------------------------------------------------------------------------------------
8.9 .74 .74 8.55 8.55 -- 535,257 1989
----------------------------------------------------------------------------------------------------------------------------
8.0 .73 .73 7.67 7.67 -- 600,324 1990
----------------------------------------------------------------------------------------------------------------------------
6.1 .71 .71 5.97 5.97 -- 594,987 1991
----------------------------------------------------------------------------------------------------------------------------
3.5 .71 .71 3.50 3.50 -- 488,998 1992
----------------------------------------------------------------------------------------------------------------------------
2.6 .70 .73 2.57 2.54 -- 418,615 1993
----------------------------------------------------------------------------------------------------------------------------
3.3 .65 .70 3.33 3.28 -- 491,737 1994
----------------------------------------------------------------------------------------------------------------------------
5.5 .62 .67 5.34 5.29 -- 604,711 1995
----------------------------------------------------------------------------------------------------------------------------
5.1 .60 .65 4.93 4.88 -- 729,500 1996
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ratios calculated as if no expenses were waived.
**Includes $.01 dividend in excess of net investment income.
THE INFORMATION IN THE ABOVE TABLES HAS BEEN AUDITED BY KPMG PEAT MARWICK LLP,
INDEPENDENT AUDITORS, WHOSE REPORTS THEREON INSOFAR AS IT RELATES TO EACH OF THE
YEARS IN THE FIVE YEAR PERIOD ENDED OCTOBER 31, 1996, APPEAR IN THE STATEMENTS
OF ADDITIONAL INFORMATION. THE STATEMENTS OF ADDITIONAL INFORMATION AND THE
ANNUAL REPORT FOR THE FUNDS, WHICH CONTAIN FURTHER INFORMATION ABOUT THE FUNDS'
PERFORMANCE INCLUDING MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE, MAY BE
OBTAINED FREE OF CHARGE BY CALLING 1-800-848-0920.
5
<PAGE> 6
NATIONWIDE(R) FAMILY OF FUNDS
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.
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 money is the highest priority -- you
may want to consider Nationwide's common stock funds (Growth or Fund). These
funds provide greater long-term return potential through portfolios of common
stocks.
If you're seeking greater income today, have intermediate to long-term goals, or
as the time to your long-term goals get closer -- you may consider Nationwide's
income-oriented funds (Bond, Tax-Free Income or U.S. Government Income). These
funds invest in high-quality bonds, providing monthly income and normally
provide greater price stability than stock funds. Plus, it is 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 suitable 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 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. The greater the
potential long-term opportunity, the greater the potential risk of account value
fluctuation.
The most common risk people associate with investing is short-term market
risk -- the day-to-day fluctuation in an investment's value. To lower this risk,
Nationwide's portfolio managers seek to invest only in high-quality securities.
This commitment to quality provides shareholders with a greater potential for
growth or income, while maintaining a high degree of relative stability.
Investors looking for greater growth in our common stock funds (Growth and Fund)
should be willing to accept short-term 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 been rewarded. Despite years when short-term returns have not
been satisfactory, over long-term holding periods, money has grown more in the
common stock funds than in our other funds.
The income-oriented funds (Bond, Tax-Free Income and U.S. Government Income)
provide investors with greater price stability than our common stock funds. More
predictable investments can make an investor more comfortable, but the total
return potential in these funds is less than in common stock funds. Prevailing
interest rates, more than any other factor, contribute to price fluctuation in
these 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 24.
Investors who would prefer not to have their investment principal fluctuate
should consider the Money Market Fund. While it provides the greatest price
stability, over its history it has the least long-term return potential.
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 stock funds are the most volatile over short
periods of time, they are one of the few investments that 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.
CONSIDER YOUR TAX BRACKET
For investors seeking to shelter their investment income from federal taxes, the
Tax-Free Income Fund may be a suitable 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
26.
6
<PAGE> 7
PERFORMANCE
The following graphs show comparative performance of $10,000 invested in each of
the Nationwide Funds to the broad-based, unmanaged index primarily used as a
benchmark for measuring the performance of each Fund and to the Consumer Price
Index (CPI), a widely recognized measure of inflation. The graphs can also be
used to help you compare the past performance of the Nationwide Funds to that of
other mutual funds with similar investment objectives.
Mutual fund performance, often referred to as total return, is the change in
value of an investment in the fund over a given period, assuming reinvestment of
dividends and capital gains. Fund performance in the graphs reflect the
deduction of all applicable sales charges but have not been adjusted for income
taxes. The period covered in the graphs is the 10-year period ended December 31,
1996, (except the U.S. Government Income Fund which is from 2/10/92 (inception
date) through December 31, 1996.
NATIONWIDE(R) GROWTH FUND
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR
COVERED) S&P* GROWTH CPI**
<S> <C> <C> <C>
1987 $10,525 $ 9,776 $10,442
1988 12,268 11,979 10,903
1989 16,147 13,769 11,408
1990 15,647 12,727 12,121
1991 20,403 17,315 12,482
1992 21,956 18,406 12,852
1993 24,160 20,490 13,204
1994 24,477 20,790 13,547
1995 33,665 26,759 13,899
1996 41,389 31,227 14,358
</TABLE>
NATIONWIDE(R) FUND
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR
COVERED) S&P* FUND CPI**
<S> <C> <C> <C>
1987 $10,525 $ 9,742 $10,442
1988 12,268 11,374 10,903
1989 16,147 15,219 11,408
1990 15,647 15,265 12,121
1991 20,403 19,879 12,482
1992 21,956 20,467 12,852
1993 24,160 21,852 13,204
1994 24,477 21,979 13,547
1995 33,665 28,569 13,899
1996 41,389 35,405 14,358
</TABLE>
* The S&P 500 is a broad, unmanaged index of equity securities, and unlike the
funds, does not reflect any expenses.
** The CPI is a broad index reflecting price changes in a market basket of
goods, and unlike the funds, does not reflect any expenses.
Past results are not a guarantee of future performance. Investment results and
principal will fluctuate, and when redeemed, shares may be worth more or less
than original cost.
[PHOTOGRAPH]
Ed and Karen Reich, Money Market Fund and Bond Fund shareholders, in front of
Mt. Ranier.
[PHOTOGRAPH]
Lumir and Alice Palma, Bond Fund and Money Market Fund shareholders, with the
1956 Packard their son, Bob, restored and gave to them on their 50th wedding
anniversary in 1993.
7
<PAGE> 8
PERFORMANCE
NATIONWIDE(R) BOND FUND
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) LB GOVT/CORP. LB LT GOVT/CORP.* BOND CPI**
<S> <C> <C> <C> <C>
1987 $10,229 $ 9,916 $ 9,576 $10,442
1988 11,004 10,881 10,358 10,903
1989 12,570 12,789 11,468 11,408
1990 13,611 13,614 12,411 12,121
1991 15,606 16,273 14,506 12,482
1992 17,004 17,661 15,663 12,852
1993 18,878 20,515 17,342 13,204
1994 16,216 19,061 15,937 13,547
1995 21,720 24,769 19,786 13,899
1996 22,350 24,804 20,080 14,358
</TABLE>
The index for the Bond Fund has been changed from the Lehman Brothers Long-Term
Govt./Corp. Bond Index to the Lehman Brothers Govt./Corp. Index because it
better represents the investment policies of the Fund for comparison purposes.
* The Lehman Brothers Govt./Corp. and Long-Term Govt./Corp. Bond indexes
represent an unmanaged group of bonds that are not adjusted for expenses and
include bonds of lower quality than the Bond Fund.
** The CPI is a broad index reflecting price changes in a market basket of
goods, and unlike the funds, does not reflect any expenses.
NATIONWIDE(R) TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) LB MB* TAX-FREE CPI**
<S> <C> <C> <C>
1987 $10,150 $ 9,636 $10,442
1988 11,181 10,621 10,903
1989 12,388 11,713 11,408
1990 12,291 12,416 12,121
1991 14,904 13,761 12,482
1992 16,219 15,063 12,852
1993 18,210 16,978 13,204
1994 17,269 15,435 13,547
1995 20,284 18,135 13,899
1996 21,183 18,804 14,358
</TABLE>
* The Lehman Brothers Municipal Bond Index represents an unmanaged group of
bonds that is not adjusted for expenses and includes bonds of lower quality
than the Tax-Free Fund.
** The CPI is a broad index reflecting price changes in a market basket of
goods, and unlike the funds, does not reflect any expenses.
Past results are not a guarantee of future performance. Investment results and
principal will fluctuate, and when redeemed, shares may be worth more or less
than original cost.
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND(+)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MLGM* USGI LBGB* CPI**
<S> <C> <C> <C> <C>
1992 $10,847 $10,638 $10,763 $10,267
1993 11,999 11,577 11,693 10,548
1994 11,612 11,165 11,439 10,822
1995 13,738 13,241 13,087 11,103
1996 14,117 13,681 13,618 11,470
</TABLE>
The index for the U.S. Government Income Fund has been changed from the Lehman
Brothers Long-Term Intermediate Government Bond Index to the Merrill Lynch
Government Master Index because it better represents the investment policies of
the Fund for comparison purposes.
(+) Period from 2/10/92 (USGI inception) through 12/31/96.
* The Merrill Lynch Government Master Index and the Lehman Brothers
Intermediate Government Bond Index represent an unmanaged group of bonds that
are not adjusted for expenses and include bonds of lower quality than the
U.S. GI Fund. The Merrill Lynch Government Master Index better represents the
investment policies of the Fund and is the new benchmark index for comparison
purposes.
** The CPI is a broad index reflecting price changes in a market basket of
goods, and unlike the funds, does not reflect any expenses.
Past results are not a guarantee of future performance. Investment results and
principal will fluctuate, and when redeemed, shares may be worth more or less
than original cost.
NATIONWIDE(R) MONEY MARKET FUND
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) Money Mkt. CPI**
<S> <C> <C>
1987 $10,616 $10,442
1988 11,372 10,903
1989 12,385 11,408
1990 13,356 12,121
1991 14,108 12,482
1992 14,562 12,852
1993 14,937 13,204
1994 15,496 13,547
1995 16,350 13,899
1996 17,164 14,358
</TABLE>
** The CPI is a broad index reflecting price changes in a market basket of
goods, and unlike the funds, does not reflect any expenses.
Past results are not a guarantee of future performance.
8
<PAGE> 9
OBJECTIVES, MANAGEMENT, PERFORMANCE & HOLDINGS
THE GROWTH FUND
is designed to serve investors who do not require current income but are
primarily interested in the growth of their capital to meet their future
financial needs.
INVESTMENT OBJECTIVE & POLICY: To achieve long-term capital appreciation without
emphasis on current return. 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.
- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION AND INCOME POTENTIAL.
- - COMMON STOCK PORTFOLIO -- GENERALLY LARGER COMPANIES.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Growth Fund 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.
While it is generally intended to invest in common stocks or in issues
convertible to common stock, there are no restrictive provisions covering the
proportion of one or another class of securities that may be held. Therefore,
management is not in any way inhibited in the selection of appropriate
investments to reach the objectives. However, certain other restrictions exist
to protect investors.
Investments are made in different types of securities among many companies
and industries which provide diversification to minimize risk. While there is
careful selection and constant supervision by a professional investment manager,
there can be no guarantee that the Fund's objective will be achieved.
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 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.
CALENDER YEAR TOTAL RETURNS (excluding sales charge)*
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
16.7% 28.7% 1.5% 11.3% 6.3% 36.1% (7.6%) 14.9% 22.5% 2.4%
1986 1985 1984 1983 1982 1981 1980 1979 1978 1977
18.4% 33.3% 8.4% 21.9% 35.6% 3.1% 18.8% 21.7% 9.9% (.7%)
1976 1975 1974 1973 1972 1971 1970 1969 1968 1967
23.6% 41.3% (34.9%) (27.5%) 8.7% 18.7% (12.0%) (9.7%) 13.5% 28.3%
</TABLE>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS*
(For periods ending 12/31/96, $1,000 lump-sum investment minus 4.5% sales
charge)
<TABLE>
<S> <C> <C>
1 Year 5 Year 10 Year
- ------------------------------
11.5% 11.5% 12.1%
- ------------------------------
</TABLE>
* Total returns reflect market appreciation or depreciation, dividends and
capital gains for the periods ended December 31. Results shown assume
reinvestment of all distributions. Adjustments have not been made for income
taxes. Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate, and when redeemed, shares may be worth more
or less than original cost.
[PIE CHART]
Repurchase Agreements = 0.8%
U.S. Government & Government Agency Securities & Other
Assets Less Liabilities = 6.0%
Corporate Bonds = 0.5%
Common Stocks = 93.2%
TOTAL VALUE OF PORTFOLIO (12/31/96) $689,931,601
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
TOP 10 HOLDINGS VALUE PORTFOLIO
<S> <C> <C>
Federal National Mortgage Association $27,224,623 3.9%
Columbia/HCA Health 24,450,000 3.5
Equitable Companies 24,354,125 3.5
Archer Daniels Midland Co. 23,862,762 3.5
Grand Metropolitan PLC 23,564,400 3.4
Allstate Corp. 23,150,000 3.4
Mobil Corp. 22,005,000 3.2
Merrill Lynch & Co., Inc. 20,375,000 3.0
Warner-Lambert Co. 18,750,000 2.7
International Business Machines 18,120,000 2.6
</TABLE>
9
<PAGE> 10
OBJECTIVES, MANAGEMENT, PERFORMANCE & HOLDINGS
THE NATIONWIDE(R) FUND
is designed to serve investors who seek long-term capital appreciation and
income through a portfolio which, based on the current market environment,
provides the greatest total return opportunities.
INVESTMENT OBJECTIVE & POLICY: To obtain a total return from a flexible
combination of current income and capital appreciation. This is accomplished by
retaining maximum flexibility in the management of the Fund's portfolio which
consists primarily of common stocks, but also includes convertible issues, bonds
and money market instruments.
- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION AND 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 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 securities which provide a
combination of current income and the possibility of capital gains. 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.
While it is generally intended to invest in common stocks or in issues
convertible to common stock, there are no restrictive provisions covering the
proportion of one or another class of securities that may be held. Therefore,
management is not in any way inhibited in the selection of appropriate
investments to reach the objectives. However, certain other restrictions exist
to protect investors.
Investments are made in different types of securities among many companies
and industries which provide diversification to minimize risk. While there is
careful selection and constant supervision by a professional investment manager,
there can be no guarantee that the Fund's objective will be achieved.
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 Nationwide(R) 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.
CALENDAR YEAR TOTAL RETURNS (Excluding sales charge)*
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
23.9% 30.0% .6% 6.8% 3.0% 30.2% .3% 33.8% 16.8% 2.0%
1986 1985 1984 1983 1982 1981 1980 1979 1978 1977
17.6% 36.4% 6.1% 15.8% 22.2% 2.0% 17.9% 9.8% .8% (9.1%)
1976 1975 1974 1973 1972 1971 1970 1969 1968 1967
26.7% 38.6% (20.3%) (6.7%) 9.7% 10.2% 8.5% (16.3%) 28.6% 29.0%
</TABLE>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS*
(For periods ending 12/31/96, $1,000 lump-sum investment minus 4.5% sales
charge.)
<TABLE>
<S> <C> <C>
1 Year 5 Year 10 Year
- ------------------------------
18.4% 11.2% 13.5%
- ------------------------------
</TABLE>
*Total returns reflect market appreciation or depreciation, dividends and
capital gains for the periods ended December 31. Results shown assume
reinvestment of all distributions. Adjustments have not been made for income
taxes. Past performance is not a guarantee of future results. Investment return
and principal will fluctuate, and when redeemed, shares may be worth more or
less than original cost.
[PIE CHART]
Repurchase Agreements and other Assets Less Liabilities = .03%
Corporate Bonds = 0.5%
Common Stocks = 99.2%
TOTAL VALUE OF PORTFOLIO (12/31/96) $997,925,767
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
TOP 10 HOLDINGS VALUE PORTFOLIO
<S> <C> <C>
Warner-Lambert Co. $70,995,000 7.1%
Schering-Plough Corp. 52,583,475 5.3
Texaco, Inc. 46,776,188 4.7
Avon Products 39,644,750 4.0
Chubb Corp. 34,115,125 3.4
PepsiCo, Inc. 33,564,375 3.4
Raychem Corp. 30,910,222 3.1
Chrysler Corp. 30,683,400 3.1
International Business Machines 30,200,000 3.0
Mellon Bank Corp. 28,243,800 2.8
</TABLE>
10
<PAGE> 11
OBJECTIVES, MANAGEMENT, PERFORMANCE & HOLDINGS
THE BOND FUND
seeks to serve those who are less willing to accept the risks associated with
stocks through investment in income obligations, including corporate debt
securities, United States and Canadian Government obligations and commercial
paper. The average maturity of the Fund will be intermediate, which is defined
as being between 7 and 9 years.
INVESTMENT OBJECTIVE & POLICY: To generate a high level of income, consistent
with capital preservation, through investment in high-quality bonds and other
fixed-income securities. This is accomplished by retaining maximum flexibility
in the management of its portfolio consisting mainly of corporate debt
instruments.
- - MONTHLY INCOME FROM A PORTFOLIO OF HIGH-QUALITY CORPORATE AND GOVERNMENT
OBLIGATIONS.
- - INTERMEDIATE MATURITIES -- YIELDS ARE USUALLY HIGHER THAN SHORT-TERM FUNDS,
BUT WITH LOWER VOLATILITY OF RETURNS THAN LONG-TERM FUNDS.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Bond Fund 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
high-quality taxable debt securities including corporate debt securities rated
within the three highest credit categories by Standard & Poor's Corporation
(AAA, AA or A) or Moody's Investors Service, Inc. (Aaa, Aa or A), 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 Corporation (A-1 or A-2).
The Fund may invest up to 10% of the portfolio in securities rated BBB by
Standard & Poor's Corporation or of comparable quality by Moody's Investor's
Service, Inc. These securities are commonly referred to as medium-grade
securities. Securities in this ratings group are considered by 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, the Fund's Investment Manager, Nationwide Advisory Services, Inc.,
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.
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 Nationwide(R) 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.
CALENDAR YEAR TOTAL RETURNS (Excluding sales charge)*
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
1.5% 24.2% (8.1%) 10.7% 8.0% 16.9% 8.2% 10.7% 8.2% 0.3%
1986 1985 1984 1983 1982 1981
12.9% 19.1% 14.1% 6.0% 31.0% 2.2%
</TABLE>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS*
(For periods ending 12/31/96, $1,000 lump-sum investment minus 4.5% sales
charge.)
<TABLE>
<S> <C> <C>
1 Year 5 Year 10 Year
- -------------------------------
(3.1%) 5.7% 7.2%
- -------------------------------
</TABLE>
*Total returns reflect market appreciation or depreciation, dividends and
capital gains for the periods ended December 31. Results shown assume
reinvestment of all distributions. Adjustments have not been made for income
taxes. Past performance is not a guarantee of future results. Investment return
and principal will fluctuate, and when redeemed, shares may be worth more or
less than original cost.
[PIE CHART]
U.S. Government Bonds = 4.0%
Canadian Government Bonds = 4.7%
Commercial Paper, Repurchase
Agreements and other Assets And Liabilities = 2.1%
Mortgage Backed Securities = 9.5%
Corporate Bond = 79.7%
TOTAL VALUE OF PORTFOLIO (12/31/96) $128,627,612
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
TOP 10 HOLDINGS VALUE PORTFOLIO
<S> <C> <C>
Federal National Mortgage Association $8,432,706 6.6%
Berkley, (W.R.) Corp. 5,950,555 4.6
Seagram (JE) & Sons 5,715,775 4.4
U.S. Treasury Note 5,264,060 4.1
Prudential Surplus Note 5,052,515 3.9
Armstrong World Ind. 4,839,856 3.8
AMBAC Inc. 4,798,932 3.7
Aetna Life & Casualty 4,242,173 3.3
English China Clays 4,098,672 3.2
Loew's Corp. 3,984,390 3.1
</TABLE>
11
<PAGE> 12
OBJECTIVES, MANAGEMENT, PERFORMANCE & HOLDINGS
THE TAX-FREE INCOME FUND
is designed for investors seeking high monthly income free from Federal income
tax* with the degree of safety provided by high-quality municipal bonds.
INVESTMENT OBJECTIVE & POLICY: To provide 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 municipal obligations with maturities ranging from three to 10
years and long-term municipal obligations with maturities in excess of 10 years.
- - 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 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 (safest
investment grades) assigned by Moody's Investors Services, Inc. ("Moody's"), and
Standard & Poor's Corporation ("Standard & Poor's"), or, if not rated,
equivalent investment quality as determined by Nationwide Advisory Services,
Inc.
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, on a temporary basis or for defensive purposes, hold and
invest up to 20% of its assets in cash and in temporary taxable investments such
as Treasury notes, bills and bonds with remaining maturities of one year or
less. 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.
Although the Fund seeks to reduce risk by investing in a diversified
portfolio of high-quality securities, there can be no guarantee that the Fund's
objective will be achieved.
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 Tax-Free
Income Fund since its inception in March 1986. 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.
CALENDAR YEAR TOTAL RETURNS (Excluding CDSC)*
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
3.7% 17.5% (9.1%) 12.7% 9.5% 10.8% 6.0% 10.3% 10.2% (3.6%)
</TABLE>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS*
(For periods ending 12/31/96, $1,000 lump-sum investment minus the applicable
contingent deferred sales charge (CDSC) imposed on redemptions, which declines
from 5% in the first year to 0% after 5 years.)
<TABLE>
<S> <C> <C>
1 Year 5 Year Life(+)
- ----------------------------
(1.3%) 6.3% 6.5%
- ----------------------------
</TABLE>
*Total returns reflect market appreciation or depreciation, dividends and
capital gains for the periods ended December 31. Results shown assume
reinvestment of all distributions. Adjustments have not been made for income
taxes. Past performance is not a guarantee of future results. Investment return
and principal will fluctuate, and when redeemed, shares may be worth more or
less than original cost.
(+)The Tax-Free Income Fund began operations on 3/17/86.
[PIE CHART]
Aa rated = 46.4%
A rated = 23.4%
Aaa rated = 30.2%
TOTAL VALUE OF PORTFOLIO (12/31/96) $260,563,239
- ---------------------------------------------------------------
TOP TEN HOLDINGS (BY STATE)
<TABLE>
<CAPTION>
% OF
VALUE PORTFOLIO
<S> <C> <C>
Texas $35,901,363 13.8%
Virginia 35,461,194.. 13.6
Illinois 25,109,519 9.6
Washington 18,971,476 7.3
North Carolina 18,072,256 6.9
South Carolina 14,755,881 5.7
Alabama 12,981,925 5.0
Wisconsin 10,950,119 4.2
Pennsylvania 9,305,956 3.6
Massachusetts 8,023,063 3.1
</TABLE>
12
<PAGE> 13
OBJECTIVES, MANAGEMENT, PERFORMANCE & HOLDINGS
THE U.S. GOVERNMENT INCOME FUND
is designed for investors seeking high monthly income, reduced share price
fluctuations and the relative safety generally associated with a portfolio of
intermediate-term U.S. government obligations.
INVESTMENT OBJECTIVE & POLICY: To provide as high a level of current income as
is consistent with the preservation of capital by investing in securities of the
U.S. government, its agencies and instrumentalities. The average dollar-weighted
maturity of the Fund will be maintained at between three and 10 years.
- - MONTHLY INCOME FROM A PORTFOLIO OF U.S. GOVERNMENT AND AGENCY OBLIGATIONS.
- - INTERMEDIATE-TERM PORTFOLIO SEEKS LOW PRICE FLUCTUATION.
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the U.S. Government Income Fund 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 net assets in
securities issued by the U.S. government, its agencies and instrumentalities and
in repurchase agreements collateralized by these securities.
The Fund may invest up to 80% of its net assets in mortgage-related
securities which represent part ownership of 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. Certain
government agencies also issue collateralized mortgage obligations (CMOs) which
are fully collateralized directly or indirectly by a pool of mortgages on which
payments of principal and interest are dedicated to payment of principal and
interest on the CMOs.
The Fund may also invest up to 20% in zero-coupon securities that are direct
obligations of the U.S. government and its agencies and instrumentalities.
Short-term securities of the Fund will include obligations with remaining
maturities of less than one-year issued 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.
Although the Fund seeks to reduce risk by investing in securities backed by
the U.S. government and its agencies and instrumentalities, there can be no
guarantee that the Fund's objective will be achieved.
PORTFOLIO MANAGERS: Wayne Frisbee, CFA; Kimberly Bingle, CFA, FLMI; and Gary
Hunt, MBA -- are the portfolio managers for the Nationwide(R) U.S. Government
Income Fund. Frisbee joined Nationwide in 1981 as a securities analyst and has
managed the Nationwide(R) U.S. Government Income Fund since its inception in
February of 1992. 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 Nationwide(R) U.S.
Government Income Fund on March 11, 1997. From April of 1992 to March 11, 1997,
she 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 Nationwide(R) U.S.
Government Income Fund 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.
CALENDAR YEAR TOTAL RETURNS (Excluding CDSC)*
<TABLE>
<S> <C> <C> <C>
1996 1995 1994 1993
3.3% 18.6% (3.6%) 8.8%
</TABLE>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS
(For periods ending 12/31/96, $1,000 lump sum investment minus the applicable
contingent deferred sales charge (CDSC) imposed on redemptions, which declines
from 5% in the first year to 0% after 5 years.)
<TABLE>
<S> <C>
1 Year Life(+)
--------------------------------------
(1.6%) 6.5%
--------------------------------------
</TABLE>
*Total returns reflect market appreciation or depreciation, dividends and
capital gains for the periods ended December 31. Results shown assume
reinvestment of all distributions. Adjustments have not been made for income
taxes. Past performance is not a guarantee of future results. Investment return
and principal will fluctuate, and when redeemed, shares may be worth more or
less than original cost.
(+)The U.S. Government Income Fund began operations on 2/10/92.
[PIE CHART]
Mortgage-Backed Securities = 78.8%
U.S. Government and Agency Long-Term Obligations = 18.4%
Repurchase Agreements & Other Assets Less Liabilities = 2.8%
TOTAL VALUE OF PORTFOLIO (12/31/96) $39,100,925
- ---------------------------------------------------------------
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
% OF
VALUE PORTFOLIO
<S> <C> <C>
FHLMC REMIC Series 1462-PT $5,102,290 13.0%
FNMA REMIC Series 1993-203 PJ 4,882,900 12.5
FHLB, 2001 4,001,300 10.2
FNMA REMIC Series 92-151-H 3,742,000 9.6
FHLMC REMIC Series 1344-D 3,726,240 9.5
FHLMC REMIC Series 31-E 3,467,758 8.9
FNMA REMIC Series 1313-G 3,033,864 7.8
FHLMC REMIC Series 1990-7-B 2,638,031 6.7
FNMA REMIC Series 1992-81-Z 2,346,703 6.0
FNMA REMIC Series 92-126 1,546,227 4.0
</TABLE>
13
<PAGE> 14
OBJECTIVES, MANAGEMENT, PERFORMANCE & HOLDINGS
THE MONEY MARKET FUND
is designed to serve investors who seek monthly income at current market rates
while maintaining share price stability -- 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.
INVESTMENT OBJECTIVE & POLICY: To provide as high a level of current income as
is consistent with the preservation of capital and maintenance of liquidity,
through investment in a diversified portfolio of high-quality money market
instruments maturing in 397 days or less. This is accomplished by investing
mainly in debt securities, but the Fund shall retain maximum flexibility in the
management of its portfolio.
- - 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 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; obligations of commercial
banks which have assets over $500 million, and the 50 largest foreign banks with
U.S. branches; CDs of savings associations with assets over $500 million which
are FDIC members; 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 investment grades assigned by the NRSROs; and repurchase agreements
collateralized by any of the above. While it is generally intended to invest in
the above short-term debt issues, there are no restrictive provisions covering
the proportion of one or another class of securities that may be held which in
any way inhibit management in the selection of appropriate investments to reach
the objectives. However, certain other restrictions exist to protect investors.
Investments are made in different types of securities among many companies and
industries which provide diversification to minimize risk. While there is
careful selection and constant supervision by a professional investment manager,
there can be no guarantee that the Fund's objective will be achieved.
PORTFOLIO MANAGER: Patricia A. Mynster, Director of Short-Term
Investments -- began managing 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.
CALENDAR YEAR TOTAL RETURNS*
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
5.0% 5.5% 3.7% 2.6% 3.2% 5.6% 7.8% 8.9% 7.1% 6.2%
1986 1985 1984
6.3% 7.9% 10.4%
</TABLE>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS*
(For periods ending 12/31/96, $1,000 lump-sum investment. There are no sales
charges on Money Market investments.)
<TABLE>
<S> <C> <C>
1 Year 5 Year 10 Year
- ------------------------------
5.0% 4.0% 5.6%
- ------------------------------
</TABLE>
*Total returns reflect dividends reinvested for the periods ended December 31.
Although the Fund's record should be considered in light of its investment
objectives and policies, past results are not a guarantee of future performance
which may be less or more. Fund results shown for the periods indicated are
without adjustment for any income taxes payable by a shareholder on reinvested
distributions. The current yield of the Money Market Fund may be more reflective
of what you could earn if you invested today. Call 1-800-637-0012 for the most
recent current yield.
[PIE CHART]
Commercial Paper = 93.4%
Canadian Government Obligations, Coporate Notes & Other Assets
Less Liabilities = 3.2%
U.S. Government & Agency Obligations = 3.4%
TOTAL VALUE OF PORTFOLIO (12/31/96) $748,610,423
- ---------------------------------------------------------------
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
% OF
VALUE PORTFOLIO
<S> <C> <C>
Goldman Sachs Group $34,032,486 4.5%
Metropolitan Life Ins. Co. 31,112,020 4.2
Caterpillar Financial Services 30,900,003 4.1
Old Republic Corp. 30,869,506 4.1
Banc One Corp. 30,593,786 4.1
National Rural Utilities Finance Corp. 30,507,710 4.1
Ford Motor Credit Co. 30,182,033 4.0
Bear Stearns 28,586,165 3.8
Walt Disney Co. 28,453,542 3.8
Dean Witter Disover & Co. 28,156,851 3.8
</TABLE>
14
<PAGE> 15
NATIONWIDE(R) FAMILY OF FUNDS
MINIMUM INVESTMENT
GROWTH FUND; NATIONWIDE FUND; BOND 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 20. 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 above Funds. Sales
charges decline as the amount invested increases according to the chart on page
20.
There are no sales charges on dividends and capital gains reinvested, nor is
there a charge for redeeming your investment.
TAX-FREE
INCOME FUND;
U.S. GOVERNMENT
INCOME 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 U.S. Government Income Fund is also
available for certain qualified plans, i.e. Individual Retirement Accounts
(IRA), Simplified Employee Pensions (SEP), Profit Sharing and Money Purchase
Plans.
There is NO initial sales charge for investments made in the above Funds.
However, a contingent deferred sales charge (CDSC, see page 18) may apply to
redemptions made in these Funds. The CDSC declines to 0% after 5 years.
There is never a CDSC
on withdrawals of
dividends and capital
gains (reinvested
or taken in cash), or
realized account
appreciation.
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. Also available for certain qualified
plans, i.e. Individual Retirement Accounts (IRA), Simplified Employee Pensions
(SEP), Profit Sharing and Money Purchase Plans.
There are NO sales charges for Money
Market Fund investments or
withdrawals.
[PHOTOGRAPH]
Joscelyne Swift and her sister, Colbi, Nationwide(R) Fund shareholders, hunt
for Easter eggs.
15
<PAGE> 16
NATIONWIDE(R) FAMILY OF FUNDS
HOW TO PURCHASE SHARES
YOU MAY INVEST IN THREE CONVENIENT WAYS:
BY MAIL -- Complete the enclosed 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 Nationwide Advisory Services, Inc. (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 found in this
prospectus.
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 ITEM 15 ON THE
APPLICATION.
The net asset value per share for each fund is determined as of the close of
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 the portfolio to materially
affect the net asset value of a fund. The funds will not compute net asset value
on customary business holidays, including Christmas, New Year's 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:
GROWTH, FUND, AND BOND PURCHASE PRICE
Shares of the above 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 ON PAGE
20. 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. Expenses and fees are accrued
daily.
[PHOTOGRAPH]
Anthony Lindsay, Growth Fund shareholder, holds his sister,
Victoria, Growth Fund and Tax-free Fund shareholder.
TAX-FREE INCOME, U.S. GOVERNMENT INCOME, AND MONEY MARKET PURCHASE PRICE
Shares of the above funds are purchased at net asset value. In determining net
asset value, portfolio securities (except in the Money Market Fund) are valued
at the quoted prices obtained from an independent pricing organization which
employs a combination of methods including, among others, the obtaining of
market valuations from dealers who make markets and deal in
16
<PAGE> 17
NATIONWIDE(R) FAMILY OF FUNDS
such securities, and by comparing valuations from dealers who make markets and
deal in such securities, and by comparing 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 Trusts. Securities of
the Funds 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. Securities
for which market quotations are not readily available are valued at fair value
in accordance with procedures adopted by the Boards of Trustees. Investments in
the Money Market Fund are valued at amortized cost. Expenses and fees are
accrued daily.
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 at the close of the New York Stock
Exchange on the day the properly completed request is received by Nationwide
Advisory Services, Inc. (NAS), at its offices in Columbus, Ohio. A CONTINGENT
DEFERRED SALES CHARGE MAY APPLY TO REDEMPTION OF SHARES OF THE TAX-FREE INCOME
OR U.S. GOVERNMENT INCOME FUNDS (see "Contingent Deferred Sales Charge," page
18).
Requests for redemptions may be in writing or by telephone (if authorized).
Payment for shares redeemed is made within 3 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 17). 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 16), 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 item 8 of the
application. Additional NAS NOW redemption options are also available, if
elected, in item 8. 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 -- A check payable to the registrant of record can be
mailed to the address of record, unless you declined the option in item 8 of
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 item 8 of the
application. For additional information on Western Union, please refer to
page 18 of the prospectus.
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 the 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.
(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.)
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
17
<PAGE> 18
NATIONWIDE(R) FAMILY OF FUNDS
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
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 (see Privilege 10, page 23 for more details). If you wish to
withdraw your money this way, please complete Section 12 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.
CONTINGENT DEFERRED SALES CHARGE
(TAX-FREE INCOME FUND AND U.S. GOVERNMENT INCOME FUND ONLY)
A contingent deferred sales charge will be imposed on any redemption which
causes the current value of your account to fall below the total amount of all
purchases made during the preceding five years. THE CONTINGENT DEFERRED SALES
CHARGE IS NEVER IMPOSED ON DIVIDENDS, WHETHER PAID IN CASH OR REINVESTED, OR ON
APPRECIATION. The contingent deferred sales charge applies only to the lesser of
the original investment or current market value.
Where the charge is imposed, the amount of the charge will depend on the
number of months since you made the purchase payment from which an amount is
being redeemed, according to the following table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Months since purchase 0- 13- 25- 37- 49- 61 &
payment was made 12 24 36 48 60 over
- ----------------------------------------------------------------
Contingent deferred
sales charge
percentage 5% 4% 3% 2% 1% none
</TABLE>
For purposes of the charge, it is assumed that the oldest shares remaining
in your account will be sold first. All payments during a month will be
aggregated and deemed to have been made on the last day of the preceding month.
Your money will earn daily dividends through the date of liquidation. If you
redeem all of your shares, you will receive a check representing the value of
your account, less any applicable contingent deferred sales charge, on the date
of withdrawal, including all daily income dividends credited to your account
through the date of withdrawal.
THE CONTINGENT DEFERRED SALES CHARGE WILL BE WAIVED IN THE CASE OF A TOTAL
OR PARTIAL REDEMPTION FOLLOWING THE DEATH OR DISABILITY OF A SHAREHOLDER
(ACCOUNTS OWNED BY AN INDIVIDUAL OR AN INDIVIDUAL JOINTLY WITH SPOUSE) IF
REDEMPTION OCCURS WITHIN ONE YEAR OF DEATH OR INITIAL DETERMINATION OF
DISABILITY. (Also see "Waiver of Contingent Deferred Sales Charge," page 22 for
other situations where the contingent deferred sales charge will be waived.)
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
18
<PAGE> 19
NATIONWIDE(R) FAMILY OF FUNDS
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 THE MINIMUM, 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.
[PHOTOGRAPH]
Alexandra Marie Bukeavich, Bond Fund shareholder.
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
common stock funds (Growth or Fund).
An initial investment of $5,000 or more is made in the Money Market, and
monthly dividends are then automatically invested into the common stock funds
(Growth or Fund) at the offering price. Money Market Plus Growth(SM) gives
investors stability of principal through the Money Market's fixed share price,
which is unaffected by market swings, and its portfolio of high quality,
short-term money market investments. And the Money Market offers instant
liquidity through unlimited free checking ($500 minimum), telephone redemption,
or NAS NOW -- all without penalty for early withdrawal. 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 and capital appreciation by reinvesting dividends into one of
Nationwide's bond funds (Bond, Tax-Free Income or U.S. Government Income).
An initial investment of $5,000 or more is made in the Money Market and
monthly dividends are then reinvested into a bond fund. 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 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 and capital
appreciation. 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
19
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NATIONWIDE(R) FAMILY OF FUNDS
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 inflated 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 (Growth, Fund or Bond), or $100 a month (Tax-Free Income, U.S.
Government Income or Money Market). 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 further
diversify 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 Tax-Free Income Fund and U.S. Government Income
Fund). 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. WITHDRAWALS MADE FROM THE TAX-FREE INCOME FUND OR U.S.
GOVERNMENT INCOME FUND UNDER THIS PLAN, LIKE OTHER REDEMPTIONS, MAY BE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
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 MONEY MARKET -- You pay no sales charge when you invest or
redeem in the Money Market.
2 SALES CHARGE SCHEDULE AND AVAILABLE DISCOUNTS
INITIAL SALES CHARGE DISCOUNT
For purchases of the Growth, Fund and Bond Funds, your sales charge percentage
will be reduced 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 $50,000, the sales charge
is: 4.5 % 4.71%
$50,000 but less than $100,000 4.0 % 4.17%
$100,000 but less than $250,000 3.0 % 3.09%
$250,000 but less than $500,000 2.0 % 2.04%
$500,000 but less than $1,000,000 1.0 % 1.01%
$1,000,000 but less than $5,000,000 0.25% 0.25%
$5,000,000 or more 0.0 % 0.0 %
</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 Family of Funds
(except Nationwide Money Market Fund) including shares acquired by reinvestment
of dividends and capital gains distributions.
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NATIONWIDE(R) FAMILY OF FUNDS
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.
For other discount privileges, see "Insurance Proceeds or Benefits Discount
Privilege" and "Letter of Intent (LOI) Discount," page 21.
3 NO SALES CHARGE ON REINVESTMENTS(SM) -- All dividends and capital gains may be
reinvested free of charge within the same Fund. The Trust will not mail checks
for dividends of less than $5. Dividends will be reinvested, and you will
receive a confirmation.
4 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 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 FROM GROWTH, FUND, BOND, AND MONEY MARKET FUNDS
Shares of the Growth, Fund and Bond Funds may be exchanged among any of
Nationwide's Family of Funds without sales charge, and shares of the Tax-Free
Income or U.S. Government Income Funds acquired as a result of such exchanges
will not be subject to the applicable contingent deferred sales charge normally
assessed on redemptions.
Exchanges from the Money Market Fund to any other Fund will be subject to
applicable sales charges. (For exchanges to the Growth, Fund or Bond Funds, see
"Sales Charge Schedule and Available Discounts" on page 20. For exchanges to the
Tax-Free Income or U.S. Government Income Funds, see "Contingent Deferred Sales
Charge," page 18).
EXCHANGES FROM TAX-FREE INCOME AND U.S. GOV'T INCOME FUNDS
Shares of the Tax-Free Income and U.S. Government Income Funds may be exchanged
between these two Funds without incurring any contingent deferred sales charges.
For exchanges to the Growth, Fund or Bond funds, the applicable contingent
deferred sales charge will be waived, but the investor will be subject to the
normal sales charges for the Growth, Fund and Bond funds according to "Sales
Charge Schedule and Available Discounts," page 20.
NOTE: Shareholders moving money to the Money Market Fund are subject to the
applicable contingent deferred sales charge on their redemption of Tax-Free
Income Fund or U.S. Government Income Fund shares.
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 item 7 of 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.
5 INSURANCE PROCEEDS OR BENEFITS DISCOUNT PRIVILEGE (GROWTH, FUND OR BOND FUNDS
ONLY) -- If the funds used to purchase shares come from proceeds or benefits of
an
21
<PAGE> 22
NATIONWIDE(R) FAMILY OF FUNDS
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.
6 LETTER OF INTENT (LOI) DISCOUNT -- This discount permits you to purchase
shares of the Growth, Fund or Bond funds 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 20. If
the difference is not paid within 20 days after written request, the investor
irrevocably constitutes and appoints Nationwide Advisory Services, Inc. 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.
7 NET ASSET VALUE PURCHASE PRIVILEGE (GROWTH, FUND, BOND FUNDS ONLY) -- All
sales of shares to the public are made at the public offering price, except the
following sales made at net asset value: (1) shares sold through institutional
sales to other registered investment companies affiliated with Nationwide
Advisory Services, Inc., (2) shares issued on transfer of investments from the
Growth, Fund or Bond funds to another Fund in the Nationwide Family of Funds
(see "Exchange Privilege," page 20), 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
affiliates, (b) to Trustees and retired Trustees of NIF and NIF-II; 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 the Funds' advisor 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.
8 WAIVER OF CONTINGENT DEFERRED SALES CHARGE (TAX-FREE INCOME AND U.S.
GOVERNMENT INCOME FUNDS ONLY) -- The contingent deferred sales charge is waived
under the circumstances of a shareholder's (including either spouse on joint
spousal accounts) death or permanent disability (see "Contingent Deferred Sales
Charge," page 18). The contingent deferred sales charge is also waived on
redemptions of shares effected by: (1) any of the classes of shareholders listed
in Privilege 7, sections (1), and (3)(a) through (3)(f); and (2) shares redeemed
that were acquired as a result of a transfer of investments from the Tax-Free
Income, U.S. Government Income, Growth, Fund or Bond funds (see "Exchange
Privilege," page 20).
9 NO SALES CHARGE ON A REPURCHASE -- If you redeem all or part of your Growth,
Fund, or Bond Fund 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 NIF
Funds without a sales charge, within 30 days after the effective date of the
redemption.
If you redeem all or part of your Tax-Free Income Fund or U.S. Government
Income Fund shares on which you paid a contingent deferred sales charge, you
have a one-time privilege to reinvest all, or part, of the redemption proceeds
in either of the NIF-II Funds within 30 days and receive credit for any
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NATIONWIDE(R) FAMILY OF FUNDS
contingent deferred sales charge pro-rated according to the percentage of the
reinvestment, e.g., 100% for a full reinvestment, etc.
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.
10 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. Minimum subsequent purchase amounts: $25 in the Growth, Fund or Bond
funds; $100 in the Tax-Free Income, U.S. Government Income, and Money Market
funds. NOTE: Respective minimum purchase amounts ($250 for the Growth, Fund and
Bond funds; $1,000 for the Tax-Free Income, U.S. Government Income and Money
Market funds) 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 -- Growth and Fund shareholders receive quarterly
statements as of the end of March, June, September and December. Bond, Tax-Free
Income, U.S. Government Income and Money Market Fund shareholders 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 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.
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NATIONWIDE(R) FAMILY OF FUNDS
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 Nationwide Advisory Services, Inc. (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 TRUSTS
The business and affairs of the funds are managed under the direction of their
respective Boards of Trustees.
Under the terms of the Investment Management Agreement, Nationwide Advisory
Services, Inc. (NAS) manages the investment of the assets and, subject to the
supervision of the Trustees, provides various administrative services and
supervises the daily business affairs of the Trusts. NAS, an Ohio corporation,
is a wholly-owned subsidiary of Nationwide Life Insurance Company, which in turn
is a wholly-owned subsidiary of Nationwide Financial Services, Inc.
The Funds pay the Investment Manager fees based on average daily net assets
of that Fund at the rate of .5% per year. Currently the Money Market Fund pays
the Investment Manager fees of .45% per year, with the remaining .5% waived.
The Tax-Free Income and U.S. Government Income Funds pay the Investment
Manager based on average daily net assets of each Fund at the rate of .65% on
the first $250 million of average daily net assets, .60% on the next $250
million, .55% on the next $250 million, and .50% on the average daily net assets
in excess of $750 million.
At its option, the Investment Manager may waive any portion of the
management fee charged to the Money Market Fund in order to offer shareholders
the highest possible current yields consistent with the investment policies and
types of permitted investments of the Fund.
NAS, as Distributor of the Funds, markets the Funds. It also provides the
administrative and accounting services, including daily valuation of the Funds'
shares, preparation of financial statements, taxes, and regulatory reports. For
accounting services, NAS receives a total annual fee of $48,000 from NIF Funds
only.
MANAGEMENTS' DISCUSSION OF FUNDS' PERFORMANCE
Managements' discussion of the Funds' performance is contained in the Funds'
Annual Report, which will be made available upon request and without charge by
writing to NAS at Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-
1492, or call toll-free 1-800-848-0920.
TRANSFER AND DIVIDEND DISBURSING AGENT
NAS, through its wholly-owned subsidiary, Nationwide Investors Services, Inc.
(NIS), serves as transfer agent and dividend disbursing agent for the Trust.
DISTRIBUTION PLAN (TAX-FREE INCOME AND U.S. GOVERNMENT INCOME FUNDS ONLY)
The NIF-II Trust has adopted a Distribution Plan (the "Plan") under Rule 12b-1
of the Investment Company Act of 1940 which permits the Funds to compensate the
Distributor for expenses associated with the distribution of its shares. Under
the Plan, each Fund pays the Distributor compensation accrued daily and paid
monthly at a maximum annual rate of .35% of the Trust's average daily net
assets. Currently, the Tax-Free Income and U.S. Government Income Funds accrue
daily and pay monthly to the Distributor compensation at the annual rate of .20%
of the Funds' average daily net assets. The Distributor will continue to waive
the remaining .15% until further written notice.
The Distributor also receives the proceeds of contingent deferred sales
charges imposed on certain redemptions of shares (See "Contingent Deferred Sales
Charge," page 18). Distribution expenses paid by the Distributor may include the
costs of printing and mailing prospectuses and sales literature to prospective
investors, advertising, and compensation to sales personnel and broker-dealers.
EXPENSES
For the fiscal year ended October 31, 1996, the ratio of operating expenses to
average net assets was .64% for Growth, .61% for Fund, .70% for Bond, .96% for
Tax-Free Income, 1.06% for U.S. Government Income, and .60% for Money Market.
The Growth, Fund, Bond and Money Market Funds will not bear expenses in excess
of 1% of average daily net assets. Such limitations did not affect any of the
funds during the year ended October 31, 1996.
THE EFFECT OF INTEREST RATES ON BOND VALUES
All bond prices (U.S. government, municipal and corporate) are affected by
interest rates. Generally, as prevailing interest rates rise, the market value
of bonds falls. Conversely, as interest rates fall, bond market values generally
rise. Thus, if interest rates have
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<PAGE> 25
NATIONWIDE(R) FAMILY OF FUNDS
increased from the time a security was purchased for a Fund, that security's
value could be less than cost, reducing the net asset value per share of the
Fund. If later sold, that security might be sold at a price less than its cost
resulting in a capital loss. Similarly, if interest rates have declined from the
time a security was purchased, that security's value could be greater than its
cost, resulting in an increase in the net asset value per share. If later sold,
it might be sold at a price greater than its cost resulting in a capital gain.
In either instance, if the security was purchased at face value and held to
maturity, no gain or loss would be realized.
The change in interest rates does not affect all bond prices equally. Many
other factors contribute to a change in value, such as the time to maturity,
supply and demand for the securities, perception of credit quality, and other
economic forces.
Generally, debt securities with shorter maturities are subject to less price
fluctuation resulting from interest rate changes. Securities with longer-term
maturities are subject to greater price fluctuation.
The table on the next page shows the effect on prices (stated as a
percentage change) of an intermediate-term bond and a long-term bond given a 1,
2 and 3 percentage point change in interest rates. As the example shows, the
longer the time to maturity, the greater the price change.
APPROXIMATE CHANGE IN
MARKET VALUE OF A BOND
<TABLE>
<CAPTION>
CHANGE IN RISING FALLING
INTEREST RATES INTEREST RATES INTEREST RATES
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
7-YEAR BOND YIELDING 8%
1% -5.1% +5.5%
2% -9.9 +11.3
3% -14.4 +17.5
30-YEAR BOND YIELDING 8%
1% -10.3% +12.5%
2% -18.9 +27.7
3% -26.2 +46.4
</TABLE>
Supply and demand also affect prices and can moderate or exaggerate the
price fluctuation resulting from changes in interest rates. Similarly, a change
in a security's credit rating (e.g., a reduction from AA-rated to A or below)
can have an adverse effect on the price of a security.
Changes in the value of portfolio securities will not affect the interest
income from those securities but will be reflected in the net asset value per
share of the Funds.
DISTRIBUTIONS AND TAXES
INCOME DIVIDENDS AND CAPITAL GAINS
Substantially all of the net investment income, if any, will be paid to
shareholders quarterly at the end of March, June, September and December by the
stock funds (Growth and Fund), and at the end of each month by the Bond,
Tax-Free Income, U.S. Government Income and Money Market funds. Checks will not
be mailed for dividends of less than $5. These dividends will be reinvested, 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 distributed 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 substantially all net investment income and capital gains to
shareholders annually. In general, if the Funds distribute all of their net
investment income, they are not required to pay any federal income taxes. In
addition to federal income tax, if the Funds fail to distribute the required
portion of investment income or capital gains in any year, they will be subject
to a non-deductible 4% excise tax on the amount which they have failed to
distribute. The Funds intend 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, the appropriate portion of each year's
distribution is 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 which
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.
Under current tax law as of February 28, 1997, net long-term capital gains,
if any, realized by the Funds are generally taxable to the shareholder at the
same tax rate as ordinary income, but in no event may the tax rate on such gains
exceed 28% for an individual or 35% for a corporation.
25
<PAGE> 26
NATIONWIDE(R) FAMILY OF FUNDS
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 on the average cost paid for redeemed shares (see
"Average Cost Statement," page 23.)
[PHOTOGRAPH]
Nathan Hart, Money Market Fund shareholder, with his wife,
Carol, on their wedding day.
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 /100% - [Your Tax Rate] = What you must earn
on a taxable investment
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 (see page 25).
The table below and 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.
26
<PAGE> 27
NATIONWIDE(R) FAMILY OF FUNDS
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%
<S> <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
$41,200 - 99,600 $24,650 - 59,750 28% 5.6 6.3 6.9 7.6 8.3 9.0 9.7
$99,600 - 151,750 $59,750 - 124,650 31% 5.8 6.5 7.2 8.0 8.7 9.4 10.1
$151,750 - 271,050 $124,650 - 271,050 36% 6.3 7.0 7.8 8.6 9.4 10.2 10.9
Over $271,050 Over $271,050 39.6% 6.6 7.5 8.3 9.1 9.9 10.8 11.6
<CAPTION>
7.5% 8%
<C> <C>
8.8 9.4
10.4 11.1
10.9 11.6
11.7 12.5
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.
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 and contingent deferred sales charges decrease over time, as
outlined on pages 20 and 18 of this prospectus, respectively; 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.
27
<PAGE> 28
NATIONWIDE(R) FAMILY OF FUNDS
The Bond, Tax-Free Income and U.S. Government Income 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 the
investment industry as a whole. 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.
[PHOTOGRAPH]
Emily Sullivan, Bond Fund shareholder.
The categories in which the Funds may be cited include, but are not limited to:
GROWTH FUND:
Growth Funds, Long-Term Growth Funds
NATIONWIDE FUND:
Growth and Income Funds, Growth Funds, Long-Term Growth Funds
BOND FUND:
Income Funds, High Grade Corporate Bond Funds, A-Rated Bond Funds
TAX-FREE INCOME FUND:
General Municipal Bond Funds, High-Quality Municipal Bond Funds, A-Rated
Municipal Bond Funds, Municipal Bond Funds, Tax-Free Funds
U.S. GOVERNMENT INCOME FUND:
U.S. Government Bond Funds, Intermediate-Term U.S. Government Bond Funds,
Limited-Term U.S. Government Bond Funds, U.S. Government Securities Funds,
Government Bond Funds
28
<PAGE> 29
NATIONWIDE(R) FAMILY OF FUNDS
MONEY MARKET FUND:
Money Market Funds, Current Income Funds
The comparative material found in advertisements, sales literature, or in
reports to shareholders may contain past and/or present performance ratings.
Past performance of the Funds, like any investment, is no guarantee of future
results. Future results may be less or more.
ADDITIONAL INFORMATION
STATEMENTS OF ADDITIONAL
INFORMATION
These documents (one each for the NIF and NIF-II trusts), containing more
information on the Funds, are 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 of $1 par value and fully paid,
nonassessable, transferable, and redeemable. There are no preemptive rights.
JOINT PROSPECTUS DISCLOSURE
Although each Trust (NIF and NIF-II) is offering only shares of its own Funds,
it is possible that a Trust might become liable under the Securities Act of 1933
for any material misstatement or omission in the Prospectus about Funds of the
other Trust. The Trustees of each Trust have considered this in approving the
use of a single combined Nationwide Family of Funds Prospectus.
VOTING RIGHTS
Shareholders of each class of shares have one vote for each share held. Voting
rights cover the Investment Management Agreement, Distribution Agreement,
election of Trustees, termination of the Trust, sale of assets as a whole,
change of investment objectives, investment policies, investment restrictions
(NIF only), 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.
[PHOTOGRAPH]
Front row, left to right: Jessica Taff and her cousin, Rebecca Taff,
Nationwide(R) Fund shareholder, with their aunt, Betsy Taff, Money Market Fund,
Nationwide(R) Fund and Growth Fund shareholder.
[PHOTOGRAPH]
William Reeves, Bond Fund shareholder, helps out with the sweet corn.
29
<PAGE> 30
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE INVESTING
FOUNDATION FUNDS:
Growth Fund
Nationwide Fund
Bond Fund
Money Market Fund
NATIONWIDE INVESTING
FOUNDATION II FUNDS:
Tax-Free Income Fund
U.S. Government Income 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, Rath & Dietrich
One Nationwide Plaza
Columbus, Ohio 43215-2220
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263-0001
30
<PAGE> 31
NATIONWIDE(R)
FAMILY OF
FUNDS
INVESTOR
PROFILES:
NATIONWIDE(R) GROWTH FUND
is for investors seeking
to maximize capital
growth by investing in
the common stock of
companies in industries
where economic trends and
new technologies indicate
greater-than-average
growth potential.
NATIONWIDE(R) FUND is for
investors seeking to
maximize returns through
a flexible combination of
income and long-term
capital appreciation,
generally from common
stocks of well-known,
larger companies.
NATIONWIDE(R) BOND FUND
is for investors seeking
high monthly income with
the degree of safety that
can be provided through
high-quality bonds and
other fixed-income
securities.
NATIONWIDE(R) TAX-FREE
INCOME FUND is for
investors seeking high
monthly income free from
Federal taxes with the
degree of safety that can
be provided through
high-quality municipal
bonds.
NATIONWIDE(R) U.S.
GOVERNMENT INCOME FUND is
for investors seeking
high monthly income,
reduced share price
fluctuations and relative
safety of principal
through securities backed
by the U.S. government
and its agencies.
NATIONWIDE(R) MONEY
MARKET FUND is for
investors seeking monthly
income at current rates
of return with maximum
share price stability
(principal is not
intended to fluctuate).
INVESTING IN THE FUNDS
<TABLE>
<CAPTION>
Tax-Free Income
Growth U.S. Gov't
Fund Income
Bond Money Market
<S> <C> <C>
INVESTMENT MINIMUMS:
New Accounts $250 $1,000
Subsequent Investments $ 25 $ 100
</TABLE>
(Certain investor strategies, privileges and
services allow initial investments below these
minimums. See details contained within this
prospectus.)
HOW TO INVEST: A new account can be opened by
completing the application contained in this
Prospectus and mailing it along with your check made
payable to Nationwide Advisory Services, Inc. at the
address shown on the back cover. Subsequent
investments can be made by mail, wire or NAS NOW.
More details on purchasing and selling shares can be
found on pages 16 through 18.
INVESTOR STRATEGIES
Nationwide offers six investor strategies to assist
with your financial goals. A complete description of
each strategy can be found on pages 19 and 20.
MONEY MARKET PLUS GROWTH(SM)
MONEY MARKET PLUS INCOME(SM)
AUTOMATIC ASSET ACCUMULATION(SM)
AUTOMATIC ASSET ALLOCATION(SM)
AUTOMATIC ASSET TRANSFER(SM)
AUTOMATIC WITHDRAWAL PLAN(SM)
INVESTOR PRIVILEGES & SERVICES
Investors have the following privileges and services
available to them. Further details begin on page 20.
SALES CHARGE DISCOUNTS
NO SALES CHARGES ON DIVIDENDS & CAPITAL GAINS
REINVESTED
NO SALES CHARGES ON REPURCHASE
NAS NOW 24-HOUR AUTOMATED VOICE RESPONSE SYSTEM
EXCHANGE PRIVILEGES AND FREE TELEPHONE EXCHANGES
TOLL-FREE CUSTOMER ASSISTANCE
RETIREMENT PLANS (IRAS, SEPS, AND OTHERS)
MUTUAL FUND GIFT CERTIFICATES
CONSOLIDATED STATEMENTS
AVERAGE COST STATEMENT
FREE CHECKING ACCOUNT (MONEY MARKET FUND ONLY)
Nationwide(R) and LOGO are registered Federal
Service marks of the Nationwide Mutual Insurance
Company.
31
<PAGE> 32
[LOGO - NATIONWIDE ADVISORY SERVICES, INC.]
NATIONWIDE FAMILY OF FUNDS
- --------------------------
1997 PROSPECTUS
- ---------------
[LOGO-STAMP]
Nationwide(R) Family of Funds BULK RATE
Three Nationwide Plaza U.S. POSTAGE
Columbus, Ohio 43215-2220 PAID
CLEVELAND, OHIO
PERMIT NO. 1702
<PAGE> 33
APPLICATION
IMPORTANT: THE SUITABILITY AND SIGNATURE SECTIONS ON PAGE A2 MUST BE COMPLETED
TO OPEN A NEW ACCOUNT.
For IRA Plans use application from IRA Booklet. Make checks payable to:
Nationwide Advisory Services, Inc.
<TABLE>
<CAPTION>
PLEASE PRINT OR TYPE
<S> <C>
To complete application, follow Send application and check to:
instructions to the left of each For assistance in NATIONWIDE ADVISORY SERVICES, INC. NOTE:
section, then remove from opening an account: THREE NATIONWIDE PLAZA To avoid delays, do not use
prospectus booklet and mail with CALL TOLL-FREE: P.O. BOX 1492 P.O. Box for special delivery
check to address at right. 1-800-848-0920 COLUMBUS, OHIO 43216-1492 and other overnight services.
SALES REPRESENTATIVE
USE ONLY Agent Name ___________________________________________________________
Stamps are permitted provided Agent #____________________________ State # _____________ Phone # ( )_____________________
all necessary information is
included.
1 - INITIAL INVESTMENT GROWTH+ $_____________________ TAX-FREE INCOME++ $_____________________
Specify dollar amount you wish to FUND+ $_____________________ U.S. GOVERNMENT INCOME++ $_____________________
invest in each Fund (purchases BOND+ $_____________________ MONEY MARKET++ $_____________________
must be in U.S. dollars). You may + Minimum investment $250 ++ Minimum investment $1,000
allocate your investment among (or $25 monthly*) (or $100 monthly*)
any or all funds provided account
minimums are net for each fund / / Initial investment from insurance proceeds/benefits of Nationwide/Affiliate companies
(only one check needed). *MINIMUM insurance policy.
MONTHLY INVESTMENTS AVAILABLE ONLY
WITH AUTOMATIC ASSET ACCUMULATION.
2 - ACCOUNT REGISTRATION / / INDIVIDUAL / / JOINT TENANT / / GIFTS TO / / TRANSFER
a) Check only one box b) Fill in WITH RIGHT OF MINORS ON DEATH
complete name, address, telephone SURVIVORSHIP (Complete #4) (Complete pg. A5)
number, date of birth,
occupation, and employer. / / OTHER (Complete appropriate form on pages A5-A7
c) If any party is a minor, you if corporation, association, partnership, etc.)
must also complete #4 below.
d) IF YOU WISH TO NAME ONE OR
MORE BENEFICIARIES, YOU MUST ALSO ----------------------------------------------------------- -------------------------------
COMPLETE THE TRANSFER ON DEATH Name of Individual (first, middle initial, last), Custodian, Joint Tenant
FORM ON PAGE A5. Corporation, or Trustee
----------------------------------------------------------- ( ----- )------------------------
Address - Street Business Phone
----------------------------------------------------------- ( ----- )------------------------
City State Zip Home Phone
----- /----- /---------- --------------------------------- -------------------------------
Date of Birth (mo/day/yr) Occupation Employer
I am a / / Nationwide/Affiliate/Advisory Client employee/retiree/relative
/ / Nationwide Sponsor Group employee/relative
3 - SOCIAL SECURITY | | | | | | | | | | / / Initial here if you have
NUMBER/TAXPAYER been notified by the
IDENTIFICATION NUMBER / / Soc. Sec. Number or / / Tax Identification Number Internal Revenue Service
A Social Security or tax that you are subject to the
identification number is required (Required by IRS; you cannot open an account unless provided.) 31% withholding due to
by federal law. Trust account--use underreporting of income.
owner's SS number. Gifts/Transfers
to Minors account--use the minor's I am a / / U.S Citizen. / / Other (specify) ___________________________
SS number, NOT custodian's, and
complete #4 below.
4 - GIFTS/TRANSFERS TO MINORS ______________________________________________ custodian for __________________________________
Complete only if account is Custodian (one only) Minor (one only)
established under the Uniform
Gifts/Transfers to Minors Act, under the __________________________________ Uniform Gifts/Transfers to Minors Act.
making sure you report the minor's (State of Residence) ______ /______ / ______
Social Security number in #3 (Minor's Date of Birth--mo/day/yr)
above.
5 - DIVIDEND OPTION Check One: / / Reinvest Dividends and Capital Gains / / Pay Dividends in Cash and
Check how you wish to receive Reinvest Capital Gains
your dividends and capital gains. / / Pay Dividends and Capital Gains in Cash / / Pay Capital Gains in Cash and
Reinvest Dividends
/ / I want my dividends and/or capital gains deposited directly to my banking institution
(ATTACH COPY OF VOIDED CHECK).
6 - DISCOUNT PRIVILEGE / / I have other Nationwide Mutual Fund Accounts (also list below any other
To receive maximum sales charge members of your household with accounts).
discounts on purchases of the
Growth, Fund, or Bond Funds, Spouse: SS# _________ - _____ - ____________ Child: SS# _________ - _____ - ____________
check box. Also list Social
Security numbers of all members Child: SS# _________ - _____ - ____________ Child: SS# _________ - _____ - ____________
of your household with Nationwide
Mutual Fund accounts (all must Other _____________________________________ SS# _________ - _____ - _____________
reside at address listed in (Relationship)
#2 above).
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
7- EXCHANGE PRIVILEGE / / By initialing this box and signing this application below, I authorize Nationwide
You must initial this box in Investors Services, Inc. to act upon my voice recorded telephone instructions to exchange
order to exchange shares of a my account among Nationwide's Mutual Funds. I have read and agree to the terms and
Fund for shares of another Fund conditions of the telephone exchange privilege on page 21 of the prospectus. I understand
by telephone (no fee). Certain that this privilege may be suspended, limited or terminated without notice and exchanges
restrictions apply (see page may entail a sales charge.
21).
8 - TELEPHONE / / The Transfer Agent is authorized to honor telephoned requests from any registered
WITHDRAWALS shareholder for the redemption of Fund shares. (The funds will employ reasonable
Initial the box if you want to procedures for the protection of shareholders to confirm that instructions communicated
redeem shares by telephone. A by telephone are genuine such as, but not limited to, recording the conversation,
check from your account can be requiring some form of personal identification and providing written confirmation of the
sent to the address on this transaction. If these procedures are not followed, the funds may be liable for any loss
application (no fee). If you want due to unauthorized or fraudulent instructions.) Amounts of $1,000 or more can be wired
amounts of $1,000 or more wired provided that proceeds are transmitted ONLY to this bank account (ATTACH COPY OF VOIDED
to your banking institution CHECK):
($5 fee applies) fill in bank
name, address, and account Bank Name_____________________________________________________ Account No._______________
number. (Bank must be a Federal Reserve Bank member)
Bank Address______________________________________________________
City State Zip
If you want your check or cash sent
the next day to a Western Union
location, fill in the eight character
Western Union personal identification
number at the right. (Choose any 8 numbers or letters. Be sure to keep your PIN number for future reference.)
9 - SUITABILITY REVIEW PRIMARY INFORMATION
The SEC / NASD Rules require that INVESTMENT OBJECTIVE _____ Growth Potential _____Price Stability
all registered representatives _____ Income Potential _____Other /Specify____________________________
have reasonable grounds for
believing that an investment is INVESTMENT GOALS _____ Retirement _____ Savings _____ Professional Mgmt.
suitable for you. Such a decision _____ Education _____ Diversification _____ Other
is based on the facts, if any,
disclosed by you. Please answer
all questions to the best of your
ability. If you are not certain ADDITIONAL INFORMATION Estimated Annual Income Face Value of Life Cash Value of
of a particular value, please make FINANCIAL INFORMATION Insurance Life Insurance
a reasonable estimate. If a
category does not apply to you, $---------------------- $----------------------- $-------------
indicate this by entering an NA.
Value of Passbook Savings Value of Mutual Funds Value of CD's
IF YOU CHOOSE NOT TO DISCLOSE ANY
INFORMATION, YOU MUST SIGN THE $---------------------- $----------------------- $-------------
SPACE BELOW.
Value of Stocks Est. Value of Residence / Value of Bonds
Other Real Estate
$---------------------- $----------------------- $-------------
Other Assets Est. Indebtedness (Includes Mortgages and
Car Loans)
$---------------------- $-----------------------
Marital Status ___ Married ___ Single ___ Widowed ____________________
Spouse's Occupation
Number of Dependents ___ Sex ___ M ___ F
Spouse's Employer
I CHOOSE NOT TO DISCLOSE ANY SUITABILITY INFORMATION.
ADDITIONAL COMMENTS ___________________________________________________
X____________________________________________________
Client Signature ___________________________________________________
10 - SIGNATURE SECTION IMPORTANT: BOTH AGENT AND CLIENT MUST SIGN THIS SECTION OF THE APPLICATION TO OPEN A NEW ACCOUNT.
</TABLE>
I UNDERSTAND THE INVESTMENT OBJECTIVES OF THE(SE) FUND(S) AND I BELIEVE THAT
THEY ARE CONSISTENT WITH MY NEEDS AND OBJECTIVES. ALSO, I UNDERSTAND THAT THE
VALUE OF MY SHARES WILL FLUCTUATE (EXCEPT THE MONEY MARKET FUND WHICH SEEKS TO
MAINTAIN A FIXED $1.00 SHARE PRICE) AND, DEPENDING ON THE MARKET VALUE OF THE
FUNDS' INVESTMENTS AT THE TIME I REDEEM MY SHARES, I MAY RECEIVE MORE OR LESS
THAN THE ORIGINAL AMOUNT.
I AM OF LEGAL AGE, AND I HAVE RECEIVED A NATIONWIDE(R) FAMILY OF FUNDS
PROSPECTUS DATED FEBRUARY 29, 1996, AND HAVE READ IT CAREFULLY AND AGREE TO ITS
TERMS. I UNDERSTAND THAT I WILL RECEIVE A CONFIRMATION OF ALL TRANSACTIONS. I
CERTIFY, UNDER PENALTIES OF PERJURY, THAT I AM NOT SUBJECT TO BACK-UP
WITHHOLDING UNLESS INDICATED ON THE REVERSE SIDE OF THIS APPLICATION AND THAT
THE INFORMATION REGARDING TAX IDENTIFICATION AND SOCIAL SECURITY NUMBER AND
BACK-UP WITHHOLDING IS TRUE, CORRECT AND COMPLETE.
THE INTERNAL REVENUE SERVUCE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIERD TO AVOID BACKUP
WITHHOLDING.
X ___________________ X______________________________________ Date______________
SIGNATURES (WITH TITLE, IF ANY) OF ALL OWNERS SHOWN IN ACCOUNT REGISTRATION,
SECTION 2 ON PAGE A1.
APPROVED FOR SUITABILITY BY HOME OFFICE
PRINCIPAL:
X _________________ Date____________ _______________________________________
AGENT SIGNATURE (NO STAMPS) Principal's Signature
<PAGE> 35
NATIONWIDE(R) MUTUAL FUND SERVICES
COMPLETE THIS SECTION ONLY IF YOU WISH TO ELECT ONE OR
MORE OF THESE ADDITIONAL SERVICES. TO ELECT ADDITIONAL
INVESTMENT STRATEGIES, SEE PAGE A4.
<TABLE>
<S> <C>
11 - GIFT CERTIFICATE Name of Recipient:________________________________________________________________
Complete only if you are opening
a new account (for the person Giver: ___________________________________________________________________________
named in Section 2) with a gift
certificate. If you have any Occasion: _________________________________________________ Amount of Gift:_______
questions, contact one of our
service representatives at Mail Certficate to:_______________________________________________________________
1-800-848-0920 between 8 A.M. and
5 P.M. (Eastern Time) Monday thru ---------------------------------------------------------------------------
Friday before mailing
application.
12 - FREE CHECKS / / Please initial the box if you would like a supply of free checks. Be sure all
(MONEY MARKET FUND ONLY) authorized account holders sign below. Checks may be written for $500 or more only.
To receive a free supply of
checks to use for withdrawing CHECK BOX TO INDICATE / / Only one signature / / Two signatures / / ____signatures
funds from your Money Market Fund HOW MANY SIGNATURES is required are required are required
account: a) initial the first box; ARE REQUIRED
b) check the number of signatures
required to withdraw, and c) have SIGNATURES OF ALL AUTHORIZED ACCOUNT HOLDERS:
ALL authorized account holders
sign here (i.e., Joint Tenant X_________________________________________________________ X________________________________
named in the Account Registration
or all authorized individuals X_________________________________________________________ Account No.______________________
listed on the accompanying
Corporate, Partnership or In signing this section the signator(s) agree to be subject to the customary rules and
Association Certified regulations governing checking accounts and to the conditions set forth below. If the Checking
Resolutions). Account Privilege is established after the opening of the account, or if any change is made in
the above information, all signatures will have to be guaranteed.
NAMES MUST BE SIGNED EXACTLY AS The payment of funds on the conditions set forth in this section is authorized
THEY APPEAR IN THE ACCOUNT by the signature(s) appearing above. Nationwide Investors Services, Inc., the
REGISTRATION Fund's Transfer Agent, is hereby appointed agent by the person(s) signing this
card and will cause the Fund to redeem a sufficient number of shares from the
account to cover checks presented for payment without requiring signature
guarantees. The Fund and its agents will not be liable for any loss, expense or
cost arising out of check redemptions or checks returned without payment. Shares
outstanding in the account for less than 12 days will not be liquidated to pay
checks presented unless the Transfer Agent is assured that good payment has been
collected through normal banking channels. The Transfer Agent has the right not
to honor checks that are for less than $500 or checks in an amount exceeding the
value of the account at the time the check is presented for payment. This
privilege is subject to the provisions of the current prospectus of the Fund as
amended from time to time. This agreement may be modified or terminated at any
time.
</TABLE>
<PAGE> 36
NATIONWIDE(R) MUTUAL FUND INVESTOR STRATEGIES
COMPLETE THIS SECTION ONLY IF YOU WISH TO ELECT ONE OR MORE OF THESE INVESTOR
STRATEGIES.
<TABLE>
<S> <C>
13 - MONEY MARKET PLUS / / I want my monthly Money Market Fund dividends invested into indicated Fund (one
GROWTH(SM) & MONEY MARKET only).
PLUS INCOME(SM) PLANS Minimum $5,000 Money Market Fund investment. See Page 19.
Check appropriate box to select
the Fund in which you want to MONEY MARKET PLUS GROWTH(SM) / / Growth / / Fund
reinvest your monthly Money Market
Fund dividends. If you have an MONEY MARKET PLUS INCOME(SM) / / Bond / / Tax-Free Income* / / U.S. Government Income*
established account you want Money * Must have an established account.
Market dividends reinvested into,
write account number in space / / I want my Money Market dividends reinvested into my previously established account #:_____
provided. See page 19.
14 - AUTOMATIC ASSET / / I want to establish an Automatic Asset Accumulation plan. I want the specified dollar
ACCUMULATION(SM) & amount(s) invested into the Fund(s) of my choice, as specified below. NOTE: You must meet
AUTOMATIC ASSET the account minimums of each fund in which you invest. If you have any questions, please
ALLOCATION(SM) PLANS contact one of our representatives at 1-800-848-0920. See page 20 for more details.
Initialing the box and completing (YOU MUST ATTACH COPY OF A VOIDED CHECK.)
the Authorization Form below
authorizes your bank to make
monthly investments directly from Select Investment Date: / / 5th / / 15th / / 25th
your checking account into the (Choose one only)
Fund(s) of your choice in the
dollar amount(s) indicated. If you Monthly investments are to be allocated as follows:
are taking advantage of Automatic
Asset Allocation(SM) by selecting GROWTH+ $__________________ TAX-FREE INCOME++ $__________________
more than one Fund, be sure to FUND+ $__________________ U.S. GOVERNMENT INCOME++ $__________________
specify the dollar amount for each BOND+ $__________________ MONEY MARKET++ $__________________
Fund (YOU MUST MEET THE ACCOUNT + Minimum investment $25 monthly ++ Minimum investment $100 monthly
MINIMUMS FOR EACH FUND IN WHICH
YOU INVEST). See page 20.
15 - NAS NOW SPECIAL PURCHASE and / / Special Purchase Authority By initialing this box, you give NAS the authority to add bank
REDEMPTION wiring instructions to your account.
Initial the apropriate box(es) if
you want the ability to process a Bank Name:_______________________________
purchase or redemption through the (Please attach a voided check)
NAS NOW line (see page ). These
funds will be transmitted to/from / / Special Redemption Authority By initialing this box, you give NAS the authority to add
your bank through the automated telephone redemption and bank wiring instructions to your account.
clearing house.
Bank Name:_______________________________
(Please attach a voided check)
16 - AUTOMATIC ASSET / / I want to establish an Automatic Asset Transfer Plan. $50 per month minimum transfer.
TRANSFER(SM) PLAN See page 20.
Fill in the blanks and initial the Please transfer $________________ beginning __________ each / / month / / quarter
box to establish regular transfers ($50 minimum) Month/Year
from your Money Market Fund account
to the Fund account of Into the _____________________________ Fund Account # _________________________
your choice. See page 20. (if already established)
17 - AUTOMATIC / / I want to receive a check drawn on my account
WITHDRAWAL PLAN(SM) / / bi-weekly / / monthly / / quarterly / / 3/year / / semi-annually / / annually for $________.
Fill in the blanks and initial the ($50 minimum)
box allowing you to receive / / Specify month you want to receive your first check: Month_________ . Checks
checks for $50 or more monthly or will be mailed to the address indicated in Section #2 unless otherwise
quarterly from your account. See specified in writing, or you can elect direct deposit to your bank account.
page 20.
/ / Check box if you want withdrawals deposited directly to your banking institution
(ATTACH COPY OF A VOIDED CHECK).
18- LETTER OF INTENT / / I want to establish a Letter of Intent, and agree to the conditions and terms on
Initial the box and check the page 22.
amount you intend to invest in one / / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000 or more
13-month period to obtain a
reduced sales charge. See page
22.
</TABLE>
<PAGE> 37
FORMS SECTION
IF YOU CHECKED BOX MARKED "TRUST/OTHER" OF SECTION 2
OF APPLICATION, YOU MUST COMPLETE APPROPRIATE FORM FROM THIS SECTION AND
MAIL ALONG WITH APPLICATION.
TRANSFER ON DEATH (TOD)
FOR INDIVIDUAL AND JOINT TENANCY ACCOUNTS ONLY
Shareholders of each Fund may choose to have their shares transferred upon death
directly to their designated beneficiary(ies). If you choose to name one or more
beneficiaries for the account you are opening with this application, all shares
in the account, including those purchased in the future, will be transferred
directly to the designated beneficiary(ies) upon your death. If you designate
one or more beneficiaries for your account, you have the right to change or
revoke the beneficiary designation at any time in the future, without the
consent of the beneficiary(ies). If you elect to use this method of transferring
the shares in your account upon your death, please complete the section below.
This form of transfer is available only for individual and joint tenancy
accounts.
I (We) request that the mutual fund account that is opened with this application
be registered in beneficiary form under the Ohio Uniform Transfer- On-Death
Security Registration Act. I (We) assign ownership upon my (our) death to the
beneficiary(ies) named below in the percentage shares indicated. I (We) direct
the transfer agent to transfer the shares in such account and any unpaid
dividends and capital gains payments in accordance with this direction and the
provisions of the Ohio Uniform Transfer On Death Security Registration Act. If
the account created with this application is established in joint tenancy, no
transfer of ownership of shares under this beneficiary designation will occur
until the death of all owners of the account. This beneficiary designation may
be modified or revoked for the account any time prior to the death of the last
surviving owner of the account, without the consent of the beneficiary(ies),
provided the modification or revocation is on the form provided by Nationwide
Advisory Services, Inc.(NAS), and is received by NAS, in Columbus, Ohio, prior
to the death of the owner(s) of the account. NAS reserves the right to reject
any Transfer-On-Death forms which do not meet these and other terms and
conditions. NAS will only accept beneficiary designations in which shares are
divided among beneficiaries who survive shareholder(s).
FUND:________________________________ ACCOUNT NUMBER: _______________
NAME OF PRIMARY BENEFICIARY(IES): NAME OF CONTINGENT BENEFICIARY(IES):
(if he/she/they shall survive me (us)): (if primary beneficiary(ies) shall
If listing a minor as beneficiary also not survive me (us)):
list the legal guardian in whose name If listing a minor as beneficiary also
the securities will be registered. list the legal guardian in whose name
the securities will be registered.
Date of Birth Date of Birth
(1)_________________________ % of shares (1)________________________ % of shares
(2)_________________________ % of shares (2)________________________ % of shares
(3)_________________________ % of shares (3)________________________ % of shares
- -------------------------- -------------------------
Name of Guardian(if minor) Name of Guardian(if minor)
- ---------------- ---------------------------------------
Signature Date Signature Date
APPOINTMENT OF SUCCESSOR CUSTODIAN
FOR UNIFORM GIFT/TRANSFER ACCOUNT REGISTRATION ONLY
Gentleman: Account #_________________
I,______________________, hereby accept the appointment as the Successor
Custodian for this account as the Successor Custodian.______________________
Signature
I, ____________________________________, Hereby appoint _____________________ as
the Successor Custodian for this account.
------------------------------------
Signature
<PAGE> 38
I, _________________________, Hereby accept the appointment as the Successor
Custodian.
------------------------------------
Signature
<PAGE> 39
PART B:
STATEMENT OF ADDITIONAL INFORMATION FEBRUARY 28, 1997
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE MONEY MARKET FUND
NATIONWIDE BOND FUND
NATIONWIDE FUND
NATIONWIDE GROWTH FUND
This Statement of Additional Information is not a prospectus. It
contains information in addition to and more detailed than that set forth in the
prospectus and should be read in conjunction with the Funds' prospectus dated
February 28, 1997. The prospectus 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
Investment Objectives and Policies 1
Investment Restrictions 5
Investment Manager and Other Services 7
Trustees and Officers of the Trust 8
Major Shareholders 10
Brokerage Allocation 10
Purchases, Redemptions, Pricing of Shares 11
Calculating Money Market Fund Yield 13
Calculating Yield and Total Return--
Non-Money Market Funds 13
Additional Information 15
Tax Status 16
Special Meeting 17
Financial Statements 18
Independent Auditors' Report 38
Appendix 39
GENERAL INFORMATION AND HISTORY
Nationwide Investing Foundation (NIF) is a diversified, open-end investment
management company, created under the laws of Michigan by a Declaration of Trust
dated May 5, 1933. The name of the Trust was changed from Mutual Investing
Foundation on November 1, 1982.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds' investment
objectives and policies discussed on pages 9 through 14 of the prospectus. The
investment policy and types of permitted investments described here may be
changed without prior approval by, or notice to, the shareholders. There is no
guarantee that the Funds' objectives will be realized.
THE NATIONWIDE FUND maintains a policy of retaining maximum flexibility
in the management of its common stock portfolio. The Fund's management is
limited only by the restrictions itemized under "Investment Restrictions" on
page 5 of this Statement of Additional Information.
1
<PAGE> 40
For the past ten years, the Nationwide Fund has invested predominately
in the common stocks of companies with larger capitalization. Market timing
decisions have been avoided, and although not restricted to this, the portfolio
has generally remained essentially fully invested. Stock selection traditionally
has been based on a long-term (3-5 years) time horizon using a bottom-up,
fundamental approach rather than economic forecasting. Certain key factors have
been considered in the selection of stocks including: the degree of pricing
flexibility a company has as a result of its competitive position within its
industry; familiar valuation methods such as price/book and price/earnings
valuation ratios; and whether a company has a shareholder-oriented management.
While it is generally intended to invest in common stocks or in issues
convertible to common stock, there are no restrictive provisions covering the
proportion of one or another class of securities that may be held, or other
restrictions, with the exception of those listed in "Investment Restrictions" in
this Statement of Additional Information.
THE NATIONWIDE GROWTH FUND seeks to benefit from both the underlying
economic growth of the companies it invests in plus improvement in the valuation
of the stock. The Fund's management is limited only by the restrictions itemized
under "Investment Restrictions" on page 5 of this Statement of Additional
Information.
The Growth Fund invests primarily in stocks of companies management
believes possess inherent competitive business advantages that will, over a
long-term horizon (2-10 years), produce superior earnings growth and increases
in price valuation. It further concentrates on buying stocks that fit these
criteria only when the purchase valuation is substantially below the perceived
future valuation, and holding investment funds in cash when such opportunities
are not perceived to be present. Investment decisions are made solely on the
long-term fundamental merits of each individual stock, considered as such,
without regard to market timing. While management intends to adhere to these
strategies for the foreseeable future, it is not restricted to them.
It is generally intended to invest in common stocks or in issues
convertible to common stock; however, there are no restrictive provisions
covering the proportion of one or another class of securities that may be held,
or other restrictions, with the exception of those listed in "Investment
Restrictions" in this Statement of Additional Information.
THE NATIONWIDE BOND FUND seeks to achieve its objective by investing in
a diversified portfolio of high quality debt securities and may invest without
restriction in the following types of investments:
- - Marketable corporate debt securities issued by U.S. and Canadian corporations
(payable in U.S. dollars) rated at the time of purchase within the highest
grades assigned by Standard & Poor's Corporation (AAA, AA, or A) or Moody's
Investors Service, Inc. (Aaa, Aa, or A).
- - Obligations (payable in U.S. dollars) of, or guaranteed by, the Government of
Canada or any instrumentality or political subdivision thereof.
- - Commercial paper rated Prime-1 or Prime-2 by Moody's Investors Service, Inc.,
or A-1 or A-2 by Standard & Poor's Corporation.
- - Mortgage pass-through securities issued or guaranteed by United States
government
2
<PAGE> 41
agencies or by banks and savings associations with assets in excess of $500
million and rated Aa or AA, or better, by Moody's Investors Services, Inc., or
Standard and Poor's Corporation.
- - Non-marketable securities, judged by the Investment Manager to be of quality
similar to that required for public issues, may be acquired with up to 5% of the
assets, provided that the aggregate of non-marketable debt, mortgage
pass-through obligations and public debt rated Baa or Bbb will not exceed 30% of
assets.
- - Cash and cash equivalents.
THE NATIONWIDE MONEY MARKET FUND is designed to seek as high a level of
current income as is considered consistent with the preservation of capital and
liquidity through investments in a portfolio of money market instruments with a
remaining maturity of 397 days or less. The Fund seeks to achieve its objective
by investing in instruments receiving a rating in one of the two highest
categories by the following six Nationally Recognized Statistical Rating
Organizations (NRSROs): Duff and Phelps, Inc. (D&P); Fitch Investors Services,
Inc. (Fitch); Moody's Investors Service, Inc. (Moody's); Standard & Poors Corp.
(S&P); IBCA Limited and its affiliate, IBCA, Inc. (IBCA); and Thomson Bank Watch
(Thomson).*
The types of instruments in which the Fund may invest include but are
not limited to:
- - Obligations issued or guaranteed as to interest and principal by the U.S.
Government, its agencies or instrumentalities, U.S. dollar denominations of
foreign governments or any federally chartered corporation.
- - Repurchase Agreements may be made by the Fund in respect to any of the
securities described above. The agreement is to purchase obligations, which the
Fund is qualified to purchase, and at the same time the Fund resells it to the
vendor and is obligated to redeliver the security to the vendor on an agreed
date in the future and at an agreed price. The resale price is in excess of the
purchase price and unrelated to the rate on the purchased security. These
transactions afford the Fund an opportunity to earn, at no market risk, a return
on cash which is only temporarily available. Certain potential risks associated
with investment in repurchase agreements are twofold: 1) in the event of default
of an issuer and a decrease in the value of the underlying securities below the
repurchase price, the Fund could suffer a loss; and 2) in the event of an
issuer's bankruptcy, a Fund's ability to dispose of underlying securities could
be delayed.
- - Obligations of banks which, at the date of investment, are rated A2 or better
by IBCA and TBW1 by Thomson, and have total assets in excess of $500 million,
and the obligations of the 50 largest foreign banks in terms of assets with
branches or agencies in the United States. Obligations of savings and loan
associations (including certificates of deposit and bankers' acceptances) which
at the date of investment have capital, surplus, and undivided profits (as of
the date of their most recently published financial statements) in excess of
$500 million; and obligations of other banks or savings and loan associations if
such obligations of other banks or savings and loan associations if such
obligations are insured by the Federal Deposit Insurance Corporation, provided
that not more than 10% of the Fund's total assets shall by invested in such
insured obligations.
- - Taxable or partly taxable obligations issued by state, county, or municipal
governments.
*See Appendix, page 39
3
<PAGE> 42
- - Commercial paper which at the date of investment is rated Duff 1 or Duff 2 by
D&P, F-1 or F-2 by Fitch, P-1 or P-2 by Moody's, or A-1 or A-2 by S&P; or if not
rated, is issued or guaranteed as to payment of principal and interest by
companies which at the date of investment have an outstanding debt issue rated
AA or better by D&P, AA or better Fitch, Aa or better by Moody's, or AA or
better by S&P.
- - The Fund may also invest up to 5% of its total assets in commercial paper
which at the date of investment is rated F-2 by Fitch, Duff 2 by D&P, P-2 by
Moody's, or A-2 by S&P. However, the Fund is limited as to the amount it may
invest in the commercial paper of a single issuer to the greater of 1% of the
Fund's total assets or $1 million.
- - Short-term corporate obligations which, at the date of investment, are rated
AA or better by D&P, AA or better by Fitch, Aa or better by Moody's, or AA or
better by S&P.
- - Bank loan participation agreements representing corporations and banks having
a short-term rating, at the date of investment, of F-1 or F-2 by Fitch, Duff 1
or Duff 2 by D&P, P-1 or P-2 by Moody's, or A-1 or A-2 by S&P, 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 the
creditworthiness of the borrower.
- - All the assets of the Money Market Fund will be invested in obligations with
stated remaining maturities of 397 days or less and which generally will be held
to maturity. The Fund will, to the extent feasible, make portfolio investment
primarily in anticipation of or in response to, changing business, economic and
financial conditions. The Fund will attempt to maximize the return on its
investments through careful analysis of a wide range of investments available
and the different yield relationships existing among various sectors of the
market. The dollar weighted average maturity of the Money Market Fund's
investment may not exceed 90 days. There can, however, be no assurance that the
Fund's investment objective will be achieved.
- - The Money Market Fund may invest in securities of foreign corporate and
government issuers and in the securities of foreign branches of U.S. banks, such
as negotiable certificates of deposit (Eurodollars) in U.S. dollar denominations
which at the date of investment are rated A1 or A2 by IBCA or TBW1 by Thomson.
Because of this, investment in the Fund involves risks that are different in
some respects from an investment in a fund which invests only in debt
obligations of U.S. domestic issuers. Such risks may include: future political
and economic developments; the possible imposition of foreign withholding taxes
on interest income payable on the securities held in the portfolio; possible
seizure or nationalization of foreign deposits; the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on securities
in the portfolio.
4
<PAGE> 43
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund cannot be changed without the
authorization of the majority of the outstanding shares of the Fund for which a
change is proposed.
THE NATIONWIDE FUND, THE NATIONWIDE GROWTH FUND AND THE NATIONWIDE BOND
FUND WILL NOT:
1. Concentrate their investment in any one industry (never more than 25%), but
will endeavor to maintain wide industry diversification. Electric, natural gas
distribution, natural gas pipeline, combined electric and natural gas, and
telephone utilities are considered separate industries for this purpose.
2. Invest for the purpose of making short-term trading profits or for the
purpose of exercising control of management or deal with the Trustees in the
purchase and sale of securities.
3. Make "short" sales or borrow money; lend money or securities to any person;
pledge, mortgage or hypothecate assets for any purposes; deal in real estate,
commodities or commodity contracts; nor invest in repurchase agreements
exceeding 7 days duration with more than 10% of a Fund's assets.
4. Act as an underwriter except to the extent that in conjunction with the
disposition of portfolio securities, the Funds may be deemed an underwriter
under certain federal securities laws.
5. Purchase securities of any one issuer if immediately thereafter a Fund would
have more than 5% of its assets, taken at value, invested in that issuer, or own
more than 10% of any class of voting or non-voting securities of any issuer
(except obligations issued or guaranteed by the United States).
6. Invest in puts, calls, straddles, spreads, or any combination thereof, or in
oil, gas or other mineral leases, rights or royalty contracts.
7. Invest in securities, the disposition of which is restricted under federal
securities laws and which may not be publicly sold without registration under
the Securities Act of 1933, if as a result, more than 5% of the net assets of a
Fund would be invested in such securities.
8. Invest more than 5% of a Fund's assets in companies which have a record of
less than three years continuous operation, including their predecessors, or in
securities for which market quotations are not readily available.
9. Invest in the securities of any other investment company, as defined in the
Investment Company Act of 1940, or retain the securities of any issuer if the
combined holdings of all Trustees or officers of the Trust and all directors and
officers of the Investment Manager, who owns more than 1/2 of 1% of the
securities of such issuer, total more than 5% of the securities of such issuer.
10. Borrow money, except under the following circumstances:
a) A Fund may borrow an amount not in excess of 33 1/3% of the value of
the Fund's total assets (calculated when the loan is made) from banks for
temporary purposes to facilitate the orderly sale of portfolio securities to
accommodate unusually heavy redemption requests, if they should occur. This
borrowing provision
5
<PAGE> 44
is not intended for investment purposes, nor will the Funds purchase portfolio
securities during periods of borrowings outstanding;
b) A Fund may borrow an amount equal to no more than 5% of the value of
each Fund's total assets (calculated when the loan is made) for temporary,
emergency purposes, or for the clearance of transactions, to provide the
Investment Manager additional flexibility in the execution of routine daily
transactions, and allow for more efficient cash management. This borrowing
provision will not be used to leverage the Funds or to borrow for extended
periods of time.
THE NATIONWIDE MONEY MARKET FUND MAY NOT:
1. Purchase securities of any one issuer if immediately thereafter the Fund
would have more than 5% of its assets, taken at value, invested in that issuer
(except obligations issued or guaranteed by the United States); however, the
Fund may invest up to 10% of its assets, taken at value, in First Tier
Securities, as defined in the Investment Company Act of 1940, as amended, of a
single issuer for a period of up to three business days after the purchase
thereof, provided the Fund may not make more than one such investment at any one
time.
2. Invest more than 25% of the Fund's total assets in the securities of issuers
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. Obligations of the United States Government, its agencies and
instrumentalities, and obligations issued by state, county or municipal
governments are not subject to this 25% limitation on industry concentration.
The Fund may, if deemed advisable, invest more than 25% of its assets in the
obligations of commercial banks.
3. Enter into any repurchase agreement if, as a result, more than 10% of the
Fund's total assets would be subject to repurchase agreements maturing in more
than seven days.
4. Make loans to others except for the purchase of the debt securities listed
above or the entering into repurchase agreement listed above.
5. Borrow money, except under the following circumstances:
a) The Fund may borrow an amount not in excess of 33 1/3% of the value
of the Fund's total assets (calculated when the loan is made) from banks for
temporary purposes to facilitate the orderly sale of portfolio securities to
accommodate unusually heavy redemption requests, if they should occur. This
borrowing provision is not intended for investment purposes, nor will the Fund
purchase portfolio securities during periods of borrowings outstanding;
b) The Fund may borrow an amount equal to no more than 5% of the value
of the Fund's total assets (calculated when the loan is made) for temporary,
emergency purposes, or for the clearance of transactions, to provide the
Investment Manager additional flexibility in the execution of routine daily
transactions, and allow for more efficient cash management. This borrowing
provision will not be used to leverage the Fund or to borrow for extended
periods of time.
6
<PAGE> 45
6. Pledge more than 10% of its assets and then only to secure temporary
borrowings from banks.
7. Sell securities short.
8. Invest in puts, calls, straddles, spreads or any combination thereof.
9. Purchase or sell securities of other investment companies (except in
connection with a merger, consolidation, acquisition or reorganization), real
estate, or commodities.
10. Engage in the underwriting of securities issued by others.
INVESTMENT MANAGER AND OTHER SERVICES
Under the terms of the Investment Management Agreement, 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. In
addition, NAS, subject to the supervision of the Trustees, administers and
manages the affairs of the Trust and furnishes office facilities, equipment and
personnel to the Funds. The Agreement also provides that NAS shall reimburse the
Trust for the compensation of the Trustees who are "interested persons" of NAS.
All Nationwide Funds pay the Investment Manager fees based on average
daily net assets of each Fund at the rate of one-half of one percent per annum.
Investment management fees will not be paid in full if such payment
would result in total expenses of any Fund exceeding one percent of the average
daily net assets of any Fund for any fiscal year (excluding taxes other than
payroll taxes and brokerage commissions on portfolio transactions).
The Funds also pay the custodial, transfer agent, accounting, brokerage and
legal fees, taxes, printing costs and the fees of the Trustees.
During the fiscal years ended October 31, 1996, 1995, and 1994, the
Investment Manager received fees of $3,212,196, $2,542,155,and $2,173,386 for
the Nationwide Growth Fund; $4,425,921, $3,658,939, and $3,571,575 for the
Nationwide Fund; $663,545, $635,757, and $706,054 for the Nationwide Bond Fund,
and $2,952,726, $2,739,499, and $2,228,523 for the Nationwide Money Market Fund.
During the fiscal year ended October 31, 1996 the Money Market Fund waived .05%
of the Investment Manager fee totalling $328,076. This waiver will continue
through the 1997 fiscal year. Neither the Investment Manager nor any company
affiliated with it receives any brokerage commissions from the Funds.
NAS continuously offers shares to the public. The distribution contract
provides that NAS will sell Fund shares only as an agent for the Funds,
receiving as commission the excess of the offering price over the net asset
value of the shares sold. During the fiscal years ended October 31, 1996, 1995,
and 1994, NAS received commissions on the sale of shares as follows: Nationwide
Growth Fund $1,029,727, $609,266, and $821,524; Nationwide Fund $1,089,371,
$520,812, and $619,667; and Nationwide Bond Fund $202,206, $131,140, and
$397,934 respectively. From such commissions, during the years ended October
31, 1996, 1995 and 1994 NAS paid to its own representatives $1,273,701,
$635,131, and $1,010,792, respectively. NAS pays other expenses in connection
with the distribution of the shares of the Funds.
7
<PAGE> 46
NAS receives an annual fee of $48,000 from the trust for accounting
services including daily valuation of the Funds' shares, preparation of
financial statements, taxes and regulatory reports. NAS also serves as
investment adviser to Nationwide Separate Account Trust, Nationwide Investing
Foundation II, and Financial Horizons Investment Trust.
NAS is wholly-owned by Nationwide Life Insurance Company, which is wholly-owned
by Nationwide Financial Services, Inc., an insurance company holding company.
Nationwide Financial Services, Inc. is wholly-owned by Nationwide Corporation.
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%).
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:
JOHN C. BRYANT, Trustee
44 Faculty Place, Wilmington, Ohio
Dr. Bryant is Executive Director, Cincinnati Youth Collaborative.
He was formerly Professor of Education, Wilmington College.
C. BRENT DEVORE, Trustee
North Walnut and West College Avenue, Westerville, Ohio
Dr. DeVore is President of Otterbein College.
SUE A. DOODY, Trustee
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*
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*+
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*
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
55 E. State Street, Columbus, Ohio
Mr. Kridler is President of the Columbus Association of Performing Arts.
8
<PAGE> 47
DIMON R. MCFERSON, Trustee*+
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise.
NANCY C. THOMAS, Trustee+
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+
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
11495 Sunset Hills Rd - Suite#210, Reston, Virginia
Mr. Wetmore is the Managing Director of The Updata Group.
JAMES F. LAIRD, JR., Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Laird is Vice President-General Manager of Nationwide Advisory Services,
Inc., the Distributor and Investment Manager.
WILLIAM G. GOSLEE, Assistant Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Goslee is Treasurer of Nationwide Advisory Services, Inc., the Distributor
and Investment Manager.
RAE MERCER POLLINA, Secretary
Three Nationwide Plaza, Columbus, Ohio
Mrs. Pollina is Corporate Secretary of Nationwide Advisory Services, Inc., the
Distributor and Investment Manager.
+ 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 total
compensation to the Trustees from the Trust and from all funds in the Nationwide
Fund Complex during the fiscal year ended October 31, 1996. Trust officers
receive no compensation from the Trust in their capacity as officers.
9
<PAGE> 48
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION
RETIREMENT 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 $ 8,500 --0-- --0-- $15,500
C. Brent DeVore, Trustee 8,500 --0-- --0-- 8,500
Sue A. Doody, Trustee 8,500 --0-- --0-- 8,500
Robert M Duncan, Trustee 8,500 --0-- --0-- 15,500
Charles L. Fuellgraf, Jr, Trustee 8,500 --0-- --0-- 8,500
Thomas J. Kerr, IV, Trustee 8,500 --0-- --0-- 15,500
Douglas F. Kridler, Trustee 8,042 --0-- --0-- 8,042
Dimon R. McFerson, Trustee --0-- --0-- --0-- --0--
Robert H. Rickel, Trustee 3,500 --0-- --0-- 3,500
Nancy C. Thomas, Trustee 8,500 --0-- --0-- 8,500
Harold W. Weihl, Trustee 8,500 --0-- --0-- 8,500
David C. Wetmore, Trustee 8,500 --0-- --0-- 8,500
</TABLE>
+ 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 Fund Complex includes Trusts comprised of fifteen investment company
portfolios.
MAJOR SHAREHOLDERS
As of January 31, 1997, separate accounts of Nationwide Life Insurance
Company had shared voting and investment power over 15,734,708 shares of
Nationwide Growth Fund (30.7%), 7,139,577 shares of Nationwide Fund (14.5%),
2,037,337 shares of Nationwide Bond Fund (14.7%) and 375,484,308 shares of
Nationwide Money Market Fund (49.1%).
BROKERAGE ALLOCATION
ALLOCATION OF PORTFOLIO BROKERAGE--During the fiscal years ended October 31,
1996, 1995, and 1994, brokerage commissions paid by the Nationwide Growth Fund:
$376,916, $290,230, and $200,970; and, by the Nationwide Fund totaled: $436,679,
$310,027, and $354,991, respectively. During the fiscal years ended October 31,
1996, 1995, and 1994, the Nationwide Bond Fund and Nationwide Money Market Fund
paid no brokerage commissions. There is no commitment 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 the Investment Manager, the best executions can be obtained. None of the
firms with whom orders are placed are engaged in the sale of shares of the
Nationwide 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 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 the Investment Manager 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
10
<PAGE> 49
Investment Manager's expense.
During the fiscal years ended October 31, 1996, 1995, and 1994, brokerage
commissions paid to firms rendering statistical services amounted to $376,916,
$290,230, and $200,970, respectively, for the Nationwide Growth Fund; and
$436,679, $310,027, and $354,991, respectively, for the Nationwide Fund. No
formula, method or criteria other than as stated above was used in the
allocation of orders among any such firms. In the case of securities traded in
the over-the-counter market, the Funds normally deal with the market makers for
such securities unless better prices can be obtained through brokers.
PURCHASE, REDEMPTIONS, PRICING OF SHARES
CALCULATION OF NET ASSET VALUE AND OFFERING PRICE--Calculations of net asset
values per share of each Fund are made once daily by NAS, as agent appointed by
the Trustees, as of the close of the New York Stock Exchange (usually 4 P.M.
Eastern Time) on days when the exchange is open and on such other days as the
Board of Trustees 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 Funds will not compute the net asset value on
customary business holidays including Christmas, New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day and Thanksgiving.
The offering price for orders placed before the close of the New York
Stock Exchange, on each day the exchange is open for trading, will be based upon
calculation of the net asset value as of the close of the New York Stock
Exchange (usually 4 P.M. Eastern Time). For orders placed after the close of the
exchange or on a day on which the exchange is not open for trading, the offering
price is based upon net asset value as of the close of the exchange (usually 4
P.M. Eastern Time) on the next day thereafter on which the exchange is open for
trading. The net asset value of a share of Nationwide Fund, Nationwide Growth
Fund and Nationwide Bond Fund on which offering and redemption prices are based
is the net asset value of a Fund, divided by the number of shares outstanding,
the result being adjusted to the nearest cent. The net asset value of each Fund
is determined by subtracting from the market value of the assets, which are
chiefly composed of investment securities, the liabilities of the Fund.
Securities of the Funds listed on national exchanges are valued at the last
sales price on the principal exchange, or if there is no sale on that day, or if
the securities are traded only in the over-the-counter market, at the quoted bid
prices. Securities and other assets, for which such market prices are
unavailable, are valued at fair value as determined by the Trustees.
All sales of shares to the public are made at the public offering
price, except the following sales made at net asset value: (i) shares sold
through institutional sales to other registered investment companies affiliated
with Nationwide Advisory Services, Inc., (ii) shares issued on transfer of
investments from the Nationwide Growth Fund, Nationwide Fund or Bond Fund to
another fund in the Nationwide Family of Funds (see "Exchange Privilege"), and
(iii) 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 affiliates, (b) to Trustees and retired
Trustees of NIF and NIF II; directors, officers, full-time employees employed
for not less than 90 days, sales representatives and their employees, and
retired directors, officers, employees, and sales representatives, their
spouses, children or immediate relatives, and immediate relatives of deceased
11
<PAGE> 50
employees (immediate relatives include mother, father, brothers, sisters,
grandparents, grandchildren) of any of the Nationwide Group of Insurance
Companies or their affiliates, or any investment advisory clients of the Funds'
advisor 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 Group of Insurance 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 pension, profit sharing, or deferred compensation plan which is
qualified under Section 401(a) 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, (e)
any life insurance company separate account registered as a unit investment
trust, and (f) any qualified pension or profit sharing plan established by a
Nationwide sales representative for himself/herself and his/her employees.
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 valuation in accordance with Rule 2a-7 of the Investment Company
Act of 1940. 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. During
periods of declining interest rates, the daily yield on shares of the Fund
computed by dividing the annualized daily income of the Fund by the net asset
value computed as described above may tend to be higher than a like computation
made by a Fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
securities.
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 the Fund's Investment
Manager, 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.
12
<PAGE> 51
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
Current yield quotations of the Fund are based on a seven calendar day
historical yield, 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
multiplying the base period return by (365/7). The resulting yield figure is
carried to at least the nearest hundredth of one percent. For purposes of this
calculation, the net change in account value reflects the value of additional
shares purchased with dividends from the original share, and dividends declared
on both the original share and any such additional shares. As of October 31,
1996, the Fund's seven-day current yield was 4.90%. The Fund's effective yield
represents a compounding on an annualized basis of the current yield quotations
of the Fund, and for the period ended October 31,1996 was 5.02%.
The Fund's yield will fluctuate daily. Actual yields will depend on
factors such as the type of instruments in the Fund's portfolio, portfolio
quality and average maturity, changes in interest rates, and the Fund's
expenses.
Although the Fund determines its yield on the basis of a seven calendar
day period, it may use a different time span on occasion. The yield quotes may
reflect the expense limitation described under "Investment Manager and Other
Services."
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 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.
13
<PAGE> 52
The uniformly calculated average annual (compound) total returns for the periods
ended October 31, 1996 are shown on the next page.
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
NATIONWIDE NATIONWIDE NATIONWIDE
GROWTH FUND FUND BOND FUND
<S> <C> <C> <C>
1 year 7.30% 20.43% .32%
5 years 11.27% 11.68% 6.53%
10 years 11.55% 12.72% 7.42%
</TABLE>
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 on page 21 of the prospectus; therefore, returns increase
as sales charge 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 years in the period, and unlike average annual
(compound) total return, does not reflect compounding.
TOTAL RETURNS / CUMULATIVE TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
NATIONWIDE NATIONWIDE NATIONWIDE
GROWTH FUND FUND BOND FUND
<S> <C> <C> <C>
1 year 7.30% 20.43% .32%
5 years 70.54% 73.75% 37.20%
10 years 198.75% 231.39% 104.71%
</TABLE>
SIMPLE AVERAGE TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
NATIONWIDE NATIONWIDE NATIONWIDE
GROWTH FUND FUND BOND FUND
<S> <C> <C> <C>
1 year 7.30% 20.43% .32%
5 years 14.11% 14.75% 7.44%
10 years 19.85% 23.12% 10.46%
</TABLE>
The 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
14
<PAGE> 53
last day of the period, assuming reinvestment of all dividends and
distributions. This yield formula uses the average number of shares entitled to
receive dividends, provides for semi-annual compounding of interest, and
includes a modified market value method for determining amortization. The yield
will fluctuate, and there is no assurance that the yield quoted on any given
occasion will remain in effect for any period of time. The Bond Fund yield for
the 30-day period ended October 31, 1996 was 6.25%.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES--The assets of each class of shares are segregated and a
shareholder has an interest in only the assets of the class in which he owns
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 a Fund will share pro
rata in the distribution of the net assets of such Fund. All shares are of $1
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, Distribution
Agreement, election or removal of Trustees, termination of the Trust, sale of
assets as a whole, change of investment restrictions, and other business
matters. In regard to termination, sale of assets, or change of investment
restrictions, the right to vote is limited to the holders of shares of the
particular class affected by the proposal. When a majority is required it means
the lesser of (1) 67% or more of the shares present at a meeting when the
holders of more than 50% of the outstanding shares are present or represented by
proxy, or (2) more than 50% of the outstanding shares. Shareholders do not, in
all cases, have voting rights with respect to amendments to the Trust Indenture
but will receive notice of material amendments.
NON-CUMULATIVE VOTING--More than fifty percent of the shares voting for election
of trustees can elect all of the Trustees. Since the voting rights are
non-cumulative, the remaining less than 50% of the shares voting will not be
able to elect any of the Trustees.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT--Nationwide Investors Services,
Inc. (NIS) is the Transfer and Dividend Disbursing Agent for all Nationwide
Funds. NIS, a wholly-owned subsidiary of Nationwide Advisory Services, Inc.
received fees for transfer agent services during the fiscal year ended October
31, 1996 of $683,043 from the Nationwide Growth Fund, $698,913 from the
Nationwide Fund, $161,300 from the Nationwide Bond Fund and $653,631 from the
Nationwide Money Market Fund. Management believes the charges for the services
performed are comparable to fees charged by other companies performing similar
services.
CUSTODIAN--The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, OH 45263,
is Custodian of the securities and cash of all Nationwide Funds and makes all
receipts and disbursements under a Custodian Agreement. The Custodian performs
no managerial or policymaking functions of the Funds.
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS--Substantially all of the net
investment income, if any, of each Fund will be paid to its shareholders as
dividends in March, June, September and December by the Nationwide Fund and the
Nationwide Growth Fund and at each month end by the Nationwide Bond Fund and the
Nationwide Money Market Fund.
15
<PAGE> 54
In those years in which sales of a Fund's portfolio securities result in net
realized capital gains, the Fund will distribute such gains to its shareholders
with the December dividend.
LETTER OF INTENT--An amended Letter of Intent retaining the same expiration date
may be filed for an increased amount to obtain further reduction of sales
charges, provided at least $5,000 additional investment is submitted. The value
of shares already held may be applied toward this minimum but at least $5,000
investment must be submitted with any new or amended Letter of Intent. The
difference in sales charge resulting from an amended Letter of Intent, or from a
final aggregate total that qualifies for a further reduction than actually
signed for, will be used to purchase additional shares at the net asset price
and added to your account. Dividends and capital gains reinvested during the
13-month Letter of Intent period are not counted toward the intended investment.
TAX STATUS
FEDERAL TAXES--Each of the Funds intends to qualify for treatment under
subchapter M of the Internal Revenue Code (the "Code") and, therefore, must
distribute substantially all of its net investment income and capital gains to
shareholders annually. In general, if the Funds distribute all of their net
investment income, they are not required to pay any federal income taxes. In
addition to federal income tax, if the Funds fail to distribute the required
portion of such investment income or capital gains in any year, they will be
subject to a non-deductible 4% excise tax on the amount which they have failed
to distribute. The Funds intend to make distributions in a sufficient amount to
avoid the imposition of this excise tax.
Dividends paid by each of the Funds are taxable to the shareholder for federal
income tax purposes. For corporate shareholders, the appropriate portion of each
year's distribution is eligible for the corporate dividend received deduction.
Under current tax law as of February 28, 1997, net long-term capital gains, if
any, realized by the Funds, are generally taxable to the shareholder at the same
tax rate as ordinary income, but in no event may the tax rate on such gains
exceed 28% for an individual or 35% for a corporation.
Shareholders not subject to tax on their income will not have to pay tax on
amounts distributed to them.
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
16
<PAGE> 55
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.
SPECIAL MEETING
The Amended 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 Amended
Trust Indenture.
17
<PAGE> 56
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) GROWTH FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the year ended October 31, 1996, the Nationwide Growth Fund provided a total
return of 12.36% as compared to a 24.10% total return for the S&P 500 Index.
Performance for the second half of the fiscal year has continued to suffer from
the results of the long-distance telephone carriers, especially AT&T. While I
continue to like the telecommunications industry long term, fears of competition
plus AT&T's loss of share in residential markets has hurt current results. The
Fund has had mixed results from its technology holdings, with some holdings,
such as Intel and EMC Corp., performing very well, and others, such as Motorola
and Applied Materials, lagging badly. Home healthcare issues, such as Apria and
Olsten (included in Business Services), have also been weak. Again, the weakness
seems to relate to short-term issues, and has not changed the fundamental
long-term attractiveness of these companies. Financial stocks, which we had
added to earlier this year, have performed well.
During the last several months the Fund's exposure to technology has been
reduced. In some cases, such as sales of Intel and Cisco, this was due to
overvaluation, as the stocks recovered strongly from weakness they had suffered
in June and July. In other cases, fundamentals had changed for the worse. New
names that were added to the Fund included Genuine Parts, First Data and
Monsanto.
The Growth Fund's strategy is based on finding undervalued growth. Over the past
year, with high valuations accorded to quality, recognized growth, this has
meant buying and holding situations with good long-term potential but that also
have temporary problems, or perceptions of problems, that keep valuations
reasonable. This strategy has NOT been in favor in the stock market. Since early
1995, stocks with high valuations have performed well by going to even higher
valuations. As a result, the Fund has had poor relative performance during this
time. Buying stocks with high valuations has been repeatedly and overwhelmingly
shown to be a poor long-term strategy, and I do not believe the current period
will ultimately prove to be different.
JOHN M. SCHAFFNER, MBA, CFA, PORTFOLIO MANAGER
FUND VALUE $655,615,705
PORTFOLIO COMPOSITION
COMMON STOCK.......................................90.3%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS AND
OTHER ASSETS LESS LIABILITIES.......................9.7%
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Federal Nat'l Mortgage Assoc. Notes $44,196,827 6.7%
Archer-Daniels-Midland Co. 24,670,394 3.8%
Equitable Companies 23,241,500 3.5%
Grand Metropolitan PLC 22,642,800 3.5%
Allstate Corp. 22,450,000 3.4%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
S&P 500 Growth CPI
<S> <C> <C> <C>
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 $39,407 $29,874 $14,365
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Growth Fund,
the S&P 500* and the Consumer Price Index (CPI)** over a 10-year period ended
10/31/96.
* The S&P 500 is a broad, unmanaged index of equity securities, and unlike the
Growth Fund returns, does not reflect any fees or expenses.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Growth Fund, does not
reflect any fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge....12.36%....12.30%......12.07%
With sales charge........7.30%....11.27%......11.55%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes a 4.5% sales charge was paid which has the most
dramatic effect on the one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
The Nationwide(R) Growth Fund invests primarily in the common stock of companies
in industries with favorable economic trends and new technology. Historically,
these companies, which generally are smaller, pay smaller dividends, but show
greater-than-average growth potential.
The Nationwide(R) Growth Fund is for investors more interested in long-term
growth of capital to meet their future financial needs than in current income.
The rise in market performance over the past few years underscores the
importance of remaining fully invested for a long period of time.
4
<PAGE> 57
STATEMENT OF INVESTMENTS
NATIONWIDE(R) GROWTH FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (90.3%)
---------------------
AIRLINES (0.5%)
---------------
199,000 Skywest, Inc.......................... $ 2,985,000
------------
AUTO INDUSTRY (1.3%)
--------------------
200,000 Genuine Parts Co...................... 8,750,000
------------
BUSINESS SERVICES (3.2%)
------------------------
157,200 Insurance Auto Auctions, Inc.*........ 1,591,650
300,000 Manpower, Inc......................... 8,512,500
531,150 Olsten Corp. ......................... 10,623,000
------------
20,727,150
------------
CABLE (2.1%)
------------
600,000 Comcast Corp.......................... 8,625,000
325,000 U.S. West Media Group*................ 5,078,125
------------
13,703,125
------------
CHEMICALS (2.8%)
----------------
100,000 FMC Corp.*............................ 7,362,500
100,000 Monsanto Co........................... 3,962,500
122,000 Sigma-Aldrich Corp.................... 7,167,500
------------
18,492,500
------------
CHEMICALS - SPECIALTY (1.0%)
----------------------------
116,800 Loctite Corp.......................... 6,847,400
------------
COMPUTER EQUIPMENT (7.0%)
-------------------------
180,000 American Power Conversion Corp.*...... 3,847,500
286,300 EMC Corp.*............................ 7,515,375
325,000 Hewlett-Packard Co.................... 14,340,625
120,000 International Business Machines Corp.. 15,480,000
97,225 Lucent Technologies, Inc. ............ 4,569,575
------------
45,753,075
------------
COMPUTER SOFTWARE & SERVICES (2.2%)
-----------------------------------
200,000 Automatic Data Processing, Inc........ 8,325,000
75,000 Electronic Data Systems............... 3,375,000
30,000 First Data Corp....................... 2,392,500
29,000 Informix Corp.*....................... 643,438
------------
14,735,938
------------
CONGLOMERATES (1.5%)
--------------------
160,000 Honeywell, Inc........................ 9,940,000
------------
CONSUMER PRODUCTS (1.3%)
------------------------
300,000 Newell Co............................. 8,512,500
------------
CONTRACT MANUFACTURING (0.1%)
-----------------------------
63,900 Electronic Fab Technology Corp.*...... 199,688
------------
DISTRIBUTION (1.6%)
-------------------
328,125 Bergen Brunswig Corp., Class A........ 10,294,922
------------
DRUGS (7.4%)
------------
419,200 Allergan, Inc......................... 12,785,600
200,000 Glaxo Wellcome, PLC .................. 6,300,000
160,000 Schering-Plough Corp.................. 10,240,000
300,000 Warner-Lambert Co..................... 19,087,500
------------
48,413,100
------------
ELECTRONICS (4.2%)
------------------
200,000 Applied Materials, Inc.*.............. 5,287,500
117,187 Molex, Inc............................ 4,218,732
190,858 Molex, Inc., Class A.................. 6,179,028
200,000 Motorola, Inc......................... 9,200,000
189,000 Woodhead Industries, Inc.............. 2,598,750
------------
27,484,010
------------
FINANCIAL (17.3%)
-----------------
400,000 Allstate Corp......................... 22,450,000
67,500 American International Group, Inc..... 7,332,187
607,752 Bear Stearns Companies, Inc........... 14,358,141
229,400 Chubb Corp............................ 11,470,000
989,000 Equitable Cos......................... 23,241,500
486,202 Gainsco, Inc.......................... 4,679,694
250,000 Merrill Lynch & Co., Inc.............. 17,562,500
100,000 Morgan Stanley Group, Inc............. 5,025,000
200,000 Silicon Valley Bancshares*............ 5,225,000
100,000 Standard Financial, Inc............... 1,781,250
------------
113,125,272
------------
<CAPTION>
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGE (4.3%)
----------------------
3,000,000 Grand Metropolitan, PLC............... $ 22,642,800
150,000 Seagram Co. Ltd....................... 5,681,250
------------
28,324,050
------------
FOOD-GRAIN & AGRICULTURE (3.7%)
-------------------------------
1,134,271 Archer-Daniels-Midland Co............. 24,670,394
------------
HEALTHCARE - GENERAL (1.2%)
---------------------------
415,000 Apria Healthcare Group, Inc.*......... 7,936,875
------------
HEALTHCARE SERVICES (3.3%)
--------------------------
600,000 Columbia/HCA Healthcare Corp.......... 21,450,000
------------
MACHINERY & CAPITAL GOODS (5.0%)
--------------------------------
139,650 Duriron Company, Inc.................. 3,735,637
60,000 Emerson Electric Co................... 5,340,000
150,000 Lindsay Manufacturing Co.............. 6,450,000
60,000 Nordson Corp.......................... 3,300,000
492,600 Zebra Technologies Corp.*............. 14,223,825
------------
33,049,462
------------
MEDICAL PRODUCTS (0.5%)
-----------------------
200,000 Biomet, Inc........................... 3,225,000
------------
OIL & GAS (5.3%)
----------------
150,000 Amoco Corp............................ 11,362,500
50,000 Exxon Corp............................ 4,431,250
80,000 Mobil Corp............................ 9,340,000
60,000 Royal Dutch Petroleum Co.............. 9,922,500
------------
35,056,250
------------
PAPER AND FOREST PRODUCTS (0.2%)
--------------------------------
80,000 Glatfelter (P.H.) Co.................. 1,520,000
------------
PRINTING & PUBLISHING (2.1%)
----------------------------
101,800 Dun & Bradstreet Corp................. 5,891,675
100,000 Merrill Corp.......................... 2,225,000
160,000 Reader's Digest Assoc. Inc., Class B.. 5,540,000
------------
13,656,675
------------
RESTAURANTS (1.3%)
------------------
200,000 Bob Evans Farms, Inc.................. 2,500,000
300,000 Wendy's International, Inc............ 6,187,500
------------
8,687,500
------------
RETAIL (2.3%)
-------------
300,000 CUC, International*................... 7,350,000
200,000 Franklin Quest Co.*................... 4,050,000
145,000 Smart & Final, Inc.................... 3,407,500
------------
14,807,500
------------
TELECOMMUNICATIONS (7.6%)
-------------------------
400,000 360 Communications Co.* .............. 9,050,000
300,000 AT & T Corp........................... 10,462,500
744,000 MCI Communications Corp............... 18,693,000
300,000 Sprint Corp........................... 11,775,000
------------
49,980,500
------------
Total common stocks
(cost $433,662,411)................... 592,327,886
------------
</TABLE>
5
<PAGE> 58
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONWIDE(R) GROWTH FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ----------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (1.0%)
----------------------------------
<S> <C>
$6,910,000 U.S. Treasury Bills
5.06% through 5.30%, due 11/14/96 through
03/06/97(cost $6,808,879)............. $ 6,812,907
------------
U.S. AGENCY-FULL FAITH & CREDIT (8.2%)
--------------------------------------
9,585,000 Federal Home Loan Mortgage Corp. Notes
5.21% through 5.35%, due 12/10/96 through
04/01/97(cost $9,439,014)............. 9,440,508
44,845,000 Federal National Mortgage Association Notes
5.21% through 5.50%, due 11/04/96 through
04/15/97(cost $44,178,539)............ 44,196,827
------------
Total U.S. agency-full faith & credit
(cost $53,617,553).................... 53,637,335
------------
Total investments
(cost $494,088,843)................... $652,778,128
============
<FN>
The abbreviation in the above statement stands for the following:
PLC Public Limited Company
* Denotes non-income producing securities.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
[PHOTO]
Courtney Demick -- Growth Fund
6
<PAGE> 59
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The total return for the Nationwide Fund for the year ended October 31, 1996,
was 26.11%, assuming all distributions were reinvested, while the S&P 500
returned 24.10%.
The Fund benefited from the strong performance of several of the larger
holdings. Warner-Lambert, the Fund's largest holding, appreciated considerably.
The market is beginning to recognize the strength of Warner-Lambert's new
product profile. Several new drugs should enter the market in the next two years
causing an acceleration in the company's growth rate. Corporate restructuring
and a change in management provided the catalyst for Raychem's strong
performance. I have observed for several years that Raychem's shares were
undervalued due to losses in a telecommunications subsidiary. Following a change
in management, investment has been focused in the core business. Losses in the
subsidiary are no longer a drag on the strong performance of Raychem's core
operations.
The poorer-performing stocks for the last 12 months were generally cyclical
stocks whose fortunes are tied to a strong economy. Bowater and Georgia Gulf are
examples of cyclical companies whose shares performed poorly due to weak
commodity prices. These are well-managed companies but their fortunes are tied
to the prices of various commodities. Strong management cannot compensate for a
fundamentally poor business environment.
In the nearly 12 years I have managed the Nationwide Fund, I have maintained
holdings in the tobacco industry due to attractive secular fundamentals. These
have proven to be rewarding investments. However, the legal risks to the
industry have been mounting in the past few years to the point I felt the risks
outweighed the potential returns. I anticipate continuing a cautious investment
posture toward the tobacco stocks until the risk is further discounted in the
stock prices or the product liability risks are better defined.
Two of the Nationwide Fund's holdings are involved in financial restructurings.
Corning and Dun & Bradstreet are both splitting into three companies focused on
serving specific end markets. Historically, this breaking down of a conglomerate
into its component parts has proved rewarding for investors. The ability of
management to concentrate on its core market combined with a simpler financial
structure should allow these newly independent subsidiaries to perform better
than if the companies had maintained their former conglomerate structure.
CHARLES BATH, MBA, CFA, CPA, PORTFOLIO MANAGER
VALUE FUND $958,589,770
PORTFOLIO COMPOSITION
COMMON STOCK.......................................99.0%
DEBT OBLIGATIONS AND OTHER ASSETS LESS LIABILITIES..1.0%
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Warner-Lambert Company $60,227,425 6.3%
Schering-Plough Corp. 51,974,400 5.4%
Texaco Inc. 48,444,638 5.1%
Avon Products Inc. 37,649,500 3.9%
Raychem Corp. 35,060,547 3.7%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
S&P 500 Fund CPI
<S> <C> <C> <C>
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 $39,407 $33,139 $14,365
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Fund, the S&P
500* and the Consumer Price Index (CPI)** over a 10-year period ended 10/31/96.
* The S&P 500 is a broad, unmanaged index of equity securities, and unlike
Fund returns, does not reflect any fees or expenses.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Fund, does not reflect any
fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge............26.11%......12.72%......13.23%
With sales charge...............20.43%......11.68%......12.72%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes a 4.5% sales charge was paid which has the most
dramatic effect on the one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Our flagship fund, Nationwide(R) Fund, was started in 1933 and is one of the
oldest mutual funds in the country. Its portfoliO emphasizes blue-chip,
industry-leading stocks generally held for the long term.
The Nationwide(R) Fund emphasizes a "buy-and-hold" strategy maintaining a
relatively low turnover ratio which translates into less expense for the
shareholder.
7
<PAGE> 60
STATEMENT OF INVESTMENTS
NATIONWIDE(R) FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.0%)
---------------------
AUTO & AUTO PARTS (6.0%)
------------------------
929,800 Chrysler Corp......................... $ 31,264,525
832,900 Ford Motor Co......................... 26,028,125
------------
57,292,650
------------
BUILDING (4.1%)
---------------
440,000 Martin Marietta Materials Inc ........ 10,450,000
337,500 Masco Corp............................ 10,589,063
302,200 Vulcan Materials Co................... 18,358,650
------------
39,397,713
------------
CHEMICALS (11.9%)
-----------------
512,300 Georgia Gulf Corp..................... 13,832,100
283,100 IMC Global, Inc....................... 10,616,250
493,900 Millipore Corp........................ 17,286,500
593,700 Morton International, Inc............. 23,376,938
223,600 OM Group, Inc......................... 9,167,600
185,200 Pall Corp............................. 4,745,750
448,775 Raychem Corp.......................... 35,060,547
------------
114,085,685
------------
COMPUTER EQUIPMENT (2.7%)
-------------------------
200,000 International Business Machines Corp.. 25,800,000
------------
CONGLOMERATES (2.0%)
--------------------
500,000 Corning, Inc.......................... 19,375,000
------------
DRUGS (14.9%)
-------------
309,000 Allergan Inc.......................... 9,424,500
149,000 American Home Products Corp........... 9,126,250
151,200 Pfizer, Inc........................... 12,511,800
812,100 Schering-Plough Corp.................. 51,974,400
946,600 Warner-Lambert Co..................... 60,227,425
------------
143,264,375
------------
ELECTRICAL EQUIPMENT (1.2%)
---------------------------
303,400 Black & Decker Corp................... 11,339,575
------------
ENTERTAINMENT (1.7%)
--------------------
246,265 Disney, (Walt) Co..................... 16,222,707
------------
FINANCIAL (14.8%)
-----------------
283,600 Bank of NY Co., Inc................... 9,394,250
593,800 Barnett Banks, Inc.................... 22,638,625
664,800 Chubb Corp............................ 33,240,000
233,400 CoreStates Financial Corp............. 11,349,075
126,200 First USA Inc......................... 7,256,500
404,700 Horace Mann Educators Corp........... 13,860,975
397,800 Mellon Bank Corp...................... 25,906,725
454,073 U. S. Bancorp......................... 18,162,920
------------
141,809,070
------------
FOOD & BEVERAGE (9.2%)
----------------------
594,800 Anheuser-Busch Companies Inc.......... 22,899,800
1,147,500 PepsiCo, Inc.......................... 33,994,687
349,033 Ralcorp Holdings Inc.*................ 7,329,693
364,200 Ralston-Ralston Purina Group.......... 24,082,725
------------
88,306,905
------------
FURNITURE/HOME APPLIANCE (0.6%)
-------------------------------
322,000 Singer Co. N.V. (The)................. 6,158,250
------------
HOUSEHOLD - GENERAL PRODUCTS (6.0%)
-----------------------------------
694,000 Avon Products, Inc.................... 37,649,500
127,200 Gillette Company (The)................ 9,508,200
100,000 Proctor & Gamble Co................... 9,900,000
------------
57,057,700
------------
MACHINERY (1.1%)
----------------
342,400 Johnstown America Industries, Inc.*... 1,155,600
262,700 Trinity Industries, Inc............... 9,095,987
------------
10,251,587
------------
<CAPTION>
- ---------------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------------
<S> <C> <C>
OIL & GAS (9.0%)
----------------
161,900 Mobil Corp............................ $ 18,901,825
476,700 Texaco Inc............................ 48,444,638
513,600 Unocal Corp........................... 18,810,600
------------
86,157,063
------------
PAPER AND FOREST PRODUCTS (1.3%)
--------------------------------
362,900 Bowater Inc........................... 12,837,587
------------
PRINTING & PUBLISHING (8.6%)
----------------------------
760,000 American Greetings Corp. Class A...... 22,277,500
301,800 Dun & Bradstreet Corp................. 17,466,675
211,700 Gannett Co., Inc...................... 16,062,737
297,300 Gibson Greetings, Inc.*............... 4,645,313
100,000 Tribune Co............................ 8,175,000
40,900 Washington Post Co. (The), Class B.... 13,456,100
------------
82,083,325
------------
RETAIL (0.9%)
-------------
325,300 Wal-Mart Stores Inc................... 8,661,112
------------
TELECOMMUNICATIONS (0.3%)
-------------------------
100,000 MCI Communications Corp............... 2,512,500
------------
TOYS (2.7%)
-----------
908,840 Mattel, Inc........................... 26,242,755
------------
Total common stocks
(cost $572,700,339)................... 948,855,559
------------
</TABLE>
8
<PAGE> 61
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONWIDE(R) FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (0.5%)
------------------------
$7,826,000 Consorcio G. Grupo Dina, 8.00%, 2004
(cost $7,249,051)..................... $ 4,715,165
------------
COMMERCIAL PAPER (0.7%)
-----------------------
3,870,000 Merrill Lynch & Co.
5.26%, due 11/12/96.............. 3,863,255
2,480,000 Banc One Corp.
5.30%, due 11/21/96.............. 2,479,995
------------
Total commercial paper
(cost $6,336,478)..................... 6,343,250
------------
REPURCHASE AGREEMENT (0.1%)
---------------------------
591,493 Merrill Lynch & Co., Inc.
5.63%, due 11/01/96, Collateralized by
$610,000 GNMA CMO, 5.50%, due 07/20/26,
market value $604,759
(cost $591,493)....................... 591,493
------------
Total investments
(cost $586,877,361)................... $960,505,467
============
<FN>
The abbreviations in the above statement stand for the following:
GNMA Government National Mortgage Association
CMO Collateral Mortgage Obligation
*Denotes a non-income producing security.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
[PHOTO]
Back row, l. to r.: Ron Hubbard -- Nationwide(R) Fund, Charles Hubbard, Juanita
Miller-Hubbard and Lucille Hubbard
[PHOTO]
Clara Duncan Clemens -- Nationwide(R) Fund, Bond Fund, Tax-Free Fund and Money
Market Fund, celebrates with her husband, Reece, on her graduation day from
college at age 64.
9
<PAGE> 62
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) BOND FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the year ended October 31, 1996, the Nationwide Bond Fund's total return was
5.05% assuming all distributions were reinvested, compared to the Lehman
Brothers Long-Term Government/Corporate Bond Index total return of 4.39%. Bond
yields on October 31, 1996, as compared to November 1, 1995, were lower (prices
higher) on securities having a maturity longer than one year. The effect was to
steepen the slope of the yield curve in the maturities less than five years and
to flatten the curve in the longer maturity range. In spite of the fact that
treasuries with longer maturities (15 to 30 years) performed better than ones
with 10-15 year maturities, the Nationwide Bond Fund (Bond Fund) with an average
maturity of 13.2 years performed better than the longer Lehman Brothers Index.
The yield spread between bonds and U.S. Treasuries continued to narrow. The
opportunities to improve the return on corporate bond holdings were limited and
few trades were transacted. The list of the top holdings of the Bond Fund
remained relatively the same. Overall the Bond Fund has maintained approximately
79% of its holdings in long-term corporate bonds.
The remainder of the Bond Fund's holdings are divided among mortgage-backed
securities, Canadian bonds, U.S. Treasuries, and commercial paper and repurchase
agreements. Opportunities to improve the return and future performance of
individual securities were most prevalent in the mortgage-backed securities
(MBS) area. The characteristics and payment history of MBS are continually
changing, thus presenting opportunities to trade into a better-performing
security.
The Bond Fund's portfolio consists of high-quality corporates, U.S. Governments,
mortgage-backed securities (secured by pools of home mortgages from the Federal
National Mortgage Association, the Government National Mortgage Association, and
the Federal Home Loan Mortgage Corporation), and high-quality Canadian
securities. This type of portfolio has low credit risk; however, since the
average maturity of the securities in the portfolio is fairly long, the interest
rate risk is relatively high. Changes in interest rates will cause valuation
changes in the bond holdings and changes in the price of shares of the Bond
Fund. Quarter by quarter for the past 12 months, interest rates were down in the
first quarter, up the second quarter, slightly up the third quarter and down the
fourth quarter. This volatility carries over to the share prices of the Bond
Fund. A basic premise for a long-term corporate bond fund is that the price of
its shares will fluctuate with the market.
MICHAEL D. GROSECLOSE, MBA, CFA, PORTFOLIO MANAGER
FUND VALUE $133,252,732
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
<S> <C>
CORPORATE BONDS....................................78.5%
MORTGAGE-BACKED SECURITIES..........................9.1%
CANADIAN GOVERNMENT.................................4.6%
U.S. GOVERNMENT OBLIGATIONS.........................4.0%
OTHER ASSETS LESS LIABILITIES.......................3.8%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Berkley, (WR) Corp. $5,998,810 4.5%
Seagram (JE) & Sons 5,741,050 4.3%
U.S. Treasury Note 5,293,155 4.0%
Prudential Surplus Note 5,027,810 3.8%
AMBAC Inc. 4,814,088 3.6%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond $20,471
CPI $14,365
LT G/C $25,146
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Bond Fund, the
Lehman Brothers Long-Term Govt/Corp Bond Index* and the Consumer Price Index
(CPI)** over a 10-year period ended 10/31/96.
* The Lehman Brothers Long-Term Govt/Corp Bond Index represents an unmanaged
group of bonds that are not adjusted for expenses and includes bonds of
lower quality than those purchased by our Fund.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Bond Fund, does not reflect
any fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge.............5.05%.......7.52%.......7.92%
With sales charge................0.32%.......6.53%.......7.42%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes a 4.5% sales charge was paid which has the most
dramatic effect on the one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Nationwide(R) Bond Fund is for investors seeking monthly income from
high-quality bonds and other fixed-income securities. Corporate bonds selected
for its portfolio consist primarily of securities rated "A" or above by Moody's
Investor Services and Standard & Poor's Corporation.
Investments of Nationwide(R) Bond Fund are made in different types of securities
among many companies and industries which provide diversification and help to
minimize risk.
Nationwide(R) Bond Fund has consistently provided a steady stream of income for
its shareholders -- paying dividends every month since inception (March 1,
1980).
10
<PAGE> 63
STATEMENT OF INVESTMENTS
NATIONWIDE(R) BOND FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
CANADIAN GOVERNMENT BONDS (4.6%)
--------------------------------
<S> <C>
$1,000,000 Hydro-Quebec, 11.75%, 02/01/12........ $ 1,401,239
2,000,000 Hydro-Quebec, 8.05%, 07/07/24......... 2,175,000
2,250,000 Quebec (Prov. of), 8.625%, 01/19/05... 2,537,397
------------
Total Canadian government bonds
(cost $5,706,065)..................... 6,113,636
------------
CORPORATE BONDS (78.5%)
-----------------------
BANKS (5.2%)
------------
1,000,000 Banc One Corp., 10.00%, 08/15/10...... 1,241,730
3,000,000 Banc One Corp., 9.875%, 03/01/09...... 3,665,475
2,000,000 Toronto-Dominion Bank, NY., 7.875%,
due 08/15/04....................... 2,056,758
------------
6,963,963
------------
BROKER/DEALER (7.0%)
--------------------
2,000,000 Bear Stearns Companies, Inc., 8.75%,
03/15/04........................... 2,196,972
1,000,000 Bear Stearns Companies, Inc., 9.375%,
06/01/01........................... 1,106,481
1,000,000 Lehman Brothers Holdings, Inc., 11.625%,
05/15/05........................... 1,265,700
3,000,000 Morgan Stanley Group, Inc., 10.00%,
10/15/08........................... 3,649,452
1,000,000 Morgan Stanley Group, Inc., 8.10%,
06/24/02........................... 1,067,483
------------
9,286,088
------------
CHEMICALS (1.6%)
----------------
2,000,000 ICI Wilmington, Inc., 7.50%, 01/15/02. 2,089,780
------------
FINANCE (14.6%)
---------------
2,500,000 Associates Corp. of North America, 8.15%,
O8/01/09.............................. 2,704,140
2,000,000 Bass America, Inc., 8.125%, 03/31/02.. 2,145,810
2,000,000 Ford Capital BV Notes, 10.125%,
11/15/00.............................. 2,250,036
3,000,000 Ford Capital BV Notes, 9.50%,
06/01/10.............................. 3,572,562
1,000,000 General Electric Capital Corp., 8.75%,
09/25/00.............................. 1,081,448
3,235,000 General Electric Capital Corp., 8.50%,
07/24/08.............................. 3,658,212
3,515,000 Loew's Corp., 8.875%, 04/15/11........ 4,039,624
------------
19,451,832
------------
FOOD & BEVERAGE (4.3%)
----------------------
5,000,000 Seagram, (J.E.) & Sons, Inc., 8.875%,
09/15/11.............................. 5,741,050
------------
INSURANCE (17.4%)
-----------------
1,000,000 AMBAC, Inc., 7.50%, 05/01/23.......... 1,008,044
4,000,000 AMBAC, Inc., 9.375%, 08/01/11......... 4,814,088
4,500,000 Aetna Life & Casualty Co., 6.75%,
09/15/13.............................. 4,222,202
5,000,000 Berkley (W.R.) Corp., 9.875%, 05/15/08 5,998,810
2,000,000 Equitable of Iowa Companies, 8.50%,
02/15/05.............................. 2,158,806
5,000,000 Prudential Surplus Note, 8.10%,
07/15/15*............................. 5,027,810
------------
23,229,760
------------
PAPER & FOREST PRODUCTS (0.8%)
------------------------------
1,000,000 Temple-Inland, Inc., 9.00%, 05/01/01.. 1,093,996
------------
PUBLISHING (1.5%)
-----------------
2,000,000 Times Mirror Co., 7.25%, 03/01/13..... 1,989,122
------------
RETAIL TRADE (10.4%)
--------------------
3,000,000 Dayton Hudson Co., 8.60%, 01/15/12.... 3,351,015
2,000,000 Dayton Hudson Co., 9.25%, 08/15/11.... 2,361,566
3,000,000 May Department Stores Company., 10.625%,
11/01/10.............................. 4,007,505
2,000,000 Wal-Mart Stores, Inc., 7.25%, 01/01/13 2,030,554
2,000,000 Wal-Mart Stores, Inc., 7.50%, 05/15/04 2,102,106
------------
13,852,746
------------
UTILITIES : GAS & ELECTRIC (1.0%)
---------------------------------
1,250,000 Pacific Gas & Electric Co., 8.75%,
01/01/01.............................. 1,334,910
------------
OTHER (14.7%)
-------------
4,000,000 Armstong World Industries, Inc., 9.75%,
04/15/08.............................. 4,683,252
4,000,000 Englis China Clays Delaware, Inc., 7.375%,
10/01/02.............................. 4,158,100
2,000,000 Grand Metropolitan Inv. (G) 9.00%,
08/15/11.............................. 2,349,296
2,000,000 Kaiser Foundation, 9.55%, 07/15/05.... 2,348,702
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
$2,000,000 Waste Management, Inc., 7.65%,
03/15/11 $ 2,098,940
3,500,000 Waste Management, Inc., 8.75%,
05/01/18.............................. 3,944,234
------------
19,582,524
------------
Total corporate bonds
(cost $102,498,898)................... 104,615,771
------------
MORTGAGE-BACKED SECURITIES (9.1%)
---------------------------------
1,000,000 FHLMC (REMIC) Class 1188-H, 7.50%,
12/15/20.............................. 1,016,559
700,000 FHLMC (REMIC) Class 1228-G, 7.00%,
01/15/21.............................. 692,348
500,000 FHLMC (REMIC) Class 1358-I, 7.00%,
07/15/21.............................. 495,510
500,000 FHLMC (REMIC) Class 1360-VK, 7.50%,
08/15/07............................. 515,840
990,530 FHLMC (REMIC) Class 1709-EA, 7.25%,
12/15/23.............................. 963,467
183,595 FHLMC-GNMA (REMIC) Class 29X, 6.75%,
02/25/23 ............................. 179,666
367,190 FHLMC-GNMA (REMIC) Class 29Z, 6.75%,
04/25/24 ............................. 338,615
500,000 FNMA (REMIC) Class 1991-118K, 7.00%,
08/25/21.............................. 487,120
929,000 FNMA (REMIC) Class 1992-145E, 7.00%,
08/25/22.............................. 935,762
353,239 FNMA (REMIC) Class 1994-96D, 8.00%,
09/25/24.............................. 348,551
1,000,000 FNMA (REMIC) Class 92-200 MB, 7.50%, .
01/25/22.............................. 990,559
646,000 FNMA (REMIC) Class G1992-15G, 7.00%,
04/25/20.............................. 643,945
590,540 FNMA (REMIC) Class G1992-64M, 7.00%,
11/25/22.............................. 571,235
537,688 FNMA (REMIC) Class G1992-65NA, 7.00%,
11/25/22.............................. 509,841
500,000 FNMA (REMIC) Class G1993-10G, 5.00%,
05/25/22.............................. 428,490
1,010,000 FNMA (REMIC) Class G1993-10H, 5.00%,
08/25/22.............................. 822,573
2,396,000 FNMA (REMIC) Class S G93-10E, 5.00%,
04/25/20.............................. 2,246,487
------------
Total mortgage-backed securities
(cost $12,094,761).................... 12,186,566
------------
U.S. GOVERNMENT LONG-TERM OBLIGATION (4.0%)
-------------------------------------------
5,000,000 U.S. Treasury Note, 7.50%, 11/15/01
(cost $5,237,271)..................... 5,293,155
------------
COMMERCIAL PAPER (1.7%)
-----------------------
880,000 Dean Witter, Discover & Company, 5.24%,
due 11/25/96.......................... 876,805
931,000 Merrill Lynch & Co, Inc., 5.27%, due
11/13/96.............................. 929,242
426,000 National Rural Utilities Cooperative,
5.24%, due 11/14/96................... 425,134
------------
Total commercial paper
(cost $2,231,484)..................... 2,231,181
------------
REPURCHASE AGREEMENT (0.4%)
---------------------------
578,037 MBS Tri Party 5.63%, due 11/01/96,
Collaterlized by $595,000 GNMA CMO, 5.50%,
due 07/20/26, market value $589,888
(cost $578,037)....................... 578,037
------------
Total investments
(cost $128,346,516)................... $131,018,346
============
<FN>
The abbreviations in the above statement stand for the following:
* Represents a security registered under Rule 144-A, which limits the resale to
certain qualified buyers.
The abbreviations in the above statement stand for the following:
FHLMC Federal Home Loan Mortgage Corp.
REMIC Real Estate Mortgage Investment Conduit
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
CMO Collateralized Mortgage Obligation
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 64
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) TAX-FREE INCOME FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The Nationwide Tax-Free Income Fund's total return for the year ended October
31, 1996, was 5.31% assuming all distributions were reinvested while the Lehman
Brothers Municipal Bond Index returned 5.70%.
During fiscal year 1996 the municipal bond market performed well. Demand for
municipal bonds remained strong, fear of tax reform diminished while the economy
grew at a slow manageable noninflationary pace. The 11-Bond General Obligation
Index as published by the Bond Buyer declined from 5.62% to 5.60%, only .02%,
while the 30-year Treasury rose from 6.29% to 6.64%, a .35% increase.
Issuers taking advantage of the current low interest rate environment increased
issuance of municipal bonds during the latter part of the period. Issuers were
concerned about the results that the upcoming election would have upon the
economy and interest rates. However, the increased supply was quickly absorbed
by property and casualty companies and bond funds.
The yield spread on a 20-year AA rated General Obligation bond as compared to a
20-year A rated General Obligation Municipal bond declined from .18% to .16%
during the period. Faced with such narrow quality spreads, current low yields
and uncertainties about interest rates, the strategy of the Fund did not change.
Management maintained an average credit rating of AA and an average maturity of
approximately 19 years. Assets will continue to be managed for the long term.
ALPHA L. BENSON, MBA, PORTFOLIO MANAGER
FUND VALUE $264,641,760
PORTFOLIO COMPOSITION
MUNICIPAL SECURITIES...............................98.4%
OTHER ASSETS LESS LIABILITIES.......................1.6%
TOP FIVE HOLDINGS BY STATE
<TABLE>
<CAPTION>
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Texas $40,510,025 15.3%
Virginia 35,247,131 13.3%
Illinois 24,985,213 9.4%
Washington 18,885,979 7.1%
North Carolina 15,800,219 6.0%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
Tax-Free CPI LBMBI
<S> <C> <C> <C>
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 $18,783 $14,365 $21,240
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Tax-Free Income
Fund, the Lehman Brothers Municipal Bond Index* and the Consumer Price Index
(CPI)** over a 10-year period ended 10/31/96.
* The Lehman Brothers Municipal Bond Index represents an unmanaged group of
bonds that are not adjusted for expenses and includes bonds of lower
quality than those purchased by our Fund.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Tax-Free Income Fund, does
not reflect any fees or expenses.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge.............5.31%.......6.67%.......6.50%
With sales charge................0.31%.......6.52%.......6.50%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 5 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Nationwide(R) Tax-Free Income Fund offers a monthly income that's free from
federal taxes. For certain shareholders, a portion of income may be subject to
state, local or federal alternative minimum tax.
By investing in the Nationwide(R) Tax-Free Income Fund, you can earn tax-free
dividends from municipal bonds carefully selected for their relative safety and
security.
The Nationwide(R) Tax-Free Income Fund invests in a diversified portfolio of
high-quality and intermediate-term (maturities of from 3-10 years) and long-term
(maturities over 10 years) municipal obligations.
12
<PAGE> 65
STATEMENT OF INVESTMENTS
NATIONIDE(R) TAX-FREE INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
LONG-TERM MUNICIPAL SECURITIES (98.4%)
--------------------------------------
ALABAMA (4.9%)
--------------
$3,000,000 Alabama Housing Finance Authority Single-
Family Mortgage Revenue Bonds
(Collateralized Home Mortgage Revenue
Bond Program), 1996 Series D, 6.00%,
10/01/16........................... $ 3,026,250
1,100,000 Birmingham, Alabama General Obligation
Parking Warrants, Series 1995-A, 5.90%,
06/01/18........................... 1,102,750
2,500,000 Birmingham, Alabama General Obligation
Refunding Revenue, Series 1992 B,
6.25%, 04/01/16 ................... 2,609,375
2,480,000 Birmingham, Alabama Water Works & Sewer
Board Refunding Revenue,
Series 1992, 6.125%, 01/01/12 ..... 2,569,900
3,500,000 Huntsville, Alabama General Obligation
Limited Tax Warrants, Series 1992 A,
6.00%, 11/01/12.................... 3,626,875
----------
12,935,150
----------
ARIZONA (2.9%)
--------------
5,100,000 Salt River Project, Agricultural Improvement
& Power District, Arizona Electric System
Revenue Bonds, Series 1992 C,
6.00%, 01/01/16.................... 5,182,875
2,500,000 Salt River Project, Agricultural Improvement
& Power District, Arizona Electric System
Revenue Bonds, Series 1992 C, 6.20%,
01/01/12........................... 2,596,875
----------
7,779,750
----------
COLORADO (0.4%)
---------------
1,000,000 Colorado Housing Finance Authority Single-
Family Housing Revenue Refunding Bonds,
Series 1991-A, 7.15%, 11/01/14..... 1,060,000
----------
CONNECTICUT (2.0%)
------------------
5,000,000 Connecticut Housing Finance Authority Housing
Mortgage Finance Program Bonds,
Series 1992-B, 6.70%, 11/15/12..... 5,275,000
----------
FLORIDA (2.3%)
--------------
2,205,000 Florida State Board of Education General
Obligation Full Faith and Credit Public
Education Capital Outlay Refunding Bonds,
1995 Series A, 5.50%, 06/01/15..... 2,199,488
1,320,000 Florida State Full Faith and Credit State Board
of Education Public Education Capital Outlay
Bonds, 1992 Series D, 5.20%, 06/01/13 1,273,800
2,400,000 Jacksonville, Florida Electric Authority Bulk
Power Revenue Bonds, (Scherer 4 Project,
Issue One, Series 1991-A), 7.00%, 10/01/12 2,652,000
----------
6,125,288
----------
GEORGIA (2.0%)
--------------
1,210,000 Dekalb County, Georgia General Obligation
Refunding Bonds, 6.00%, 01/01/12... 1,261,425
2,750,000 Georgia Municipal Electric Authority Power
Revenue Bonds,
Series 1991-V, 6.60%, 01/01/18..... 3,031,875
1,005,000 Georgia Residential Financial Authority
Revenue Bonds, Series A, 7.50%, 06/01/17 1,053,994
----------
5,347,294
----------
ILLINOIS (9.4%)
---------------
3,000,000 Chicago, Illinois General Airport Revenue
Refunding Bonds, Series 1993-A
(Chicago-O'Hare International Airport),
5.00%, 01/01/16.................... 2,722,500
2,185,000 Illinois Educational Facility Authority Revenue,
Series 1991-A, Loyola University, 7.125%,
07/01/21........................... 2,367,994
1,975,000 Illinois Regional Transportation Authority
General Obligation Refunding Bonds,
Series 1996, 5.40%, 06/01/15....... 1,898,469
$7,500,000 Illinois State Builders Illinois Bonds Sales Tax
Revenue, Series O, 6.00%, 06/15/18. $7,537,500
2,500,000 llinois State Builders Illinois Bonds Sales Tax
Revenue, Series V, 6.375%, 06/15/17 2,603,125
3,000,000 Illinois State General Obligation Bonds,
Series of March 1994, 5.80%, 04/01/19 3,003,750
1,350,000 Illinois State General Obligation Bonds,
Series of July 1995, 5.75%, 07/01/16 1,350,000
2,500,000 Illinois State General Obligation Bonds,
Series of December 1995, 5.125%, 12/01/17 2,340,625
1,000,000 Palatine, Illinois Corporate Purpose General
Obligation Bonds, Series 1985, 9.90%, 01/01/16 1,161,250
----------
24,985,213
----------
INDIANA (2.8%)
--------------
5,335,000 Indiana State Toll Road Commission East-West
Toll Road Revenue Bonds,
Series 1980, 9.00%, 01/01/15....... 7,302,281
----------
MARYLAND (0.4%)
---------------
1,000,000 Howard County, Maryland Public Improvement
General Obligation Unlimited Tax,
Series 1994 A, 6.00%, 05/15/14..... 1,035,000
----------
MASSACHUSETTS (3.9%)
--------------------
3,775,000 Massachusetts State General Obligation
Bonds Consolidated
Loan, Series 1992-B, 6.50%, 06/01/13 4,015,656
2,500,000 Massachusetts State General Obligation Bonds,
Consolidated Loan of 1995,
Series D, 5.125%, 11/01/12......... 2,400,000
4,000,000 Massachusetts Water Resources Authority
General Revenue Bonds,
Series 1992A, 5.50%, 07/15/22...... 3,850,000
----------
10,265,656
----------
MICHIGAN (1.5%)
---------------
3,500,000 Michigan State General Obligation Bonds,
Environmental Protection Program,
Series 1992, 6.25%, 11/01/12....... 3,823,750
----------
MINNESOTA (2.4%)
----------------
2,300,000 Minnesota Housing Finance Agency
Rental Housing Revenue
Bonds, 1995 Series D, 5.90%, 08/01/15 2,300,000
3,950,000 Minnesota State Housing Finance Agency
Single Family Mortgage Revenue Bonds,
Series 1994 K, 6.40%, 01/01/15.... 4,058,625
----------
6,358,625
----------
MISSOURI (0.8%)
---------------
2,000,000 Missouri State Environmental Improvement
& Energy Resources Authority Water
Pollution Control Revenue
Bonds, 6.55%, 07/01/14............. 2,152,500
----------
NEBRASKA (2.0%)
---------------
5,000,000 Nebraska Public Power District Power
Supply System Revenue Bonds,
Series 1993, 6.125%, 01/01/15...... 5,137,500
----------
NEVADA (0.9%)
-------------
2,190,000 Nevada State Colorado River Commission
General Obligation (Limited Tax, Revenue
Supported) Bonds Series November 1, 1994
6.50%, 07/01/19.................... 2,433,637
----------
NORTH CAROLINA (6.0%)
---------------------
1,035,000 Charlotte-Mecklenburg Hospital Authority,
North Carolina Health Care System
Revenue Bonds, Series 1992, 6.00%, 01/01/22 1,046,644
3,460,000 North Carolina Housing Finance Agency
Multi-Family Revenue
Refunding Bonds, Series H, 5.95%, 07/01/21 3,468,650
</TABLE>
13
<PAGE> 66
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONIDE(R) TAX-FREE INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
$2,035,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series AA, 6.25%, 03/01/17......... $ 2,088,419
2,185,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series GG, 5.90%, 03/01/13......... 2,193,194
1,910,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series N, 7.40%, 03/01/28.......... 2,003,112
1,880,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series J, 7.40%, 03/01/22.......... 1,955,200
1,000,000 North Carolina Medical Care Commission
Hospital Revenue Bonds, Duke University
Hospital Project, Series C, 5.25%, 06/01/17 955,000
2,000,000 North Carolina Medical Care Commission
Hospital Revenue Refunding Bonds,
Series 1992 A (North Carolina Baptist
Hospitals Project), 6.375%, 06/01/14 2,090,000
----------
15,800,219
----------
OHIO (2.0%)
-----------
1,000,000 Columbus, Ohio Water Works & Sewer Board
Refunding Revenue, Series 1991, 6.375%, 11/01/10 1,061,250
1,100,000 Franklin County, Ohio Hospital Refunding and
Improvement Revenue Bonds,
(The Children's Hospital Project)
1996 Series A, 5.75%, 11/01/20..... 1,100,000
1,250,000 Ohio Housing Finance Agency Mortgage
Revenue Bonds Residential Mortgage Backed
Securities, Series A-1, 5.70%, 03/01/17 1,248,437
2,000,000 Ohio Turnpike Commission Turnpike Revenue
Bonds 1996 Series A, 5.70%, 02/15/17 2,017,500
----------
5,427,187
----------
PENNSYLVANIA (3.5%)
-------------------
4,055,000 Pennsylvania Housing Finance Agency
Rental Housing Refunding Revenue Bonds,
Issue 1992, 6.40%, 07/01/12........ 4,161,444
1,500,000 Pennsylvania Housing Finance Agency
Rental Housing Refunding Revenue Bonds,
Issue 1992, 6.25%, 07/01/07........ 1,554,375
2,000,000 Pennsylvania State Turnpike Commission
Oil Franchise Tax
Revenue, Series A, 6.00%, 12/01/14. 2,087,500
1,500,000 Pittsburgh, Pennsylvania Water and Sewer
Authority, Water and Sewer System First Lien
Revenue Bonds, Series A of 1995,
5.50%, 09/01/15.................... 1,468,125
----------
9,271,444
----------
SOUTH CAROLINA (5.6%)
---------------------
6,980,000 Charleston, South Carolina Waterworks
& Sewer System Refunding & Capital
Improvement Revenue Bonds,
Series 1991, 6.00%, 01/01/18....... 7,171,950
1,400,000 Greenville, South Carolina Hospital System
Revenue Bonds Hospital Facilities,
Series B, 5.25%, 05/01/17.......... 1,309,000
1,500,000 South Carolina State Housing Finance
& Development Authority Multi-Family
Development Revenue Refunding,
Series 1992-A, 6.875%, 11/15/23.... 1,556,250
2,075,000 South Carolina State Housing Finance &
Development Authority Homeownership
Mortgage Purchase Bonds,
Series 1994 A, 6.375%, 07/01/16.... 2,106,125
1,500,000 Spartanburg, South Carolina Water System
Improvement & Refunding Revenue Bonds,
Series 1992, 6.25%, 06/01/17....... 1,563,750
1,000,000 Spartanburg, South Carolina Water System
Revenue Bonds,
Series 1996, 6.10%, 06/01/21....... 1,033,750
----------
14,740,825
----------
TENNESSEE (1.8%)
----------------
$1,000,000 Nashville & Davidson County, Tennessee General
Obligation Multi-Purpose Improvement Bonds,
Series 1994, 6.125%, 05/15/14...... $ 1,037,500
1,500,000 Nashville & Davidson County, Tennessee Health
& Educational Facilities Revenue Bonds,
Series 1979, 7.875%, 12/01/04...... 1,668,750
1,000,000 Shelby County, Tennessee General Obligation
School Bonds, Series 1994 B,
6.00%, 03/01/14.................... 1,033,750
1,000,000 Shelby County, Tennessee General Obligation
Public Improvement Bonds,
1996 Series A, 5.85%, 06/01/17..... 1,010,890
----------
4,750,890
----------
TEXAS (15.3%)
-------------
1,250,000 Bexar County, Texas Combination Tax and
Revenue Certificates, Series 1992, 6.20%,
06/15/12........................... 1,342,188
1,000,000 Carrollton-Farmers Branch Independent
School District, Texas General Obligation
Permanent School Fund
Guarantee, Series 1996, 5.70%, 02/15/17 1,002,500
3,500,000 Conroe, Texas Independent School District
Unlimited Tax Schoolhouse and Refunding
Bonds, Series 1993, 5.00%, 02/01/18 3,198,125
1,100,000 Cypress-Fairbanks Independent School District,
Texas General Obligation Permanent School
Fund Guarantee, Series 1996,
5.375%, 02/15/19................... 1,061,500
2,300,000 Fort Bend Independent School District,
Texas General Obligation Permanent School
Fund Guarantee, Series 1996, 5.00%, 02/15/18 2,127,500
1,000,000 Harris County, Texas Detention Facility
Certificates, Series 1992, 6.00%, 12/15/10 1,065,000
3,500,000 Harris County, Texas General Obligation
Tax and Revenue Certificates,
Series 1994, 6.10%, 10/01/13....... 3,666,250
7,720,000 Houston, Texas Water & Sewer Junior Lien
Revenue Refunding, Series 1991-C,
6.375%, 12/01/17................... 8,192,850
1,215,000 Irving, Texas Independent School District
Unlimited Tax School Building Bonds,
Series 1991-C-Permanent School
Fund, 5.25%, 02/15/09.............. 1,202,850
270,000 Lower Colorado River Authority Texas Junior
Lien Refunding Revenue Bonds,
Series 1992 (ETC), 6.00%, 01/01/17. 289,912
490,000 Lower Colorado River Authority Texas Junior
Lien Refunding Revenue Bonds,
Series 1992 (ETM), 6.00%, 01/01/17 515,725
2,630,000 Lower Colorado River Authority Texas Junior
Lien Refunding Revenue Bonds,
Series 1992 (Unrefunded), 6.00%, 01/01/17 2,656,300
2,000,000 Texas A&M University System Board of Regents
Revenue Financing System Bonds,
Series 1996, 5.375%, 05/15/14...... 1,950,000
3,175,000 Texas State Water Development Bonds,
Series 1994, 6.90%, 08/01/17....... 3,516,312
2,000,000 University of Texas Revenue Financing System
Bonds, Series 1991, 6.50%, 07/01/11 2,195,000
2,000,000 University of Texas System Permanent University
Fund Bonds, Series 1992B, 6.25%, 07/01/13 2,157,500
3,000,000 Weatherford, Texas Independent School
District Unlimited Tax School Building and
Refunding Bonds, Series 1994, 6.50%, 02/15/15 3,213,750
1,090,000 Weatherford, Texas Independent School District
Unlimited Tax School Building and Refunding
Bonds, Series 1994, 6.40%, 02/15/12 1,156,763
----------
40,510,025
----------
UTAH (1.1%)
-----------
3,080,000 Intermountain Power Agency, Utah Power
Supply Revenue Refunding Bonds,
Series 1993-A, 5.50%, 07/01/20..... 2,937,550
----------
</TABLE>
14
<PAGE> 67
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONIDE(R) TAX-FREE INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
VIRGINIA (13.3%)
----------------
$1,500,000 Fairfax County, Virginia Water Authority
Water Refunding Revenue
Series 1992, 6.00%, 04/01/22....... $ 1,537,500
4,250,000 Henrico County, Virginia Water and Sewer
System Refunding Revenue Bonds,
Series 1994, 5.875%, 05/01/14...... 4,281,875
1,985,000 Newport News, Virgina General Improvement
Bonds, Series 1993 E, 5.20%, 01/01/13 1,908,081
8,000,000 Richmond, Virginia General Obligation Public
Improvement Refunding Bonds,
Series 1991-B, 6.25%, 01/15/18..... 8,280,000
2,150,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1993 H, 5.25%, 07/01/23..... 1,980,687
2,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds, Series 1992
C Subseries C-7, 6.30%, 01/01/15... 2,035,000
1,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds, Series 1995
B Subseries B-3, 6.35%, 01/01/15... 1,021,250
5,500,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1992 A, 7.10%, 01/01/22.... 5,651,250
1,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds, Series B
Subseries B-2, 6.50%, 01/01/10..... 1,066,250
1,080,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1995-D, Subseries D-1, 5.95%, 01/01/13 1,085,400
2,000,000 Virginia Public School Authority School
Financing Bonds (1991 Resolution),
Series 1994 A, 6.20%, 08/01/13..... 2,115,000
4,595,000 Virginia Public School Authority School
Financing Bonds (1991 Resolution),
Series 1995 C, 5.00%, 08/01/16..... 4,284,838
----------
35,247,131
----------
WASHINGTON (7.1%)
-----------------
$2,950,000 Seattle, Washington Metropolitan General
Obligation Bonds,
Series 1991, 6.875%, 01/01/20...... $ 3,015,991
6,150,000 Seattle, Washington Water System and
Refunding Revenue Bonds, 1993, 5.50%,
06/01/18........................... 5,996,250
7,635,000 Washington State General Obligation,
Series 1992 A and
AT-6, 5.75%, 02/01/17.............. 7,654,088
2,155,000 Washington State General Obligation
Unlimited Tax Bonds,
Series DD-14 and B, 6.00%, 09/01/15 2,219,650
----------
18,885,979
----------
WISCONSIN (4.1%)
----------------
2,000,000 Wisconsin State General Obligation,
Series 1992-A, 6.30%, 05/01/11..... 2,157,500
3,065,000 Wisconsin State General Obligation Refunding
Bonds of 1996,
Series1, 5.00%, 05/01/14........... 2,900,256
2,000,000 Wisconsin State General Obligation Bonds
of 1994, Series A, 5.00%, 05/01/14. 1,892,500
2,500,000 Wisconsin State Transportation Revenue Bonds,
Series A, 5.50%, 07/01/12.......... 2,481,250
1,500,00 Wisconsin State Transportation Revenue
Bonds,1994 Series A, 5.50%, 07/01/11 1,462,500
----------
10,894,006
----------
Total long-term municipal securities
(cost $249,797,168)................... $260,481,900
============
</TABLE>
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
[PHOTO] [PHOTO]
Mary Ellen Gere-Penna-- E. Chris Evan--Nationwide(R)
Growth Fund and Money Fund and Government Bond
Market Fund, with her pet Fund, portrays Ohio Civil War
Sheltie, Mackenzie. General William T. Sherman.
15
<PAGE> 68
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The total return for the Nationwide U.S. Government Income Fund for the year
ended October 31, 1996, was 5.28% compared to a total return of 5.67% for its
benchmark index, the Lehman Brothers Intermediate Government Bond Index.
The past 12 months have been a volatile period for the U.S. bond market. Early
in the year, fears of a strengthening economy and higher inflation led to an
increase in interest rates. More recently, as favorable inflation results have
been released, inflationary concerns have eased and rates have declined from
their highs at midyear. Content with the current state of the economy, the
Federal Reserve has left the federal funds rate unchanged at 5.00% since early
this year. The net change in interest rates over the past 12 months was an
increase of approximately .35% in intermediate and long rates. The Fund
under-performed the index during this period due to the Fund having a slightly
longer average maturity than the index.
The U.S. Government Income Fund continues to be invested in sectors of the
government agency and mortgage-backed markets perceived to be undervalued.
Approximately 80% of portfolio assets are invested in the collateralized
mortgage obligation (CMO) market. The yield on these conservatively structured
investments continues to make them attractive portfolio holdings. The remainder
of the portfolio is invested in repurchase agreements for liquidity purposes and
callable government agency notes for increased portfolio yield.
Wayne T. Frisbee, CFA, Portfolio Manager
FUND VALUE $39,497,205
PORTFOLIO COMPOSITION
<TABLE>
<S> <C>
Mortgage-backed securities.........................78.8%
U.S. government and agency long-term obligations...18.2%
Other assets less liabilities.......................3.0%
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
VALUE %
- -------------------------------------------------------------------------------
<S> <C> <C>
FHLMC (REMIC) Series 1462, Class PT $5,155,545 13.1%
FNMA (REMIC) Series 93-203, Class PJ 4,905,045 12.4%
Federal Home Loan Banks 4,012,716 10.2%
FNMA (REMIC) Series 92-151, Class H 3,745,596 9.5%
FHLMC (REMIC) Series 1344, Class D 3,735,156 9.5%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C>
U.S.G.I. $13,532
CPI $11,413
L. Int. Govt. $13,504
<FN>
Comparative performance of $10,00 invested in the Nationwide(R) U.S. Government
Income Fund since inception (2/10/92), the Lehman Brothers Intermediate
Government Bond Index* and the Consumer Price Index (CPI)** over the period
since inception ended 10/31/96.
* The Lehaman Bothers Intermediate Government Bond Index represents an
unmanaged group of bonds that are not adjusted for expense and includes
bonds of lower quality than those purchaseed by our Fund.
** The Consumer Price Index is a broad index reflecting the price changes in a
market basket of consumer goods and, unlike the U.S.G.I. Fund, does not
reflect any fees or expenses.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR LIFE
<S> <C> <C>
Without sales charge.......................5.28%.........6.81%
With sales charge..........................0.32%.........6.64%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes the applicable contigent deferred sales charge
(CDSC) was paid on withdrawls wich has the most dramatic effect on the one-year
performance figures. The CDSC declines from 5% in the first year to 0% after 5
years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Monthly income is paid by the Nationwide(R) U.S. Government
Income Fund from a high-quality portfolio of government securities. These
securities are generally considered among the safest, though they are not
specifically rated by the credit rating agencies.
In a attempt to minimize share price fluctuation, the Nation- wide(R) U. S.
Government Income Fund maintains an average portfolio maturity of 10 years or
less. Generally, shorter maturities are less subject to price fluctuation. Of
course, all bond prices (U.S. Government, municipal and corporate) are affected
by interest rates.
16
<PAGE> 69
STATEMENT OF INVESTMENTS
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
MORTGAGE-BACKED SECURITIES (78.8%)
----------------------------------
$1,500,000 FNMA Series 92-126, Class VB,
8.00%, 07/25/02.................... $ 1,553,774
5,000,000 FHLMC REMIC Series 1462, Class PT,
7.50%, 01/15/03.................... 5,155,545
3,000,000 FHLMC REMIC Series 1313, Class G,
7.25%, 06/15/07.................... 3,054,297
4,000,000 FHLMC REMIC Series 1344, Class D,
6.00%, 08/15/07.................... 3,735,156
4,000,000 FNMA REMIC Series 92-151, Class H,
6.00%, 08/25/07................... 3,745,596
414,545 FNMA REMIC Series 1988-25, Class B,
9.25%, 10/25/18.................... 439,405
2,614,713 FNMA REMIC Series 1990-7, Class B,
8.50%, 01/25/20.................... 2,722,698
3,437,917 FHLMC REMIC Series 31, Class E,
7.55%, 05/15/20.................... 3,482,847
2,180,509 FNMA REMIC Series 1992-81, Class Z,
8.50%, 04/25/22.................... 2,314,019
5,000,000 FNMA REMIC Series 1993-203, Class PJ,
6.50%, 10/15/23.................... 4,905,045
----------
Total mortgage backed securities
(cost $30,801,959).................... 31,108,382
----------
U.S. GOVERNMENT AND AGENCY
LONG-TERM OBLIGATIONS (18.2%)
-----------------------------
1,000,000 Federal Home Loan Mortgage Corp.
7.445%, 04/14/04................... 1,015,967
4,000,000 Federal Home Loan Banks
6.36%, 03/21/01.................... 4,012,716
1,550,000 Federal National Mortgage Association
7.26%, 10/05/05.................... 1,545,296
2,000,000 Resolution Funding STRIPS,
0.00%, 07/15/13.................... 633,058
----------
Total U.S. government and agency
long-term obligations
(cost $6,992,990)..................... 7,207,037
----------
REPURCHASE AGREEMENT (2.7%)
---------------------------
1,055,000 Prudential Securities
5.55%, due 11/01/96, Collateralized by
$1,075,000 Student Loan Marketing
Association Fund 0.00%, due 04/10/97,
market value $1,077,688 (cost $1,055,000) 1,055,000
----------
Total investments
(cost $38,849,949).................... $ 39,370,419
============
<FN>
The abbreviations in the statement above stand for the following:
FNMA Federal National Mortgage Association
FHLMC Federal Home Loan Mortgage Corporation
REMIC Real Estate Mortgage Investment Conduit
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
</TABLE>
[PHOTO]
Christopher M. Hungerford (right)-
Growth Fund, accepts his first place
certificate for winning the Champlain
Country Club's 1995 Jr. Championship in
St. Albans, Vermont.
[PHOTO]
From l. to r. Miranda, Katrina and Desiree (twins)
and Nichole are the daughters of Timothy Guaraldi-
Nationwide(R) Fund and Growth Fund.
17
<PAGE> 70
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) MONEY MARKET FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The year ended October 31, 1996, has been one of very stable short-term interest
rates, which has produced the consistent yield in the Nationwide Money Market
Fund. The total return for the year ended October 31, 1996, was 5.05% compared
to the Consumer Price Index total return of 2.99%.
The Federal Reserve Board (Feds) has not found sufficient justification to alter
monetary policy, and has left the discount rate unchanged at 5.00% since January
of this year. Market rates have been nearly as steady. For example, 30-day prime
commercial paper has traded between 5.16% and 5.45% this year, and 3-month U.S.
Treasury bills have traded between 5.02% and 5.48%.
The absence of inflation has allowed the Feds to stay the course despite
periodic indications of strength in the economy and upward pressure on some
commodity prices, particularly oil. Both consumer and producer prices have held
in what is perceived by the markets as an acceptable range.
Prime commercial paper has continued to provide the best risk/return profile,
accounting for its dominant portfolio weighting. The strategy of selecting
securities which provide the optimal relative value within a balanced maturity
structure will continue, with the focus on liquidity and a stable share value.
William M. Burtch, MBA, Portfolio Manager
FUND VALUE $729,499,762
PORTFOLIO COMPOSITION
<TABLE>
<S> <C>
Commercial paper................................................ 92.4%
Canadian government............................................. 5.1%
U.S. government obligations and other assets less liabilities .. 2.5%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE %
- ------------------------------------------------------------------------------
<S> <C> <C>
Merrill Lynch & Co. $29,181,062 4.0%
MetLife Funding, Inc. 28,247,486 3.9%
Old Republic Capital Corp. 28,036,983 3.8%
National Rural Utilities 27,891,342 3.8%
Norwest Corporation 27,027,238 3.7%
</TABLE>
<TABLE>
<CAPTION>
FUND PERFORMAMCE
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MMF $17,176
CPI $14,365
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Money market
Fund and the Consumer Price Index (CPI)* over a 10-year period ended 10/31/96.
* The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Money Market Fund, does not
reflect any fees or expenses.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge.............5.05%.......3.99%.......5.55%
</TABLE>
An investment in the Money Market Fund is neither insured nor guaranteed by the
U.S. Government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share. There are no sales charges in the
Nationwide(R) Money Market Fund. Past performance is no guarantee of future
results.
FUND HIGHLIGHTS
Due to daily dividend compounding from a high-quality portfolio, the
Nationwide(R) Money Market Fund offers high current market rates -- plus
stability of principal since the Fund seeks to maintain a constant $1.00 per
share net asset value. During the Fund's life, its share price has always been
$1.00.
Benefits of the Nationwide(R) Money Market Fund include liquidity without
penalty, competitive current market rates, daily compounding, security of
principal and free checkwriting privileges ($500 minimum).
18
<PAGE> 71
STATEMENT OF INVESTMENTS
NATIONWIDE(R) MONEY MARKET FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
CANADIAN GOVERNMENT OBLIGATIONS (5.1%)
--------------------------------------
British Columbia (Providence Of)
$5,000,000 5.23%, due 11/18/96................... $ 4,987,652
5,000,000 5.23%, due 12/27/96................... 4,959,322
5,000,000 5.37%, due 02/10/97................... 4,924,671
5,000,000 5.44%, due 03/13/97................... 4,900,267
Canadian Wheat Board
5,000,000 5.35%, due 11/20/96................... 4,985,882
8,000,000 5.37%, due 12/16/96................... 7,946,300
1,500,000 5.27%, due 12/20/96................... 1,489,240
3,395,000 5.25%, due 01/10/97................... 3,360,343
-----------
Total Canadian government obligations
(cost $37,553,677).................... 37,553,677
-----------
COMMERCIAL PAPER (92.4%)
--------------------------
Auto/Finance (2.5%)
Ford Motor Credit Co.
4,000,000 5.48%, due 11/07/96................... 3,996,347
3,800,000 5.30%, due 11/12/96................... 3,793,846
5,500,000 5.25%, due 12/09/96................... 5,469,521
5,440,000 5.31%, due 01/30/97................... 5,367,784
-----------
18,627,498
-----------
BANKS (12.0%)
-------------
Banc One Corp.
5,000,000 5.30%, due 11/15/96................... 4,989,694
5,000,000 5.24%, due 12/13/96................... 4,969,433
Corestates Capital Corp.
8,000,000 5.32%, due 01/28/97................... 7,895,964
J.P. Morgan & Co., Inc.
4,000,000 5.23%, due 11/06/96................... 3,997,094
3,000,000 5.48%, due 11/08/96................... 2,996,804
5,000,000 5.47%, due 11/12/96................... 4,991,643
8,640,000 5.42%, due 12/12/96................... 8,586,667
5,000,000 5.40%, due 12/13/96................... 4,968,500
National City Credit Corp.
9,000,000 5.35%, due 11/06/96................... 8,993,313
8,000,000 5.26%, due 12/04/96................... 7,961,427
Norwest Corp.
6,000,000 5.42%, due 11/04/96................... 5,997,290
7,530,000 5.30%, due 11/26/96................... 7,502,285
9,480,000 5.30%, due 01/08/97................... 9,385,095
4,185,000 5.29%, due 01/09/97................... 4,142,568
-----------
87,377,777
-----------
BROKER-DEALERS (14.1%)
----------------------
Bear Stearns Companies, Inc.
8,000,000 5.34%, due 11/08/96................... 7,991,693
7,000,000 5.42%, due 11/12/96................... 6,988,407
8,000,000 5.42%, due 01/03/97................... 7,924,120
Dean Witter Discover & Co.
5,000,000 5.30%, due 01/31/97................... 4,933,014
5,000,000 5.31%, due 01/31/97................... 4,932,888
Goldman Sachs Group
8,000,000 5.25%, due 11/18/96................... 7,980,167
2,123,000 5.26%, due 11/21/96................... 2,116,796
8,000,000 5.24%, due 11/25/96................... 7,972,053
Merrill Lynch & Co., Inc.
2,912,000 5.62%, due 11/01/96................... 2,912,000
3,165,000 5.26%, due 11/05/96................... 3,163,150
7,900,000 5.37%, due 11/07/96................... 7,892,930
4,150,000 5.43%, due 11/19/96................... 4,138,733
5,000,000 5.40%, due 11/22/96................... 4,984,250
870,000 5.27%, due 11/27/96................... 866,689
4,000,000 5.30%, due 11/27/96................... 3,984,689
1,245,000 5.27%, due 12/06/96................... 1,238,621
Morgan Stanley Group, Inc.
8,000,000 5.52%, due 01/13/97................... 7,910,453
6,000,000 5.32%, due 01/15/97................... 5,933,500
Smith Barney, Inc.
9,055,000 5.27%, due 11/04/96................... 9,051,023
-----------
102,915,176
-----------
CHEMICALS (7.2%)
----------------
Great Lakes Chemical Corp.
5,000,000 5.25%, due 11/18/96................... 4,987,604
$8,000,000 5.25%, due 11/20/96................... $ 7,977,833
6,545,000 5.25%, due 12/02/96................... 6,515,411
Monsanto Co.
6,116,000 5.45%, due 11/22/96................... 6,096,556
7,000,000 5.25%, due 12/06/96................... 6,964,271
5,000,000 5.25%, due 12/09/96................... 4,972,292
7,000,000 5.32%, due 01/08/97................... 6,929,658
PPG Industries, Inc.
8,000,000 5.24%, due 12/18/96................... 7,945,271
-----------
52,388,896
-----------
CONSUMER PRODUCTS (1.1%)
------------------------
Clorox Co.
8,000,000 5.40%, due 12/09/96................... 7,954,400
-----------
CONSUMER SALES FINANCE (5.5%)
-----------------------------
Associates Corp. of North America
8,050,000 5.33%, due 12/02/96................... 8,013,053
6,000,000 5.28%, due 12/11/96................... 5,964,800
7,000,000 5.26%, due 12/17/96................... 6,952,952
5,260,000 5.30%, due 01/10/97................... 5,205,793
Avco Financial Services, Inc.
6,000,000 5.29%, due 01/28/97................... 5,922,413
Beneficial Corp.
8,370,000 5.38%, due 11/14/96.................. 8,353,739
-----------
40,412,750
-----------
CORPORATE CREDIT UNIONS (1.5%)
------------------------------
U.S. Central Credit
2,570,000 5.25%, due 11/07/96................... 2,567,751
8,730,000 5.32%, due 12/03/96................... 8,688,717
-----------
11,256,468
-----------
DIVERSIFIED FINANCE (3.5%)
--------------------------
General Electric Capital Corp.
3,000,000 5.40%, due 11/20/96................... 2,991,450
7,000,000 5.39%, due 11/25/96................... 6,974,847
8,375,000 5.33%, due 11/27/96................... 8,342,761
4,400,000 5.425%, due 12/05/96.................. 4,377,456
3,240,000 5.33%, due 03/06/97................... 3,180,038
-----------
25,866,552
-----------
ELECTRIC UTILITY (3.8%)
-----------------------
National Rural Utilities Cooperative Finance Corp.
4,247,000 5.36%, due 11/01/96................... 4,247,000
375,000 5.36%, due 11/18/96................... 374,051
7,455,000 5.25%, due 12/10/96................... 7,412,600
6,000,000 5.33%, due 12/10/96................... 5,965,355
5,000,000 5.32%, due 01/09/97................... 4,949,017
5,000,000 5.30%, due 01/17/97................... 4,943,319
-----------
27,891,342
-----------
ENTERTAINMENT (3.2%)
--------------------
Walt Disney Co.
8,000,000 5.28%, due 12/04/96................... 7,961,280
8,000,000 5.27%, due 01/06/97................... 7,922,707
2,545,000 5.27%, due 01/06/97................... 2,520,411
5,000,000 5.28%, due 02/03/97................... 4,931,067
-----------
23,335,465
-----------
FINANCE (2.7%)
--------------
American Express Credit Corp.
6,000,000 5.28%, due 12/11/96................... 5,964,800
8,000,000 5.26%, due 12/12/96................... 7,952,076
6,000,000 5.24%, due 12/20/96................... 5,957,207
-----------
19,874,083
-----------
FOOD & BEVERAGES (6.2%)
-----------------------
CPC International, Inc.
2,790,000 5.27%, due 11/20/96................... 2,782,240
6,747,000 5.30%, due 12/03/96................... 6,715,214
8,765,000 5.31%, due 01/13/97................... 8,670,623
3,200,000 5.31%, due 01/27/97................... 3,158,936
Campbell Soup Co.
5,000,000 5.46%, due 12/05/96................... 4,974,217
</TABLE>
19
<PAGE> 72
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONWIDE(R) MONEY MARKET FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
$8,000,000 5.47%, due 12/30/96................... $ 7,928,283
Heinz (H.J.) Co.
8,000,000 5.24%, due 11/26/96................... 7,970,889
2,790,000 5.25%, due 12/04/96................... 2,776,573
-----------
44,976,975
-----------
HEAVY EQUIPMENT FINANCE (1.9%)
------------------------------
Caterpillar Financial Services
8,000,000 5.27%, due 11/01/96................... 8,000,000
5,675,000 5.27%, due 12/03/96................... 5,648,416
-----------
13,648,416
-----------
INSURANCE (9.2%)
----------------
Marsh & McLennan Co.
4,535,000 5.26%, due 11/05/96................... 4,532,350
MetLife Funding, Inc.
8,065,000 5.38%, due 11/05/96................... 8,060,179
9,290,000 5.28%, due 11/14/96................... 9,272,287
6,000,000 5.23%, due 12/06/96................... 5,969,492
5,000,000 5.30%, due 01/14/97................... 4,945,528
Old Republic Capital Corp.
5,000,000 5.53%, due 11/06/96................... 4,996,160
5,000,000 5.37%, due 12/04/96................... 4,975,387
5,000,000 5.26%, due 12/10/96................... 4,971,508
2,171,000 5.26%, due 12/10/96................... 2,158,629
5,000,000 5.55%, due 01/07/97................... 4,948,354
6,050,000 5.60%, due 01/07/97................... 5,986,945
Principal Mutual Life Co., Inc.
1,000,000 5.24%, due 11/05/96................... 999,418
5,000,000 5.24%, due 11/08/96................... 4,994,906
-----------
66,811,143
-----------
LEASE FINANCING (1.9%)
----------------------
PHH Corp.
9,000,000 5.23%, due 11/13/96................... 8,984,310
5,000,000 5.25%, due 12/17/96................... 4,966,458
-----------
13,950,768
-----------
MISCELLANEOUS MANUFACTURING (1.1%)
----------------------------------
Illinois Tool Works
3,000,000 5.32%, due 11/19/96................... 2,992,020
5,000,000 5.37%, due 11/19/96................... 4,986,575
-----------
7,978,595
-----------
OFFICE EQUIPMENT & SUPPLIES (1.2%)
----------------------------------
Pitney Bowes Credit Corp.
5,000,000 5.47%, due 02/20/97................... 4,915,671
4,275,000 5.42%, due 02/24/97................... 4,200,982
-----------
9,116,653
-----------
OIL & GAS (0.2%)
----------------
Koch Industries, Inc.
1,193,000 5.24%, due 12/17/96................... 1,185,012
-----------
PACKAGING/CONTAINERS (2.0%)
---------------------------
Bemis Co., Inc.
8,600,000 5.28%, due 11/04/96................... 8,596,215
6,000,000 5.25%, due 12/03/96................... 5,972,000
-----------
14,568,215
-----------
PAPER & FOREST PRODUCTS (0.7%)
------------------------------
Sonoco Products Co.
5,000,000 5.38%, due 11/12/96................... 4,991,780
-----------
PHARMACEUTICALS/PERSONAL CARE (3.2%)
------------------------------------
Abbott Laboratories
2,350,000 5.27%, due 01/16/97................... 2,323,855
Glaxo Wellcome
3,000,000 5.31%, due 01/22/97................... 2,963,715
8,000,000 5.31%, due 01/22/97................... 7,903,240
Schering Corp.
2,040,000 5.27%, due 11/21/96................... 2,034,027
8,000,000 5.30%, due 03/18/97................... 7,838,643
-----------
23,063,480
-----------
PREMIUM FINANCE (1.7%)
----------------------
A.I. Credit Corp.
$3,000,000 5.27%, due 01/06/97................... $ 2,971,015
9,600,000 5.30%, due 03/10/97................... 9,417,680
-----------
12,388,695
-----------
PRINTING & PUBLISHING (3.6%)
----------------------------
Donnelley RR & Sons
5,000,000 5.25%, due 12/16/96................... 4,967,188
6,600,000 5.25%, due 12/16/96................... 6,556,688
McGraw-Hill, Inc.
9,740,000 5.33%, due 11/19/96................... 9,714,043
4,684,000 5.45%, due 11/26/96................... 4,666,271
-----------
25,904,190
-----------
RAILROADS (2.4%)
----------------
Norfolk & Southern Railway Co.
5,000,000 5.29%, due 12/06/96................... 4,974,285
8,000,000 5.42%, due 12/19/96................... 7,942,187
5,000,000 5.30%, due 01/14/97................... 4,945,528
-----------
17,862,000
-----------
Total commercial paper
(cost $674,346,329)................... 674,346,329
-----------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (2.4%)
------------------
U.S. Treasury Bills
5,000,000 4.81%, due 11/14/96................... 4,991,316
3,090,000 4.86%, due 01/09/97................... 3,061,216
5,000,000 5.08%, due 02/06/97................... 4,931,562
5,000,000 5.41%, due 05/29/97................... 4,842,960
-----------
Total U.S. government and agency obligations
(cost $17,827,054).................... 17,827,054
-----------
Total investments
(cost $729,727,060)................... $729,727,060
============
<FN>
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent value as a percentage of net assets.
See accompanying notes to financial statements.
</TABLE>
20
<PAGE> 73
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
GROWTH NATIONWIDE(R) BOND TAX-FREE U.S. GOV'T MONEY MARKET
FUND FUND FUND INCOME FUND INCOME FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value $ 652,778,128 $960,505,467 $ 131,018,346 $ 260,481,900 $ 39,370,419 $ 729,727,060
(cost $494,088,843; $586,877,361;
$128,346,516; $249,797,168;
$38,849,949 and $729,727,060,
respectively)
Cash 94,763 50,014 29,236 -- 6,124 283,618
Receivable for Fund shares sold 210,998 -- 37,561 27,805 41,813 116,465
Receivable for investment
securities sold 2,528,450 782,206 973,125 1,442,362 -- --
Accrued interest and dividends
receivable 427,232 1,751,914 2,595,433 5,172,757 225,705 --
---------------------------------------------------------------------------------------------
Total assets 656,039,571 963,089,601 134,653,701 267,124,824 39,644,061 730,127,143
---------------------------------------------------------------------------------------------
LIABILITIES
Bank loan -- -- -- 502,400 -- --
Payable for Fund shares redeemed -- 1,222,647 189,600 379,446 60,012 97,247
Payable for investment securities
purchased -- 2,726,188 994,063 1,031,040 -- --
Accrued management fees 281,477 402,203 55,806 145,200 21,576 270,342
Accrued transfer agent fees 59,010 60,499 13,201 26,200 3,553 57,390
Accrued distribution fees -- -- -- 44,732 6,639 --
Dividends payable (892) 3,907 122,798 321,112 48,045 126,215
Other accrued expenses 84,271 84,387 25,501 32,934 7,031 76,187
---------------------------------------------------------------------------------------------
Total liabilities 423,866 4,499,831 1,400,969 2,483,064 146,856 627,381
---------------------------------------------------------------------------------------------
NET ASSETS $ 655,615,705 $958,589,770 $ 133,252,732 $ 264,641,760 $ 39,497,205 $ 729,499,762
=============================================================================================
NET ASSETS REPRESENTED BY:
Capital Shares, $1 par value
outstanding $ 49,152,969 $ 46,957,777 $ 14,264,079 $ 25,842,939 $ 3,932,514 $ 729,501,084
Capital paid in excess of par value 402,016,940 477,434,454 125,775,070 231,376,463 35,480,301 --
Net unrealized appreciation 158,689,285 373,628,106 2,671,830 10,684,732 520,470 --
Accumulated undistributed net
realized gain (loss) 45,458,844 59,191,383 (9,525,283) (3,251,345) (401,674) --
Accumulated undistributed
(distributions in excess of)
net investment income 297,667 1,378,050 67,036 (11,029) (34,406) (1,322)
---------------------------------------------------------------------------------------------
NET ASSETS $ 655,615,705 $958,589,770 $ 133,252,732 $ 264,641,760 $ 39,497,205 $ 729,499,762
=============================================================================================
Shares outstanding (unlimited
number of shares authorized) 49,152,969 46,957,777 14,264,079 25,842,939 3,932,514 729,501,084
=============================================================================================
Net asset value per share $ 13.34 $ 20.41 $ 9.34 $ 10.24 $ 10.04 $ 1.00
=============================================================================================
Offering price (100%/(100%-Maximum
Sales Charge) of net asset value
adjusted to nearest cent) per
share* $ 13.97 $ 21.37 $ 9.78 $ 10.24 $ 10.04 $ 1.00
=============================================================================================
Maximum sales charge 4.50% 4.50% 4.50% -- -- --
=============================================================================================
<FN>
*For Nationwide(R) Tax-Free Income Fund and U.S. Government Income Fund,
redemption price per share varies by length of time shares are held.
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 74
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
GROWTH NATIONWIDE(R) BOND TAX-FREE U.S. GOV'T MONEY MARKET
FUND FUND FUND INCOME FUND INCOME FUND FUND
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 8,494,220 $ 20,514,352 -- -- -- --
Interest 3,349,087 1,573,774 $9,681,741 $15,653,726 $ 2,717,130 $36,273,232
---------------------------------------------------------------------------------
Total income 11,843,307 22,088,126 9,681,741 15,653,726 2,717,130 36,273,232
---------------------------------------------------------------------------------
EXPENSES:
Investment management fees 3,212,196 4,425,921 663,545 1,704,966 255,149 3,280,802
Distribution fees -- -- -- 921,340 137,388 --
Transfer agent fees 683,043 698,913 161,300 159,115 40,299 653,631
Shareholders' reports 138,109 139,217 65,742 52,776 15,248 190,601
Registration fees -- -- -- 22,972 15,000 --
Professional services 29,866 32,656 5,234 12,679 1,260 24,893
Custodian fees 31,869 43,290 16,048 41,455 7,400 41,694
Trustees' fees and expenses 17,978 21,747 3,822 2,743 396 18,215
Other 26,307 34,960 6,992 12,994 2,336 27,000
---------------------------------------------------------------------------------
Total expenses before waived expenses 4,139,368 5,396,704 922,683 2,931,040 474,476 4,236,836
Total waived expenses -- -- -- 394,860 58,881 328,076
Net expenses 4,139,368 5,396,704 922,683 2,536,180 415,595 3,908,760
---------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 7,703,939 $16,691,422 $8,759,058 $13,117,546 $ 2,301,535 $32,364,472
=================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments $45,484,621 $ 59,251,910 $ (171,239) $ 2,055,736 $ 34,406 --
Net change in unrealized appreciation
(depreciation) 20,001,960 127,452,048 (2,045,242) (1,473,376) (277,059) --
---------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 65,486,581 186,703,958 (2,216,481) 582,360 (242,653) --
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $73,190,520 $203,395,380 $6,542,577 $13,699,906 $2,058,882 $32,364,472
=================================================================================
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 75
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
GROWTH FUND FUND BOND FUND
Year ended Year ended Year ended Year ended Year ended Year ended
October 31, October 31, October 31, October 31, October 31, October 31,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 7,703,939 $ 8,424,199 $ 16,691,422 $ 14,301,965 $ 8,759,058 $ 8,946,837
Net realized gain (loss) on investment 45,484,621 55,104,961 59,251,910 42,454,076 (171,239) (2,695,214)
Net change in unrealized appreciation
(depreciation) of investments 20,001,960 34,260,953 127,452,048 73,761,567 (2,045,242) 17,358,003
---------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 73,190,520 97,790,113 203,395,380 130,517,608 6,542,577 23,609,626
Distributions to shareholders from:
Net investment income (7,521,249) (8,424,199) (16,077,181) (14,459,586) (8,801,481) (8,917,890)
In excess of net investment income -- (50,491) -- -- -- --
Net realized gain from investment
transactions (55,130,738) (9,636,714) (42,514,603) (54,955,514) -- --
---------------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (62,651,987) (18,111,404) (58,591,784) (69,415,100) (8,801,481) (8,917,890)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 91,753,548 78,233,932 100,830,600 44,342,114 17,666,533 14,412,502
Net asset value of shares issued to
shareholders from reinvestment of
dividends 61,359,336 17,836,103 51,530,171 60,306,894 7,287,372 7,950,830
Cost of shares redeemed (90,962,567) (57,537,318) (134,240,940) (76,759,052) (23,074,853) (27,877,661)
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets
derived from capital share
transactions 62,150,317 38,532,717 18,119,831 27,889,956 1,879,052 (5,514,329)
---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 72,688,850 118,211,426 162,923,427 88,992,464 (379,852) 9,177,407
NET ASSETS-BEGINNING OF PERIOD 582,926,855 464,715,429 795,666,343 706,673,879 133,632,584 124,455,177
---------------------------------------------------------------------------------------------
NET ASSETS-END OF PERIOD $ 655,615,705 $ 582,926,855 $ 958,589,770 $ 795,666,343 $ 133,252,732 $ 133,632,584
=============================================================================================
Undistributed net realized gain (loss)
on investments included in net assets
at end of period $ 45,458,844 $ 55,104,961 $ 59,191,383 $ 42,454,076 $ (9,525,283) $ (9,354,044)
=============================================================================================
Undistributed net investment income
included in net assets at end
of period $ 297,667 $ 114,977 $ 1,378,050 $ 763,809 $ 67,036 $ 109,459
=============================================================================================
SHARE ACTIVITY:
Shares sold 7,069,963 6,444,023 5,349,375 2,806,172 1,897,464 1,613,435
Reinvestment of dividends 4,952,188 1,578,080 2,874,632 4,081,126 784,086 892,591
Shares redeemed (6,978,391) (4,861,121) (7,129,736) (4,857,164) (2,486,318) (3,144,695)
---------------------------------------------------------------------------------------------
Net increase (decrease) in number
of shares 5,043,760 3,160,982 1,094,271 2,030,134 195,232 (638,669)
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 76
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
TAX-FREE INCOME FUND U.S. GOV'T INCOME FUND MONEY MARKET FUND
Year ended Year ended Year ended Year ended Year ended Year ended
October 31, October 31, October 31, October 31, October 31, October 31,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income $ 13,117,546 $ 13,060,318 $ 2,301,535 $ 2,266,549 $ 32,364,472 $ 29,238,839
Net realized gain (loss) on
investments 2,055,736 (3,951,178) 34,406 70,730 -- 4,106
Net change in unrealized
appreciation (depreciation)
of investments (1,473,376) 24,981,359 (277,059) 3,505,345 -- --
---------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 13,699,906 34,090,499 2,058,882 5,842,624 32,364,472 29,242,945
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (13,122,781) (13,407,484) (2,301,535) (2,266,549) (32,359,207) (29,239,264)
In excess of net investment
income (11,029) -- (34,406) -- -- (6,587)
Net realized gain from
investment transactions -- -- -- -- (4,106) --
Paid in capital -- -- (10) (14,726) -- --
---------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (13,133,810) (13,407,484) (2,335,951) (2,281,275) (32,363,313) (29,245,851)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 20,245,316 18,662,663 4,773,320 3,165,132 746,407,569 626,666,560
Net asset value of shares
issued to shareholders from
reinvestment of dividends 9,330,442 10,382,144 1,753,068 1,830,091 30,963,908 29,971,841
Cost of shares redeemed (27,983,697) (28,340,872) (6,529,084) (6,528,260) (652,583,762)
---------------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from capital
share transactions 1,592,061 703,935 (2,696) (1,533,037) 124,787,715 112,976,889
---------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 2,158,157 21,386,950 (279,765) 2,028,312 124,788,874 112,973,983
NET ASSETS-BEGINNING OF PERIOD 262,483,603 241,096,653 39,776,970 37,748,658 604,710,888 491,736,905
---------------------------------------------------------------------------------------
NET ASSETS-END OF PERIOD $ 264,641,760 $ 262,483,603 $ 39,497,205 $ 39,776,970 $ 729,499,762 $ 604,710,888
=======================================================================================
Undistributed net realized
gain (loss) on investments
included in net assets
at end of period $ (3,251,345) $ (5,307,081) $ (401,674) $ (436,080) $ -- $ 4,106
=======================================================================================
Undistributed (distributions
in excess of) net investment
income included in net assets
at end of period $ (11,029) $ 5,235 $ (34,406) $ -- $ (1,322) $ (6,587)
=======================================================================================
SHARE ACTIVITY:
Shares sold 1,986,252 1,898,854 482,073 326,609 746,407,569 626,666,560
Reinvestment of dividends 914,259 1,056,582 175,851 189,664 30,963,908 29,971,841
Shares redeemed (2,748,350) (2,901,957) (655,486) (681,184) (652,583,762) (543,661,512)
---------------------------------------------------------------------------------------
Net increase (decrease) in
number of shares 152,161 53,479 2,438 (164,911) 124,787,715 112,976,889
=======================================================================================
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 77
NATIONWIDE(R) FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<TABLE>
<CAPTION>
NATIONWIDE(R) GROWTH FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 13.22 $ 11.35 $ 11.14 $ 9.94 $ 9.57
Net investment income 0.16 0.21 0.09 0.17 0.20
Net realized gain (loss) and unrealized
appreciation (depreciation) 1.36 2.10 0.53 1.41 0.46
------------------------------------------------------------------------------
Total from investment operations 1.52 2.31 0.62 1.58 0.66
Dividends from net investment income (0.16) (0.20) (0.19) (0.17) (0.20)
Distributions from net realized gain from
investment transactions (1.24) (0.24) (0.22) (0.21) (0.09)
------------------------------------------------------------------------------
Total distributions (1.40) (0.44) (0.41) (0.38) (0.29)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.12 1.87 0.21 1.20 0.37
NET ASSET VALUE-END OF PERIOD $ 13.34 $ 13.22 $ 11.35 $ 11.14 $ 9.94
==============================================================================
Total Return (excludes sales charges) 12.36% 21.01% 5.73% 16.16% 6.94%
Net Assets, End of Period (000) $ 655,616 $ 582,927 $ 464,715 $ 411,853 $ 330,950
Ratio of expenses to average net assets 0.64% 0.66% 0.68% 0.68% 0.65%
Ratio of net investment income to average net assets 1.20% 1.66% 1.71% 1.63% 1.97%
Portfolio turnover 25.61% 27.10% 14.50% 10.20% 13.10%
Average commission rate paid * 5.3923(cent) - - -
<CAPTION>
NATIONWIDE(R) FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 17.35 $ 16.12 $ 16.55 $ 16.31 $ 15.77
Net investment income 0.36 0.31 0.37 0.31 0.37
Net realized gain (loss) and unrealized
appreciation (depreciation) 3.98 2.49 0.41 0.67 0.98
------------------------------------------------------------------------------
Total from investment operations 4.34 2.80 0.78 0.98 1.35
Dividends from net investment income (0.35) (0.31) (0.36) (0.33) (0.36)
Distributions from net realized gain from
investment transactions (0.93) (1.26) (0.85) (0.41) (0.45)
------------------------------------------------------------------------------
Total distributions (1.28) (1.57) (1.21) (0.74) (0.81)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value 3.06 1.23 (0.43) 0.24 0.54
------------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 20.41 $ 17.35 $ 16.12 $ 16.55 $ 16.31
==============================================================================
Total Return (excludes sales charges) 26.11% 19.24% 4.88% 6.16% 8.68%
Net Assets, End of Period (000) $ 958,590 $ 795,666 $ 706,674 $ 753,239 $ 726,012
Ratio of expenses to average net assets 0.61% 0.63% 0.63% 0.62% 0.61%
Ratio of net investment income to average net assets 1.89% 1.95% 2.26% 1.96% 2.32%
Portfolio turnover 16.71% 16.50% 15.40% 25.80% 12.80%
Average commission rate paid * 5.9393(cent) - - - -
<FN>
* Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 78
NATIONWIDE(R) FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<TABLE>
<CAPTION>
NATIONWIDE(R) BOND FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 9.50 $ 8.46 $ 10.07 $ 9.58 $ 9.46
Net investment income 0.61 0.63 0.60 0.74 0.76
Net realized gain (loss) and unrealized
appreciation (depreciation) (0.15) 1.04 (1.56) 0.52 0.23
---------------------------------------------------------------------------
Total from investment operations 0.46 1.67 (.96) 1.26 0.99
Dividends from net investment income (0.62) (0.63) (0.65) (0.77) (0.85)
Distribution from paid in capital - - - - (0.02)
---------------------------------------------------------------------------
Total distributions (0.62) (0.63) (0.65) (0.77) (0.87)
---------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.16) 1.04 (1.61) 0.49 0.12
NET ASSET VALUE-END OF PERIOD $ 9.34 $ 9.50 $ 8.46 $ 10.07 $ 9.58
===========================================================================
Total Return (excludes sales charges) 5.05% 20.41% (9.81%) 13.61% 10.85%
Net Assets, End of Period (000) $ 133,253 $ 133,633 $ 124,455 $ 151,090 $ 90,187
Ratio of expenses to average net assets 0.70% 0.71% 0.71% 0.68% 0.65%
Ratio of net investment income to average net assets 6.60% 7.04% 7.11% 7.63% 8.63%
Portfolio turnover 38.95% 70.40% 58.00% 68.50% 100.80%
<CAPTION>
NATIONWIDE(R) TAX-FREE INCOME FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.22 $ 9.40 $ 10.95 $ 9.94 $ 9.81
Net investment income 0.51 0.51 0.53 0.54 0.56
Net realized gain (loss) and unrealized
appreciation (depreciation) 0.02 0.84 (1.45) 1.10 0.13
---------------------------------------------------------------------------
Total from investment operations 0.53 1.35 (0.92) 1.64 0.69
Dividends from net investment income (0.51) (0.53) (0.51) (0.54) (0.56)
Distributions from net realized gain from
investment transactions - - (0.12) (0.09) -
-
---------------------------------------------------------------------------
Total distributions (0.51) (0.53) (0.63) (0.63) (0.56)
---------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.02 0.82 (1.55) 1.01 0.13
---------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 10.24 $ 10.22 $ 9.40 $ 10.95 $ 9.94
===========================================================================
Total Return 5.31% 14.66% (8.74%) 16.97% 7.18%
Net Assets, End of Period (000) $ 264,642 $ 262,484 $ 241,097 $ 253,042 $170,650
Ratio of expenses to average net assets 0.96% 0.98% 0.99% 0.98% 0.98%
Ratio of expenses to average net assets * 1.11% 1.13% 1.14% 1.13% 1.13%
Ratio of net investment income to average net assets 4.98% 5.20% 5.02% 5.07% 5.62%
Ratio of net investment income to average net assets * 4.83% 5.05% 4.87% 4.92% 5.47%
Portfolio turnover 24.15% 31.70% 59.20% 28.40% 69.80%
<FN>
* Ratio calculated as if no expenses were waived.
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 79
NATIONWIDE(R) FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<TABLE>
<CAPTION>
NATIONWIDE(R) U.S. GOV'T INCOME FUND
Years ended October 31,
Period from 2/10/92
(commencement
of operations)
1996 1995 1994 1993 to 10/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.12 $ 9.22 $ 10.26 $ 9.97 $ 10.00
Net investment income 0.59 0.59 0.54 0.53 0.46
Net realized gain (loss) and unrealized
appreciation (depreciation) (0.08) 0.89 (0.96) 0.45 (0.03)
------------------------------------------------------------------------------
Total from investment operations 0.51 1.48 (0.42) 0.98 0.43
Dividends from net investment income (0.58) (0.58) (0.55) (0.53) (0.46)
In excess of net investment income (0.01) -- -- -- --
Distributions from net realized gain from
investment transactions -- -- (0.07) (0.16) --
------------------------------------------------------------------------------
Total distributions (0.59) (0.58) (0.62) (0.69) (0.46)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.08) 0.90 (1.04) 0.29 (0.03)
------------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 10.04 $ 10.12 $ 9.22 $ 10.26 $ 9.97
==============================================================================
Total Return 5.28% 16.47% (4.20%) 10.15% 7.26%*
Net Assets, End of Period (000) $ 39,497 $ 39,777 $ 37,749 $ 38,452 $ 18,211
Ratio of expenses to average net assets 1.06% 1.08% 1.09% 1.10% 1.00%*
Ratio of expenses to average net assets ** 1.21% 1.23% 1.24% 1.25% 1.17%*
Ratio of net investment income to average net assets 5.86% 5.92% 5.62% 5.12% 6.38%*
Ratio of net investment income to average net assets ** 5.71% 5.77% 5.47% 4.97% 6.21%*
Portfolio turnover 9.30% 25.40% 67.50% 99.00% 157.40%
<CAPTION>
NATIONWIDE(R) MONEY MARKET FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.05 0.05 0.03 0.03 0.03
Dividends from net investment income (0.05) (0.05) (0.03) (0.03) (0.03)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value - - - - -
------------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================
Total Return 5.05% 5.46% 3.34% 2.60% 3.53%
Net Assets, End of Period (000) $ 729,500 $ 604,711 $ 491,737 $ 418,615 $488,998
Ratio of expenses to average net assets 0.60% 0.62% 0.65% 0.70% 0.71%
Ratio of expenses to average net assets ** 0.65% 0.67% 0.70% 0.73% 0.71%
Ratio of net investment income to average net assets 4.93% 5.34% 3.33% 2.57% 3.50%
Ratio of net investment income to average net assets ** 4.88% 5.29% 3.28% 2.54% 3.50%
<FN>
* Total Return and ratios are annualized for periods of less than one year.
** Ratios calculated as if no expenses were waived.
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 80
NATIONWIDE(R) FAMILY OF FUNDS
NOTES TO FINANICAL STATEMENTS
OCTOBER 31, 1996
1. Summary of Significant Accounting Policies
Nationwide Investing Foundation (NIF) and Nationwide Investing Foundation II
(NIF-II) are diversified, open-end investment companies. NIF was created under
the laws of Michigan by an Indenture of Trust, dated May 5, 1933. NIF-II was
created under the laws of Massachusetts as a Massachusetts Business Trust on
October 5, 1985. The Trusts, which are registered under the Investment Company
Act of 1940, as amended, offer shares in six separate mutual funds.
(a) Security Valuation
----------------------
(1) Growth, Fund, Bond, Tax-Free Income, and U.S. Government Income
Funds:
Securities traded on a national securities exchange are valued at
closing prices. Listed securities for which no sale was reported on
the valuation date are valued at quoted bid prices or fair market
procedures authorized by the Boards of Trustees.
(2) Money Market Fund:
Securities are valued at amortized cost, which approximates market
value, in accordance with Rule 2a-7 of the Investment Company Act of
1940 as amended.
The value of a repurchase agreement generally equals the purchase
price paid by the Fund (cost) plus the interest accrued to date. The
seller, under the repurchase agreement, is required to maintain the
market value of the underlying collateral at not less than the value
of the repurchase agreement. Securities subject to repurchase
agreements are held by the Federal Reserve/Treasury book-entry system
or by the Fund's custodian or an approved sub-custodian.
(b) Security Transactions and Investment Income
-----------------------------------------------
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date; interest income is recorded on an
accrual basis and includes, where applicable, the pro rata amortization of
premium or discount.
(c) Federal Income Taxes
------------------------
NIF and NIF-II qualify as regulated investment companies under the
Internal Revenue Code during the periods covered by the accompanying
statements. No provision has been made for federal income taxes as it is
the intention to continue such qualification and to distribute all taxable
income to shareholders. To the extent net realized gains are offset
through the application of a capital loss carryover, they will not be
distributed to shareholders but will be retained by the Trusts.
As of October 31, 1996, the Nationwide Bond, Tax-Free Income, and U.S.
Government Income Funds had net capital loss carry forwards in the
amounts of $9,525,283, $3,251,345, and $401,674, respectively. The Bond
Fund carry forwards will expire within 5 to 8 years, the Tax-Free Income
Fund carry forwards will expire within 7 years, and the U.S. Government
Income Fund carry forwards will expire within 6 years.
(d) Dividends to Shareholders
-----------------------------
(1) Growth and Nationwide Funds:
Dividends are paid quarterly and are recorded on the ex-dividend date.
(2) Bond, Tax-Free Income, U.S. Government Income, and Money Market Funds:
Dividends are declared daily and paid monthly from the sum of the net
investment income
Distributable net realized capital gains are declared and distributed at
least annually for all funds.
Dividends and distributions to shareholders are determined in accordance
with federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax" differences are considered
either permanent or temporary in nature. In accordance with AICPA Statement
of Position 93-2, permanent differences are reclassified within the capital
accounts based on their nature for federal income tax purposes; temporary
differences do not require reclassification. Dividends and distributions
that exceed net investment income and net realized gains for financial
reporting purposes but not for tax purposes are reported as dividends in
excess of net investment income and net realized gains. To the extent
distributions exceed current and accumulated earnings and profits for
federal income tax purposes, they are reported as distributions of
paid-in-capital. These reclassifications have no effect upon the net asset
value of the respective funds.
(e) Expenses
------------
Direct expenses of a fund are allocated to that fund. General expenses of
the Trusts are allocated to the funds based upon each fund's relative
average net assets.
(f) Use of Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
(a) Growth, Fund, Bond, and Money Market Funds
----------------------------------------------
As investment manager for the NIF Funds, Nationwide Advisory Services,
Inc. (NAS), (formerly Nationwide Financial Services, Inc.), an affiliated
company, earns an annual fee of
28
<PAGE> 81
NATIONWIDE(R) FAMILY OF FUNDS
NOTES TO FINANICAL STATEMENTS
OCTOBER 31, 1996
.5% based on the average daily net assets; this fee would not be payable in
full if the effect of such payment would increase total expense (excluding
taxes other than payroll taxes and brokerage commissions on portfolio
transactions) to an amount exceeding 1% of average daily net assets for any
fiscal year. Such limitations on total expenses did not affect management
fees during the periods covered by the financial statements.
The investment manager voluntarily waived annual fees totaling .05% of
average daily net assets in the Money Market Fund for the year ended
October 31, 1996, or $328,076 representing $.0005 per average share
outstanding.
NAS also receives fees for services as principal underwriter. Such fees are
deducted from and are not included in proceeds from sales of capital
shares. From such fees, NAS pays sales commissions, salaries, and other
expenses. Such fees aggregated $1,029,727 on Growth Fund shares, $1,089,371
on Fund Shares, and $202,206 on Bond Fund shares for the year ended October
31, 1996.
(b) Tax-Free Income, and U.S. Government Income Funds
-----------------------------------------------------
As investment manager for each NIF-II Fund, NAS earns an annual fee based
on average daily net assets of each Fund at the rate of .65% on the first
$250 million, .60% on the next $250 million, .55% on the next $250 million,
and .50% on the average daily net assets in excess of $750 million. Total
annual expenses will not exceed the limits prescribed by any state in which
the Fund shares are offered for sale. Such limitation did not affect the
management fees for the year ended October 31, 1996.
NAS may also receive fees on the NIF-II Funds for distribution pursuant to
a Rule 12b-1 Distribution Plan approved by the Board of Trustees. These
fees are based on average daily net assets of each Fund at an annual rate
of .35%. During the year ended October 31, 1996, each Fund paid
distribution fees at the annual rate of .20% of average daily net assets,
with the distributor voluntarily waiving the remaining .15%. During the
year ended October 31, 1996, NAS waived $394,860 and $58,881 for both the
Tax-Free Income and U.S. Government Income Funds, representing $.015 per
average share outstanding for each fund.
NAS also receives fees for services as principal underwriter. Such fees are
contingent deferred sales charges for the NIF-II Funds ranging from 5% to
1% imposed on redemptions which cause the current value of an account to
fall below the total purchase payments made during the past five years.
Contingent deferred sales charges aggregated $169,310 on the Tax-Free
Income Fund shares and $58,918 on the U.S. Government Income Fund shares
for the year ended October 31, 1996.
A subsidiary of NAS (Nationwide Investors Services, Inc.) acts as Transfer and
Dividend Disbursing Agent for the Funds.
3. BANK LOANS
Both NIF and NIF II Trusts have unsecured bank lines of credit of $25,000,000
each. Borrowings under these arrangements bear interest at the Federal Funds
rate plus .50%. These interest costs are included in custodian fees in the
Statements of Operations. No compensating balances are required. The Tax-Free
Income Fund had an outstanding balance on these lines at October 31, 1996, of
$502,400.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding U.S. Government and short-term
securities), and purchases and sales of U.S. Government Obligations for the year
ended October 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SECURITIES OBLIGATIONS
PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C>
Growth............ $189,946,018 $149,806,703 $140,798,139 $177,258,794
Fund.............. 152,063,007 162,300,308 -- --
Bond.............. 45,363,936 44,199,913 5,484,075 5,655,312
Tax-Free Income... 64,427,275 63,072,201 -- --
U.S. Gov't Income 2,349,359 549,166 2,548,984 2,993,516
Money Market...... -- -- 31,107,476 42,347,000
</TABLE>
Realized gains and losses have been computed on the first-in, first-out basis.
Included in net unrealized appreciation (depreciation) at October 31, 1996, are
the following components:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
GAINS LOSSES APPRECIATION
<S> <C> <C> <C>
Growth................ $174,291,915 $(15,602,630) $158,689,285
Fund ................ 387,579,796 (13,951,690) 373,628,106
Bond.................. 3,405,725 (733,895) 2,671,830
Tax-Free Income....... 11,242,731 (557,999) 10,684,732
U.S. Gov't Income..... 773,537 (253,067) 520,470
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For corporate shareholders, 89.3% of the Growth Fund and 97.5% of the Fund
income dividends and short-term capital gain distributions in the fiscal year
ended October 31, 1996, qualify for the corporate dividend received deduction.
All of the distributions paid by the Tax-Free Income Fund during the fiscal year
are exempt from federal income tax.
29
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Nationwide Investing Foundation
The Nationwide Investing Foundation II:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of The Nationwide Investing
Foundation--Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund,
Nationwide Money Market Fund, and of The Nationwide Investing Foundation
II--Nationwide Tax-Free Income Fund and Nationwide U.S. Government Income Fund,
as of October 31, 1996, and the related statements of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and the financial highlights are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
October 31, 1996, by confirmation with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Nationwide Investing Foundation and
The Nationwide Investing Foundation II as of October 31, 1996, the results of
their operations, the changes in their net assets and the financial highlights
for each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
December 13, 1996
30
<PAGE> 83
APPENDIX
DESCRIPTION OF NSRO RATINGS
SHORT-TERM RATINGS (including commercial paper, senior short-term obligations
and deposit obligations). Issues rated Duff 2 by Duff & Phelps, Inc. (D&P) have
good certainty of timely payment; liquidity factors and company fundamentals are
sound. Although ongoing internal funds needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are very small.
Relative strengths or weaknesses of the above factors determines whether the
issuer's commercial paper is rated Duff 1+, Duff 1, or Duff 1-.
Issues assigned F-2 by Fitch Investors Services, Inc. (Fitch) have a
satisfactory degree of assurance for timely payment but the margin of safety is
not as great as for issues assigned F-1+ or F-1 ratings. Issues assigned the
rating of F-1+ are regarded as having the strongest degree of assurance for
timely payment, and issues assigned F-1 reflect an assurance of timely payments
only slightly less in degree than issues rated F-1+.
Among the factors considered by Moody's Investors Service, Inc. (Moody's) in
assigning ratings re the following: (1) quality of management; (2) industry
strengths and risks; (3) vulnerability to business cycles; (4) competitive
position; (5) liquidity measurements; (6) debt structure; (7) operating trends;
and (B) access to capital markets. Relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated P-1 or P-2.
Issues rated by Standard & Poor's (S&P) as A-1, the highest category, indicates
that the degree of safety regarding timely payment is strong. Liquidity ratios
are adequate to meet cash requirements. Long-term senior debt is rated AA or
better. The issuer has access to at least two additional channels of borrowing.
Basic earning and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established, and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. Relative strength or weakness of the above factors
determine whether the issuer's commercial paper is rated A-1+, A-1 or A-2.
Issues rated TBW-2 by Thomson Bank Watch (Thomson) have a strong degree of
safety regarding timely repayment of principal and interest. The relative degree
of safety is not quite as high as an issue with a TBW-1 rating.
IBCA Limited and its affiliate, IBCA, Inc. (IBCA) issue 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 balanced sheet, a favorable credit profile and a consistent record of
well above average performance. A "B" rating indicates a 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.
39
<PAGE> 84
Thomson issues ratings on bank holding companies, U.S. banks, international
banks, investment banks and savings and loan associations. Issues rated TBW1 are
obligations that indicate a very high degree of likelihood that principal and
interest will be paid on a timely basis. A TBW2 rating indicates that the
relative degree of safety is not quite as high as an issue with a TBW1 rating.
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 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.
40
<PAGE> 85
PART B:
STATEMENT OF ADDITIONAL INFORMATION FEBRUARY 28, 1997
NATIONWIDE INVESTING FOUNDATION II:
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE U.S. GOVERNMENT INCOME FUND
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than that set forth in the
prospectus and should be read in conjunction with the Funds' prospectus dated
February 28, 1997. The prospectus may be obtained from Nationwide Advisory
Services, Inc. (NAS), P.O. Box 1492, Three Nationwide Plaza, Columbus, Ohio
43216.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
General Information and History 1
Investment Objectives and Policies 1
Descriptions of Securities 3
Investment Restrictions 6
Trustees and Officers of the Trust 8
Investment Management Agreement 9
Distribution Agreement 10
Pricing of Shares 11
Redemption of Shares 12
Contingent Deferred Sales Charge 12
Fund Performance Advertising 13
Shareholders' Rights 15
Custodian 16
Brokerage Allocation 16
Tax Status 17
Financial Statements 18
Independent Auditors' Report 30
Appendix 31
</TABLE>
GENERAL INFORMATION AND HISTORY
Nationwide Investing Foundation II is a diversified, open-end management
investment company, created under the laws of Massachusetts by a Declaration of
Trust dated October 8, 1985.
The trust contains two Funds, the Nationwide U.S. Government Income
Fund and the Nationwide Tax-Free Income Fund.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds' investment
objectives and policies discussed on pages 12 and 13 of the prospectus. The
investment policy and types of permitted investments may be changed without
approval or notice to shareholders.
NATIONWIDE TAX-FREE INCOME FUND
1
<PAGE> 86
The Nationwide Tax-Free Income Fund is designed to provide as high a level of
current income exempt from federal tax as is consistent with the preservation of
capital through investing in a diversified portfolio of high quality municipal
obligations.
As stated in the prospectus, the Fund may purchase securities on a
"when-issued" basis and "forward delivery" basis, for payment and delivery at a
later date, generally within one month for when-issued and longer periods for
forward commitments. The price and yield are generally fixed on the date of
commitment to purchase, and the value of the security is reflected in the Fund's
net asset value. Failure of an issuer to deliver the security may result in the
Fund incurring a loss or missing an opportunity to make an alternative
investment. At the time of settlement, the market value of the security may be
more or less than the purchase price, resulting in an unrealized appreciation or
depreciation to the Fund. The Fund maintains in a segregated account cash, U.S.
government securities, or other high-grade liquid securities in an amount equal
to the purchase price as long as the obligation to purchase continues.
The Fund may purchase municipal bonds on a "forward delivery" basis at
fixed purchase terms. The purchase will be recorded on the date the Fund enters
into the commitment and the value of the security will thereafter be reflected
in the calculation of the portfolio's net asset value. The value of the security
on the delivery date may be more or less than its purchase price resulting in
unrealized appreciation or depreciation to the Fund. A separate account of the
portfolio will be established with its Custodian consisting of cash or liquid
municipal bonds having a market value at all times at least equal to the amount
of the forward commitment.
The types of instruments in which the Fund may invest are described in
the prospectus. For more information on ratings of municipal obligations from
Standard & Poor's Corporation (Standard & Poor's) and Moody's Investors Service,
Inc. (Moody's), see the Appendix. For purposes of the restrictions set forth
below, the Fund will regard the entity which has the ultimate responsibility for
the payment of interest and principal as the issuer.
From time to time the Fund may invest less than the 25% of its total
assets in the securities of issuers in the same industry, state or similar type
project where such securities are related in such a way that economic, business
and political developments or changes that affect one such security could affect
the other securities.
NATIONWIDE U.S. GOVERNMENT INCOME FUND
The Nationwide U.S. Government Income Fund is designed to provide as high a
level of income as is consistent with the preservation of capital through a
portfolio consisting of securities from the U.S. government, and its agencies
and instrumentalities. The intermediate average dollar-weighted maturity of the
portfolio (between 3 and 10 years) should generally provide higher yields than a
money market fund while producing greater price stability than other bond
portfolios with longer maturities.
As stated in the prospectus, the U.S. Government Income Fund will
normally invest all of its net assets in securities issued by the U.S.
government, its agencies and instrumentalities (see U.S. Government Securities),
and in repurchase agreements in these securities (see Repurchase Agreements, p.
6).
The Fund may invest up to 80% of its net assets in mortgage-related
securities (see Mortgage-Related Securities, p. 4) which represent part
ownership of a pool of mortgage loans. This would include investments in
collateralized mortgage obligations
2
<PAGE> 87
(CMOs). The Fund may also invest up to 20% in zero-coupon securities (see
Zero-Coupon Securities p. 4).
There is minimal default risk involved in the purchase of U.S.
government or U.S. government guaranteed securities. Securities issued by U.S.
government agencies or instrumentalities, while perhaps having the implicit
backing of the U.S. government, may not have an explicit guarantee of the
payment of principal and interest (see U.S. Government Securities, below).
The value of shares of the U.S. Government Income Fund will vary
inversely with changes in interest rates. As with any fixed income investment,
interest rate risk (when interest rates decline, the market value of a portfolio
invested at higher yields can be expected to rise; conversely, when interest
rates rise, the market value of a portfolio invested at lower yields can be
expected to fall) does exist. While the U.S. Government Income Fund will engage
in portfolio trading (shortening the average maturity of the portfolio in
anticipation of a rise in interest rates so as to minimize depreciation of
principal or lengthening the portfolio in anticipation of a decline in interest
rates so as to maximize appreciation of capital) to manage this risk, there is
no assurance that capital will be preserved.
Generally, debt securities with shorter maturities are less subject to
market fluctuation as a result of a change in interest rates. Thus, though there
will be share price fluctuation of the U.S. Government Income Fund, the average
maturity of the portfolio will be between 3 and 10 years (intermediate-term),
which should result in less fluctuation than longer-term maturities.
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
U.S. government securities include obligations issued (1) by the U.S. Treasury
and (2) by agencies and instrumentalities of the United States government. U.S.
government agencies are government-sponsored organizations acting under
authority of Congress, such as Federal Land Banks, Central Banks for
Cooperatives, Federal Home Loan Banks, the Farmers Home Administration, and the
Federal Farm Credit System. U.S. government instrumentalities are organized by
Congress under a federal charter and supervised and regulated by the U.S.
government, such as the Federal National Mortgage Association and the Student
Loan Marketing Association. A distinction must be made between these obligations
since some are supported by the full faith and credit of the U.S. Treasury,
others by the discretionary authority of the U.S. government, and still others
only by the credit of the issuer.
Securities guaranteed by the U.S. government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and
(2) federal agency obligations guaranteed as to principal and interest by the
U.S. Treasury (such as securities issued by the Farmers Home Association, the
Federal Financing Bank, the Government National Mortgage Association, the
Maritime Administration Guaranteed Ship Financing Bonds issued after 1972 and
the Small Business Administration). In these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. government;
thus, they are of the highest possible credit quality.
Securities issued by U.S. government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they involve federal sponsorship in one way or another: some
are backed by the issuer's right to borrow from the U.S. Treasury (such as
securities issued by the Farm Credit System and the Tennessee Valley Authority);
some are supported by the authority of the U.S. Treasury to purchase obligations
issued by agencies or
3
<PAGE> 88
instrumentalities (such as the Federal National Mortgage Association, Student
Loan Marketing Association, and the Tennessee Valley Authority). Some are
supported only by the credit of the issuing government agency or instrumentality
(such as securities issued by the Financing Corporation, FICO).
ZERO-COUPON SECURITIES
Zero-coupon securities are securities that make no periodic interest payments
but instead are sold at a deep discount from their face value. The buyer of such
a bond receives the rate of return by the gradual appreciation of the security,
which is redeemed at face value on a specified maturity date. For tax purposes,
the Internal Revenue Service maintains that the holder of a zero-coupon bond
owes income tax on the interest that has accrued each year, even though the
bondholder does not actually receive the cash until maturity.
The U.S. Government Income Fund will only invest in zero-coupon securities which
are direct obligations of the U.S. Treasury or agencies of the U.S. government.
No zero-coupon securities issued by brokerage firms will be purchased by the
U.S. Government Income Fund.
To the extent that the U.S. Government Income Fund utilizes portfolio cash to
distribute zero coupon income to shareholders, it will forego the purchase of
additional income-producing assets with these funds.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities include GNMA certificates, FNMA and FHLMC
mortgage-based obligations.
GNMA certificates are mortgage-backed securities representing part
ownership of a pool of mortgage loans on which timely payment of interest and
principal is guaranteed by the full faith and credit of the U.S. government.
GNMA certificates differ from typical bonds because principal is repaid monthly
over the term of the loan rather than returned in a lump sum at maturity.
Because both interest and principal payments (including prepayments) on the
underlying mortgage loans are passed through to the holder of the certificate,
GNMA certificates are called "pass-through" securities.
Although the mortgage loans in a GNMA pool will have maturities of up
to 30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the GNMA certificates. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the GNMA certificates. Accordingly, it is not possible to
accurately predict the average life of a particular pool. Reinvestment of
prepayments may occur at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to reinvest prepayments
of principal at current rates, GNMA certificates can be less effective than
typical bonds of similar maturities at "locking in" yields during periods of
declining interest rates, although they may have comparable risks of decline in
value during periods of rising interest rates.
Because prepayments are made at par value, losses could be sustained on
prepayments of GNMA certificates which had been purchased at prices above their
par values.
4
<PAGE> 89
The Federal National Mortgage Association ("FNMA"), a federally
chartered and privately-owned corporation, issues pass-through securities
representing interests in a pool of conventional mortgage loans. FNMA guarantees
the timely payment of principal and interest but this guarantee is not backed by
the full faith and credit of the U.S. government.
The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the U.S. government, issues participation certificates which
represent an interest in a pool of conventional mortgage loans. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal and
maintains reserves to protect holders against losses due to default, but the
certificates are not backed by the full faith and credit of the U.S. government.
As is the case with GNMA certificates, the actual maturity of and realized
return on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
FNMA and FHLMC also issue collateralized mortgage obligations
("CMO's"). CMO's are obligations fully collateralized directly or indirectly by
a pool of mortgages on which payments of principal and interest are dedicated to
payment of principal and interest on the CMO's. Payments are passed through to
the holders although not necessarily on a pro rata basis on the same schedule as
they are received. Accordingly, a change in the rate of prepayments on the pool
of mortgages could change the effective maturity of a CMO.
WHEN-ISSUED SECURITIES
In order to help ensure the availability of suitable securities for its
portfolio, the U.S. Government Income Fund and the Tax-Free Income Fund may
purchase securities on a "when-issued" or on a "forward delivery" basis which
means that the obligations will be delivered to the Fund making the purchase at
a future date beyond customary settlement time. It is expected that, under
normal circumstances, a Fund purchasing securities on a "when-issued" or
"forward delivery" basis will take delivery of such securities. In general, a
Fund does not pay for the securities or start earning interest on them until the
obligations are scheduled to be settled. While awaiting delivery of the
obligations purchased on such basis, a Fund will establish a segregated account
consisting of cash or high quality debt securities equal to the amount of the
commitments to purchase "when-issued" securities.
To the extent a Fund engages in "when-issued" or "forward delivery"
transactions, it will do so for the purpose of acquiring portfolio securities
consistent with the Fund's investment objectives and policies and not for the
purpose of investment leverage or to speculate in interest rate changes. The
U.S. Government Income Fund and the Tax-Free Income Fund will make commitments
to purchase securities on a "when-issued" or "forward delivery" basis only with
the intention of actually acquiring the securities, but the Funds reserve the
right to sell these securities before the settlement date if deemed advisable.
Because a Fund must set aside cash or liquid high grade securities to
satisfy its commitments to purchase "when-issued" or "forward delivery"
securities, management of a Fund's investments may be limited by commitments to
purchase "when-issued" or "forward delivery" securities.
When a Fund commits to purchase a security on a "when-issued" or on a
"forward-delivery" basis, it follows procedures consistent with Securities and
Exchange Commission policies. Since those policies currently recommend that an
amount of a Fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, a Fund will always have cash or
high quality debt
5
<PAGE> 90
securities sufficient to cover any commitments or to limit any potential risk.
However, although neither of the Funds intends to make such purchases for
speculative purposes and each Fund intends to adhere to the provisions of
Securities and Exchange Commission policies, purchases of securities on such
bases may involve more risk than other types of purchases. For example, a Fund
may have to sell assets which have been set aside in order to meet redemptions.
Also, if a Fund determines it is advisable as a matter of investment strategy to
sell the "when-issued" or "forward delivery" securities before delivery, that
Fund may incur a loss because of market fluctuations since the time the
commitment to purchase such securities was made and any gain or loss would not
be tax-exempt. When the time comes to pay for "when-issued" or "forward
delivery" securities, a Fund will meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than a Fund's payment
obligation).
REPURCHASE AGREEMENTS
The U.S. Government Income Fund may enter into Repurchase Agreements
(Repos) with banks and securities dealers. Under Repurchase Agreements, the U.S.
Government Income Fund buys a security and obtains a simultaneous commitment
from the seller to repurchase the security at a specified time and price. Repos,
also called RPs or buybacks, are widely used both as a money market investment
vehicle and as an instrument of Federal Reserve Monetary Policy. Where a
repurchase agreement is used as a short-term investment, a government securities
dealer borrows from an investor (for instance, a mutual fund) with excess cash,
to finance its inventory, using the securities as collateral. Such RPs may have
a fixed maturity date or be Open Repos, callable at any time. Rates are
negotiated directly by the parties involved, but are generally lower than rates
on collateralized loans made by New York banks. The attraction of repos is the
flexibility of maturities that makes them an ideal place to invest excess funds
on a temporary basis. The Trust will only invest in repurchase agreements which
are fully collateralized and monitored on a continuous basis by the Investment
Adviser and have been affirmed by the Board of Trustees. Repurchase agreements
permit the Fund to maintain liquidity and earn income over periods of time as
short as overnight. The seller must maintain with the Fund's Custodian
securities equal to at least 102% of the acquired security's market value as
monitored daily by the Investment Adviser (see "Management" below). The U.S.
Government Income Fund will only enter into repurchase agreements involving
securities in which it could otherwise invest and with selected banks and
securities dealers whose financial condition is monitored by the Investment
Adviser, subject to review by the Board of Trustees. If the seller under the
repurchase agreement defaults, the Fund may incur a loss if the value of the
collateral securing the repurchase agreement has declined, and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, realization of the
collateral by the Fund may be delayed or limited.
INVESTMENT RESTRICTIONS
The Funds have adopted the following restrictions which are fundamental
policies. These fundamental policies, as well as the investment objective of the
Funds, cannot be changed without approval of the holders of a majority of the
outstanding shares of the Fund. All percentage limitations expressed in the
following investment restrictions are measured immediately after the relevant
transaction is made.
RESTRICTIONS FOR BOTH FUNDS
The Funds may not:
6
<PAGE> 91
1 Enter into any repurchase agreement if, as a result, more than 10% of the
Fund's total assets would be subject to repurchase agreements maturing in more
than seven days;
2 Make loans to others except for the purchase of the debt securities listed
above or entering into repurchase agreement listed above;
3 Borrow money, except under the following circumstances: (a) A Fund may borrow
an amount not in excess of 33 1/3% of the value of the Fund's total assets
(calculated when the loan is made) from banks for temporary purposes to
facilitate the orderly sale of portfolio securities to accommodate unusually
heavy redemption requests, if they should occur. This borrowing provision is not
intended for investment purposes, nor will the Funds purchase portfolio
securities during periods of borrowings outstanding;
(b) A Fund may borrow an amount equal to no more than 5% of the value of
each of the Funds' total assets (calculated when the loan is made) for
temporary, emergency purposes, or for the clearance of transactions, to provide
the Investment Manager additional flexibility in the execution of routine daily
transactions, and allow for more efficient cash management. This borrowing
provision will not be used to leverage the funds or to borrow for extended
periods of time.
4 Act as underwriter except to the extent that in conjunction with the
disposition of portfolio securities, the Fund may be deemed an underwriter under
certain federal securities laws;
5 Pledge more than 10% of its assets and then only to secure temporary
borrowings from banks;
6 Sell securities short or purchase securities restricted under federal
securities laws;
7 Write, purchase, or sell puts, calls, straddles, spreads or any
combination thereof;
8 Purchase or sell securities of other investment companies (except in
connection with a merger, consolidation, acquisition or reorganization), real
estate, real estate mortgage loans, commodities or futures contracts;
9 Issue any senior securities;
10 Purchase securities on margin, but the Fund may obtain such credits as
may be necessary for the clearance of purchases and sales of securities;
11 Purchase any illiquid or unmarketable securities;
12 Invest for the purpose of making short-term trading profits or for the
purpose of exercising control of management or deal with the Trustees in the
purchase and sale of securities.
RESTRICTIONS FOR TAX-FREE INCOME FUND ONLY
The Fund may not:
7
<PAGE> 92
1 Invest more than 20% of its assets in securities whose interest is
subject to federal income taxes;
2 Invest more than 5% of its total assets (excluding cash and cash items)
in the securities of any one issuer, except the U. S. government, its agencies
and instrumentalities;
3 Invest 25% or more of the Fund's total assets in the securities of
issuers in the same industry, except that the Fund may invest more than 25% of
the value of its total assets in municipal bonds and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
4 Invest more than 5% of its total assets taken at cost in securities whose
issuer or guarantor of principal and interest, including any predecessors, has
been in operation for less than three years.
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:
JOHN C. BRYANT, TRUSTEE.
44 Faculty Place, Wilmington, Ohio.
Dr. Bryant is Executive Director of the Cincinnati Youth Collaborative. He was
formerly Professor of Education, Wilmington College.
ROBERT M. DUNCAN, TRUSTEE.
1397 Haddon Road, Columbus, Ohio.
Mr. Duncan is Vice President & 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 a U.S. District Court Judge, Southern District
of Ohio.
THOMAS J. KERR, IV, TRUSTEE.
4890 Smoketalk Lane, Westerville, Ohio.
Dr. Kerr is President Emeritus of Kendall College. He was formerly President of
Grant Hospital Development Foundation.
DIMON R. MCFERSON*
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise.
JAMES F. LAIRD, JR., TREASURER.
Three Nationwide Plaza, Columbus, Ohio.
Mr. Laird is Vice President-General Manager of Nationwide Advisory Services,
Inc., the
8
<PAGE> 93
Distributor and Investment Manager.
WILLIAM G. GOSLEE, ASSISTANT TREASURER.
Three Nationwide Plaza, Columbus, Ohio.
Mr. Goslee is Treasurer of Nationwide Advisory Services, Inc., the Distributor
and Investment Manager.
RAE MERCER POLLINA, SECRETARY
Three Nationwide Plaza, Columbus, Ohio.
Mrs. Pollina is Corporate Secretary of Nationwide Advisory Services, Inc., the
Distributor and Investment Manager.
* A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act of 1940.
The Trustees receive fees and reimbursement for expenses of attending Board
meetings of the Trust. The Compensation Table below sets forth the total
compensation to the Trustees from the Trust and from all funds in the Nationwide
Fund Complex during the fiscal year ended October 31, 1996. Trust officers
receive no compensation from the Trust in their capacity as officers. All
Trustees and Officers of the Trust own less than 1% of its outstanding shares.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR RETIREMENT ESTIMATED
AGGREGATE BENEFITS ACCRUED ANNUAL BENEFITS TOTAL COMPENSA-
NAME OF PERSON, COMPENSATION AS PART OF FUND UPON RETIRE- TION FROM THE
POSITION FROM THE TRUST EXPENSES MENT FUND COMPLEX*
<S> <C> <C> <C> <C>
John C. Bryant,
Trustee $1,000 --0-- --0-- $15,500
Robert M. Duncan,
Trustee $1,000 --0-- --0-- $15,500
Thomas J. Kerr, IV,
Trustee $1,000 --0-- --0-- $15,500
Dimon R. McFerson,
Trustee --0-- --0-- --0-- --0--
</TABLE>
* The Fund Complex includes Trusts comprised of fifteen investment company
portfolios.
INVESTMENT MANAGEMENT
AGREEMENT
Under the terms of the Investment Management Agreement, 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,
administers and manages the affairs of the Trust and furnishes office
facilities, equipment and personnel to the Funds. The Agreement also provides
that NAS shall reimburse the Trust for the compensation of the Trustees who are
"interested persons" of NAS.
9
<PAGE> 94
Each Fund pays the Investment Manager a fee based on its average daily net
assets at the rate of .65% of the first $250 million of average daily net
assets, .60% of the next $250 million, .55% on the next $250 million, and .50%
on the average daily net assets in excess of $750 million. The Funds also pays
the custodial, transfer agents, federal and state share registrations, brokerage
and legal fees; taxes; printing costs; and the compensation and expenses of the
Trustees.
During the fiscal years ended October 31, 1996, 1995, and 1994, the Investment
Manager earned management fees for the Tax-Free Income Fund of $1,704,966,
$1,629,584, and $1,642,067, respectively, and $255,149, $248,765, and $252,358,
respectively for the U.S. Government Income Fund. Neither the Investment Manager
nor any company affiliated with it receives any brokerage commissions from the
Funds.
NAS is wholly-owned by Nationwide Life Insurance Company, which is
wholly-owned by Nationwide Financial Services, Inc., an insurance company
holding Company. Nationwide Financial Services, Inc. is wholly-owned by
Nationwide Corporation. 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%).
DISTRIBUTION AGREEMENT
Nationwide Advisory Services, Inc. also acts as Distributor of the Funds' shares
pursuant to the Distribution Agreement with the Funds. The Distributor pays
commissions to salespersons, the cost of printing and mailing prospectuses to
potential investors, and any sales promotional expenses incurred in connection
with the distribution of Fund shares.
The Distribution Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party upon
not more than 60 days' nor less than 30 days' written notice.
To compensate the Distributor for the services it provides and for the
expenses it bears under the Distribution Agreement, the Funds have adopted a
Plan of Distribution (the "Plan") under Rule 12b-1 under the Investment Company
Act. Under the Plan, the Funds pays the Distributor compensation accrued daily
and paid monthly at the annual rate of .35% of the average daily net assets
of the Funds.
For the Tax-Free Income Fund, these fees were waived from the inception of
the Fund through February 28, 1990. For the period from March 1, 1990 through
August 31, 1990 the Fund accrued distribution fees at the annual rate of .10% of
average daily net assets. For the period from September 1, 1990 through October
31, 1996, the Fund accrued distribution fees at the annual rate of .20% of
average daily net assets.
During the fiscal years ended October 31, 1996, 1995, and 1994, the
Tax-Free Income Fund accrued distribution fees totalling $921,340, $878,689, and
$885,243, respectively, and $137,388, $133,950, and $135,885 for the U.S.
Government Income Fund. During the years ended October 31, 1996, 1995, and 1994,
the Distributor waived Plan fees for the Tax-Free Income Fund totaling
$394,860, $376,581, and $379,390, respectively, and $58,881, $57,407, and
$58,236, respectively for the U.S.
Government Income Fund.
The Distributor also receives the proceeds of contingent deferred sales
charges imposed on certain redemptions of shares (see "Contingent Deferred Sales
Charge").
During the years ended October 31, 1996, 1995, and 1994, such charges for the
Tax-Free Income Fund aggregated $169,310, $234,339, and $285,604, respectively,
and $58,918, $72,664, and $72,305, respectively for the U.S. Government Income
Fund.
10
<PAGE> 95
Pursuant to the Plan, at least quarterly, the Distributor shall provide the
Fund a written report for review by the Trustees of the amounts expended under
the Plan and the purpose for which such expenditures were made.
The Plan shall remain in effect until the earlier of one year after the
respective date of execution or the first meeting of shareholders after the
effective date of the Funds' prospectus. If approved at such meeting by a vote
of a majority of the outstanding voting securities of the Fund, the Plan shall
continue in effect thereafter, provided such continuance is approved annually by
a vote of the Trustees of the Fund, including a majority of the Trustees who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan, cast in person at a meeting called for
the purpose of voting on such Plan. The Plan may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the shareholders, and all material amendments of the Plan must also
be approved by the Trustees in the manner described above. The Plan may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operations of the Plan or by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
Investment Company Act) on not more than 60 days' written notice to any other
party to the Plan. The Plan will automatically terminate in the event of its
assignment (as defined in the Investment Company Act). The Trustees have
determined that, in their judgment, there is a reasonable likelihood that the
Plan will benefit the Fund and its shareholders. In the Trustees' review of the
Plan, they will consider the continued appropriateness and the level of
compensation provided therein. So long as the Plan is in effect, the election
and nomination of Trustees who are not interested persons of the Fund shall be
at the discretion of the Trustees who are not such interested persons.
PRICING OF SHARES
The net asset value per share of the Fund is determined once daily as of
the close of the New York Stock Exchange (usually 4 P.M. Eastern Time) on days
when the New York Stock Exchange is open or on any other day during which there
is a sufficient degree of trading in the Funds' portfolio securities that the
net asset value of the Fund is materially affected by changes in the value of
portfolio securities. The Fund will not compute net asset value on customary
national business holidays, including the following: Christmas, New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, and
Thanksgiving.
The net asset value per share is calculated by adding the value of all
securities and other assets of the Fund, deducting its liabilities, and dividing
by the number of shares outstanding.
Portfolio securities for which market quotations are readily available are
valued at their bid quotations. Securities for which market quotations are not
readily available are valued at fair value in accordance with procedures adopted
by the Board of Trustees. Under these procedures the Fund values municipal
securities on the basis of valuations provided by an independent pricing service
which uses information with respect to transactions in bonds, quotations from
bond dealers, market transactions in comparable securities and various
relationships between securities in determining value.
REDEMPTION OF SHARES
CONTINGENT DEFERRED
SALES CHARGE
11
<PAGE> 96
A contingent deferred sales charge will be imposed on an investor's redemption
which reduces the current value of the investor's shares in the Fund to an
amount which is lower than the amount of all payments by the shareholder for the
purchase of shares during the preceding five years. However, such a charge will
be imposed only to the extent that the net asset value of the shares redeemed
exceeds (a) the current net asset value of shares purchased more than five years
prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions, plus (c) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of shares made during the preceding five years. The
amount of any contingent deferred sales charge will be paid to and retained by
the Distributor.
In determining the applicability of a contingent deferred sales charge to each
redemption, the amount which represents an increase in the net asset value of
the investor's shares above the amount of the total payments for the purchase of
shares within the last five years will be deemed to be redeemed first. In the
event that the redemption amount exceeds such increase in value, the next
portion of the amount redeemed will be deemed to be the amount which represents
the net asset value of the investor's shares purchased more than five years
prior to the redemption and/or shares purchased through reinvestment of
dividends or distributions. Any portion of the amount redeemed which exceeds an
amount representing both such increase in value and the value of shares
purchased more than five years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions will be subject to contingent
deferred sales charge.
The amount of the contingent deferred sales charge, if any, will vary depending
on the number of months from the time of payment for the purchase of shares
until the time of redemption of such shares. Solely for purposes of determining
the number of months from the time of any payment for the purchases of shares,
all payments during a month will be aggregated and deemed to have been made on
the last day of the preceding month. The following table sets forth the rates of
the contingent deferred sales charge:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Months since purchase 0- 13- 25- 37- 49- 61 &
payment was made 12 24 36 48 60 over
Contingent deferred
sales charge percentage 5% 4% 3% 2% 1% none
</TABLE>
In determining the rate of any applicable contingent deferred sales charge, it
will be assumed that a redemption is made of shares held by the investor for the
longest period of time within the applicable 60-month period. This will result
in any such charge being imposed at the lowest possible rate.
Accordingly, shareholders may redeem, without incurring any contingent deferred
sales charge, amounts equal to any net increase in the value of their shares
above the amount of their purchase payments made within the past five years, and
amounts equal to the current value of shares purchased through reinvestment of
dividends or distributions. The contingent deferred sales charge will be
imposed, in accordance with the table above, on any redemptions within five
years of purchase which are in excess of these amounts. For federal income tax
purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption or repurchase of shares.
The contingent deferred sales charge will be waived in the case of a redemption
following death or disability of a shareholder(including either spouse on joint
12
<PAGE> 97
spousal accounts) if the redemption is made within one year of death or initial
determination of disability. The waiver is available for total or partial
redemptions of shares owned by an individual or an individual jointly with his
or her spouse, but only for redemptions of shares held at the time of death or
initial determination of disability. The charge will also be waived on
redemptions effected by: (i) shares held by other registered investment
companies affiliated with Nationwide Advisory Services, Inc., (ii) shares
redeemed that were acquired as a result of a transfer of investments from the
Nationwide Tax-Free Income Fund, U.S. Government Income Fund, Nationwide Growth
Fund, Nationwide Fund, or Nationwide Bond Fund, (iii) shares redeemed by (a) 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
affiliates, (b) Trustees and retired Trustees of NIF and NIF II; directors,
officers, full-time employees employed for not less than 90 days, 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
Group of Insurance Companies or their affiliates, or any investment advisory
clients of the Funds' advisor and their affiliates, (c) 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 Group of Insurance 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 pension, profit sharing, or deferred compensation plan
which is qualified under Section 401(a) 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, and (e) any life insurance company separate account registered as a unit
investment trust, (f) any qualified pension or profit sharing plan established
by a Nationwide sales representative for himself/herself and his/her employees.
The shareholder must notify the Funds' Transfer Agent either directly or
indirectly or through the Distributor, at the time of redemption, that the
shareholder is entitled to waiver of the contingent deferred sales charge.
Redemptions of shares which were recently purchased may be delayed in order to
permit a determination to be made that the purchase check will be honored. Such
determination may be made upon the passage of a reasonable period of time (not
to exceed 12 days) from the time of receipt of the check by Nationwide Investors
Services, Inc.
FUND PERFORMANCE
ADVERTISING
The Funds may use historical performance in advertisements, sales literature,
and the prospectus. Performance figures reflect the maximum 5% deferred sales
charge, which decreases to zero at the end of year five. It also includes
reinvestment of all dividends and capital gains distributions. Performance
figures will include quotations of average annual (compound) total return for
the most recent one, five, and ten-year periods (or, in this case, the life of
the Fund). Average annual (compound) total return represents the rate required
each year for an initial investment to equal the redeemable value at the end of
the specified period.
NATIONWIDE TAX-FREE INCOME FUND
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS
13
<PAGE> 98
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
<S> <C>
1 year .31%
5 year 6.52%
10 year 6.50%
</TABLE>
NATIONWIDE U.S. GOVERNMENT INCOME FUND
AVERAGE ANNUAL (COMPOUND) TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
<S> <C>
1 year .32%
Life** 6.64%
</TABLE>
The Funds may also choose to show nonstandard returns including total
return and simple average total return, over various time periods based on
lump-sum or periodic investments. Nonstandard returns may or may not reflect
reinvestment of all dividends and capital gains.
Total return represents the cumulative percentage change in the value
of an investment over a 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 equals the total return (or
cumulative total return) divided by the number of years in the period and,
unlike average annual (compound) total return, does not reflect compounding.
NATIONWIDE TAX-FREE INCOME FUND
CUMMULATIVE TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
<S> <C>
1 year .31%
5 year 37.13%
10 year 87.83%
</TABLE>
NATIONWIDE U.S. GOVERNMENT INCOME FUND
CUMMULATIVE TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
<S> <C>
1 year .32%
Life** 35.05%
</TABLE>
** Life of the U.S. Government Income Fund since commencement of operations
2/10/92.
NATIONWIDE TAX-FREE INCOME FUND
SIMPLE AVERAGE TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
14
<PAGE> 99
<TABLE>
<CAPTION>
<S> <C>
1 year .31%
5 year 7.43%
10 year 8.77%
</TABLE>
NATIONWIDE U.S. GOVERNMENT INCOME FUND
SIMPLE AVERAGE TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1996
(REFLECT MAXIMUM SALES CHARGES)
<TABLE>
<CAPTION>
<S> <C>
1 year .32%
Life** 7.50%
</TABLE>
** Life of the U.S. Government Income Fund since commencement of operations
2/10/92.
The Funds 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 30-day 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 can be no assurance that the yield quoted on any given
occasion will remain in effect for any period of time. For the 30-day period
ended October 31, 1996, the Tax-Free Income Fund's yield was 4.71% and the U.S.
Government Income Fund's yield was 6.11%.
Additionally, the Nationwide Tax-Free Income Fund may show tax-equivalent yield
which is computed by dividing yield by one minus a stated income tax rate. The
tax-equivalent yields for the 15%, 28%, 31%, 36%, and 39.6% federal tax rates
are shown below:
NATIONWIDE TAX-FREE INCOME FUND
TAX EQUIVALENT 30-DAY YIELDS
FOR THE PERIOD ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
Tax Rate Yield
<S> <C>
15% 5.46%
28% 6.44%
31% 6.72%
36% 7.25%
39.6% 7.68%
</TABLE>
SHAREHOLDERS' RIGHTS
No shareholder shall be subject to any personal liability whatsoever to any
person in connection with Fund property or the acts, obligations or affairs of
the Fund. No Trustee, officer, employee or agent of the Fund shall be subject to
any personal liability whatsoever to any person, other than the Fund or its
shareholders, in connection with Fund property or the affairs of the Fund, save
only 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 Fund property for satisfaction of claims of any nature arising in
connection with the affairs of the Fund. If any shareholder of the Fund is made
a party to any suit or proceeding to enforce any such liability, he shall not,
on account thereof, be held to any personal liability. The Fund shall indemnify
and hold each shareholder harmless from and against all claims and liabilities,
to which such shareholder may become subject by reason of his being or having
been a shareholder, and shall reimburse such
15
<PAGE> 100
shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability. Such rights accruing to a
shareholder shall not exclude any other right to which such shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of the
Fund to indemnify or reimburse a shareholder in any appropriate situation even
though not specifically provided herein.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, OH 45263, is the
Custodian for the Funds and makes all receipts and disbursements under a
Custodian agreement. The Custodian performs no managerial or policymaking
functions of the Fund.
TRANSFER AGENT AND
DIVIDEND DISBURSEMENT
Nationwide Investors Services, Inc. (NIS) is the Transfer and Dividend
Disbursing Agent for all Nationwide Funds. NIS, a wholly-owned subsidiary of
Nationwide Advisory Services, Inc. received fees for transfer agent services
during the fiscal year ended October 31, 1996 of $159,115 from the Nationwide
Tax-Free Income Fund and $40,299 from the Nationwide U. S. Government Income
Fund. Management believes the charges for the services performed are comparable
to fees charged by other companies performing similar services.
BROKERAGE ALLOCATION
There is no commitment 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 the Investment
Manager, 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
orders, useful analyses of corporations, industries and the economy, statistical
reports and other related services for which no charge is made by the broker
over and above negotiated brokerage commissions. The Fund and the Investment
Manager 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.
No formula, method or criteria other than as stated above was used in the
allocation of orders among any such firms. In the case of securities traded in
the over-the-counter market, the Funds normally deal with the market makers for
such securities unless better prices can be obtained through brokers.
TAX STATUS
FEDERAL TAXES--The Funds intend to qualify for treatment under subchapter M of
the Internal Revenue Code of 1986, as amended, and, therefore, must distribute
substantially all of its net investment income and capital gains to shareholders
16
<PAGE> 101
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 such investment
income or capital gains in any year, it will be subject to a non-deductible 4%
excise tax on the amount which it has failed to distribute. The Funds intend to
make distributions in amounts sufficient to avoid the imposition of this excise
tax.
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 which
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. Such 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.
Dividends paid by the Nationwide U.S. Government Income Fund are taxable as
income to the shareholder for federal income tax purposes. For corporate
shareholders, the appropriate portion of each year's distribution is eligible
for the corporate dividend received deduction.
Under current tax law as of February 28, 1997, net long-term capital gains, if
any, realized by the Funds are generally taxable to the shareholder at the same
tax rate as ordinary income, but in no event may the tax rate on such gains
exceed 28% for individuals or 35% for a corporation.
Shareholders not subject to tax on their income will not have to pay tax on
amounts distributed to them.
The Funds will annually report to each shareholder that shareholder's portion of
the net income and capital gain of the Funds 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, a type of state or local
government bond described in Section 57 (a) (5) (C) of the Code. Bonds of this
type may be held for 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.
APPENDIX
MUNICIPAL BONDS
17
<PAGE> 102
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) GROWTH FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the year ended October 31, 1996, the Nationwide Growth Fund provided a total
return of 12.36% as compared to a 24.10% total return for the S&P 500 Index.
Performance for the second half of the fiscal year has continued to suffer from
the results of the long-distance telephone carriers, especially AT&T. While I
continue to like the telecommunications industry long term, fears of competition
plus AT&T's loss of share in residential markets has hurt current results. The
Fund has had mixed results from its technology holdings, with some holdings,
such as Intel and EMC Corp., performing very well, and others, such as Motorola
and Applied Materials, lagging badly. Home healthcare issues, such as Apria and
Olsten (included in Business Services), have also been weak. Again, the weakness
seems to relate to short-term issues, and has not changed the fundamental
long-term attractiveness of these companies. Financial stocks, which we had
added to earlier this year, have performed well.
During the last several months the Fund's exposure to technology has been
reduced. In some cases, such as sales of Intel and Cisco, this was due to
overvaluation, as the stocks recovered strongly from weakness they had suffered
in June and July. In other cases, fundamentals had changed for the worse. New
names that were added to the Fund included Genuine Parts, First Data and
Monsanto.
The Growth Fund's strategy is based on finding undervalued growth. Over the past
year, with high valuations accorded to quality, recognized growth, this has
meant buying and holding situations with good long-term potential but that also
have temporary problems, or perceptions of problems, that keep valuations
reasonable. This strategy has NOT been in favor in the stock market. Since early
1995, stocks with high valuations have performed well by going to even higher
valuations. As a result, the Fund has had poor relative performance during this
time. Buying stocks with high valuations has been repeatedly and overwhelmingly
shown to be a poor long-term strategy, and I do not believe the current period
will ultimately prove to be different.
JOHN M. SCHAFFNER, MBA, CFA, PORTFOLIO MANAGER
FUND VALUE $655,615,705
PORTFOLIO COMPOSITION
COMMON STOCK.......................................90.3%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS AND
OTHER ASSETS LESS LIABILITIES.......................9.7%
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Federal Nat'l Mortgage Assoc. Notes $44,196,827 6.7%
Archer-Daniels-Midland Co. 24,670,394 3.8%
Equitable Companies 23,241,500 3.5%
Grand Metropolitan PLC 22,642,800 3.5%
Allstate Corp. 22,450,000 3.4%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
S&P 500 Growth CPI
<S> <C> <C> <C>
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 $39,407 $29,874 $14,365
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Growth Fund,
the S&P 500* and the Consumer Price Index (CPI)** over a 10-year period ended
10/31/96.
* The S&P 500 is a broad, unmanaged index of equity securities, and unlike the
Growth Fund returns, does not reflect any fees or expenses.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Growth Fund, does not
reflect any fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge....12.36%....12.30%......12.07%
With sales charge........7.30%....11.27%......11.55%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes a 4.5% sales charge was paid which has the most
dramatic effect on the one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
The Nationwide(R) Growth Fund invests primarily in the common stock of companies
in industries with favorable economic trends and new technology. Historically,
these companies, which generally are smaller, pay smaller dividends, but show
greater-than-average growth potential.
The Nationwide(R) Growth Fund is for investors more interested in long-term
growth of capital to meet their future financial needs than in current income.
The rise in market performance over the past few years underscores the
importance of remaining fully invested for a long period of time.
4
<PAGE> 103
STATEMENT OF INVESTMENTS
NATIONWIDE(R) GROWTH FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (90.3%)
---------------------
AIRLINES (0.5%)
---------------
199,000 Skywest, Inc.......................... $ 2,985,000
------------
AUTO INDUSTRY (1.3%)
--------------------
200,000 Genuine Parts Co...................... 8,750,000
------------
BUSINESS SERVICES (3.2%)
------------------------
157,200 Insurance Auto Auctions, Inc.*........ 1,591,650
300,000 Manpower, Inc......................... 8,512,500
531,150 Olsten Corp. ......................... 10,623,000
------------
20,727,150
------------
CABLE (2.1%)
------------
600,000 Comcast Corp.......................... 8,625,000
325,000 U.S. West Media Group*................ 5,078,125
------------
13,703,125
------------
CHEMICALS (2.8%)
----------------
100,000 FMC Corp.*............................ 7,362,500
100,000 Monsanto Co........................... 3,962,500
122,000 Sigma-Aldrich Corp.................... 7,167,500
------------
18,492,500
------------
CHEMICALS - SPECIALTY (1.0%)
----------------------------
116,800 Loctite Corp.......................... 6,847,400
------------
COMPUTER EQUIPMENT (7.0%)
-------------------------
180,000 American Power Conversion Corp.*...... 3,847,500
286,300 EMC Corp.*............................ 7,515,375
325,000 Hewlett-Packard Co.................... 14,340,625
120,000 International Business Machines Corp.. 15,480,000
97,225 Lucent Technologies, Inc. ............ 4,569,575
------------
45,753,075
------------
COMPUTER SOFTWARE & SERVICES (2.2%)
-----------------------------------
200,000 Automatic Data Processing, Inc........ 8,325,000
75,000 Electronic Data Systems............... 3,375,000
30,000 First Data Corp....................... 2,392,500
29,000 Informix Corp.*....................... 643,438
------------
14,735,938
------------
CONGLOMERATES (1.5%)
--------------------
160,000 Honeywell, Inc........................ 9,940,000
------------
CONSUMER PRODUCTS (1.3%)
------------------------
300,000 Newell Co............................. 8,512,500
------------
CONTRACT MANUFACTURING (0.1%)
-----------------------------
63,900 Electronic Fab Technology Corp.*...... 199,688
------------
DISTRIBUTION (1.6%)
-------------------
328,125 Bergen Brunswig Corp., Class A........ 10,294,922
------------
DRUGS (7.4%)
------------
419,200 Allergan, Inc......................... 12,785,600
200,000 Glaxo Wellcome, PLC .................. 6,300,000
160,000 Schering-Plough Corp.................. 10,240,000
300,000 Warner-Lambert Co..................... 19,087,500
------------
48,413,100
------------
ELECTRONICS (4.2%)
------------------
200,000 Applied Materials, Inc.*.............. 5,287,500
117,187 Molex, Inc............................ 4,218,732
190,858 Molex, Inc., Class A.................. 6,179,028
200,000 Motorola, Inc......................... 9,200,000
189,000 Woodhead Industries, Inc.............. 2,598,750
------------
27,484,010
------------
FINANCIAL (17.3%)
-----------------
400,000 Allstate Corp......................... 22,450,000
67,500 American International Group, Inc..... 7,332,187
607,752 Bear Stearns Companies, Inc........... 14,358,141
229,400 Chubb Corp............................ 11,470,000
989,000 Equitable Cos......................... 23,241,500
486,202 Gainsco, Inc.......................... 4,679,694
250,000 Merrill Lynch & Co., Inc.............. 17,562,500
100,000 Morgan Stanley Group, Inc............. 5,025,000
200,000 Silicon Valley Bancshares*............ 5,225,000
100,000 Standard Financial, Inc............... 1,781,250
------------
113,125,272
------------
<CAPTION>
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGE (4.3%)
----------------------
3,000,000 Grand Metropolitan, PLC............... $ 22,642,800
150,000 Seagram Co. Ltd....................... 5,681,250
------------
28,324,050
------------
FOOD-GRAIN & AGRICULTURE (3.7%)
-------------------------------
1,134,271 Archer-Daniels-Midland Co............. 24,670,394
------------
HEALTHCARE - GENERAL (1.2%)
---------------------------
415,000 Apria Healthcare Group, Inc.*......... 7,936,875
------------
HEALTHCARE SERVICES (3.3%)
--------------------------
600,000 Columbia/HCA Healthcare Corp.......... 21,450,000
------------
MACHINERY & CAPITAL GOODS (5.0%)
--------------------------------
139,650 Duriron Company, Inc.................. 3,735,637
60,000 Emerson Electric Co................... 5,340,000
150,000 Lindsay Manufacturing Co.............. 6,450,000
60,000 Nordson Corp.......................... 3,300,000
492,600 Zebra Technologies Corp.*............. 14,223,825
------------
33,049,462
------------
MEDICAL PRODUCTS (0.5%)
-----------------------
200,000 Biomet, Inc........................... 3,225,000
------------
OIL & GAS (5.3%)
----------------
150,000 Amoco Corp............................ 11,362,500
50,000 Exxon Corp............................ 4,431,250
80,000 Mobil Corp............................ 9,340,000
60,000 Royal Dutch Petroleum Co.............. 9,922,500
------------
35,056,250
------------
PAPER AND FOREST PRODUCTS (0.2%)
--------------------------------
80,000 Glatfelter (P.H.) Co.................. 1,520,000
------------
PRINTING & PUBLISHING (2.1%)
----------------------------
101,800 Dun & Bradstreet Corp................. 5,891,675
100,000 Merrill Corp.......................... 2,225,000
160,000 Reader's Digest Assoc. Inc., Class B.. 5,540,000
------------
13,656,675
------------
RESTAURANTS (1.3%)
------------------
200,000 Bob Evans Farms, Inc.................. 2,500,000
300,000 Wendy's International, Inc............ 6,187,500
------------
8,687,500
------------
RETAIL (2.3%)
-------------
300,000 CUC, International*................... 7,350,000
200,000 Franklin Quest Co.*................... 4,050,000
145,000 Smart & Final, Inc.................... 3,407,500
------------
14,807,500
------------
TELECOMMUNICATIONS (7.6%)
-------------------------
400,000 360 Communications Co.* .............. 9,050,000
300,000 AT & T Corp........................... 10,462,500
744,000 MCI Communications Corp............... 18,693,000
300,000 Sprint Corp........................... 11,775,000
------------
49,980,500
------------
Total common stocks
(cost $433,662,411)................... 592,327,886
------------
</TABLE>
5
<PAGE> 104
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONWIDE(R) GROWTH FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ----------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (1.0%)
----------------------------------
<S> <C>
$6,910,000 U.S. Treasury Bills
5.06% through 5.30%, due 11/14/96 through
03/06/97(cost $6,808,879)............. $ 6,812,907
------------
U.S. AGENCY-FULL FAITH & CREDIT (8.2%)
--------------------------------------
9,585,000 Federal Home Loan Mortgage Corp. Notes
5.21% through 5.35%, due 12/10/96 through
04/01/97(cost $9,439,014)............. 9,440,508
44,845,000 Federal National Mortgage Association Notes
5.21% through 5.50%, due 11/04/96 through
04/15/97(cost $44,178,539)............ 44,196,827
------------
Total U.S. agency-full faith & credit
(cost $53,617,553).................... 53,637,335
------------
Total investments
(cost $494,088,843)................... $652,778,128
============
<FN>
The abbreviation in the above statement stands for the following:
PLC Public Limited Company
* Denotes non-income producing securities.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
[PHOTO]
Courtney Demick -- Growth Fund
6
<PAGE> 105
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The total return for the Nationwide Fund for the year ended October 31, 1996,
was 26.11%, assuming all distributions were reinvested, while the S&P 500
returned 24.10%.
The Fund benefited from the strong performance of several of the larger
holdings. Warner-Lambert, the Fund's largest holding, appreciated considerably.
The market is beginning to recognize the strength of Warner-Lambert's new
product profile. Several new drugs should enter the market in the next two years
causing an acceleration in the company's growth rate. Corporate restructuring
and a change in management provided the catalyst for Raychem's strong
performance. I have observed for several years that Raychem's shares were
undervalued due to losses in a telecommunications subsidiary. Following a change
in management, investment has been focused in the core business. Losses in the
subsidiary are no longer a drag on the strong performance of Raychem's core
operations.
The poorer-performing stocks for the last 12 months were generally cyclical
stocks whose fortunes are tied to a strong economy. Bowater and Georgia Gulf are
examples of cyclical companies whose shares performed poorly due to weak
commodity prices. These are well-managed companies but their fortunes are tied
to the prices of various commodities. Strong management cannot compensate for a
fundamentally poor business environment.
In the nearly 12 years I have managed the Nationwide Fund, I have maintained
holdings in the tobacco industry due to attractive secular fundamentals. These
have proven to be rewarding investments. However, the legal risks to the
industry have been mounting in the past few years to the point I felt the risks
outweighed the potential returns. I anticipate continuing a cautious investment
posture toward the tobacco stocks until the risk is further discounted in the
stock prices or the product liability risks are better defined.
Two of the Nationwide Fund's holdings are involved in financial restructurings.
Corning and Dun & Bradstreet are both splitting into three companies focused on
serving specific end markets. Historically, this breaking down of a conglomerate
into its component parts has proved rewarding for investors. The ability of
management to concentrate on its core market combined with a simpler financial
structure should allow these newly independent subsidiaries to perform better
than if the companies had maintained their former conglomerate structure.
CHARLES BATH, MBA, CFA, CPA, PORTFOLIO MANAGER
VALUE FUND $958,589,770
PORTFOLIO COMPOSITION
COMMON STOCK.......................................99.0%
DEBT OBLIGATIONS AND OTHER ASSETS LESS LIABILITIES..1.0%
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Warner-Lambert Company $60,227,425 6.3%
Schering-Plough Corp. 51,974,400 5.4%
Texaco Inc. 48,444,638 5.1%
Avon Products Inc. 37,649,500 3.9%
Raychem Corp. 35,060,547 3.7%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
S&P 500 Fund CPI
<S> <C> <C> <C>
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 $39,407 $33,139 $14,365
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Fund, the S&P
500* and the Consumer Price Index (CPI)** over a 10-year period ended 10/31/96.
* The S&P 500 is a broad, unmanaged index of equity securities, and unlike
Fund returns, does not reflect any fees or expenses.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Fund, does not reflect any
fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge............26.11%......12.72%......13.23%
With sales charge...............20.43%......11.68%......12.72%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes a 4.5% sales charge was paid which has the most
dramatic effect on the one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Our flagship fund, Nationwide(R) Fund, was started in 1933 and is one of the
oldest mutual funds in the country. Its portfoliO emphasizes blue-chip,
industry-leading stocks generally held for the long term.
The Nationwide(R) Fund emphasizes a "buy-and-hold" strategy maintaining a
relatively low turnover ratio which translates into less expense for the
shareholder.
7
<PAGE> 106
STATEMENT OF INVESTMENTS
NATIONWIDE(R) FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.0%)
---------------------
AUTO & AUTO PARTS (6.0%)
------------------------
929,800 Chrysler Corp......................... $ 31,264,525
832,900 Ford Motor Co......................... 26,028,125
------------
57,292,650
------------
BUILDING (4.1%)
---------------
440,000 Martin Marietta Materials Inc ........ 10,450,000
337,500 Masco Corp............................ 10,589,063
302,200 Vulcan Materials Co................... 18,358,650
------------
39,397,713
------------
CHEMICALS (11.9%)
-----------------
512,300 Georgia Gulf Corp..................... 13,832,100
283,100 IMC Global, Inc....................... 10,616,250
493,900 Millipore Corp........................ 17,286,500
593,700 Morton International, Inc............. 23,376,938
223,600 OM Group, Inc......................... 9,167,600
185,200 Pall Corp............................. 4,745,750
448,775 Raychem Corp.......................... 35,060,547
------------
114,085,685
------------
COMPUTER EQUIPMENT (2.7%)
-------------------------
200,000 International Business Machines Corp.. 25,800,000
------------
CONGLOMERATES (2.0%)
--------------------
500,000 Corning, Inc.......................... 19,375,000
------------
DRUGS (14.9%)
-------------
309,000 Allergan Inc.......................... 9,424,500
149,000 American Home Products Corp........... 9,126,250
151,200 Pfizer, Inc........................... 12,511,800
812,100 Schering-Plough Corp.................. 51,974,400
946,600 Warner-Lambert Co..................... 60,227,425
------------
143,264,375
------------
ELECTRICAL EQUIPMENT (1.2%)
---------------------------
303,400 Black & Decker Corp................... 11,339,575
------------
ENTERTAINMENT (1.7%)
--------------------
246,265 Disney, (Walt) Co..................... 16,222,707
------------
FINANCIAL (14.8%)
-----------------
283,600 Bank of NY Co., Inc................... 9,394,250
593,800 Barnett Banks, Inc.................... 22,638,625
664,800 Chubb Corp............................ 33,240,000
233,400 CoreStates Financial Corp............. 11,349,075
126,200 First USA Inc......................... 7,256,500
404,700 Horace Mann Educators Corp........... 13,860,975
397,800 Mellon Bank Corp...................... 25,906,725
454,073 U. S. Bancorp......................... 18,162,920
------------
141,809,070
------------
FOOD & BEVERAGE (9.2%)
----------------------
594,800 Anheuser-Busch Companies Inc.......... 22,899,800
1,147,500 PepsiCo, Inc.......................... 33,994,687
349,033 Ralcorp Holdings Inc.*................ 7,329,693
364,200 Ralston-Ralston Purina Group.......... 24,082,725
------------
88,306,905
------------
FURNITURE/HOME APPLIANCE (0.6%)
-------------------------------
322,000 Singer Co. N.V. (The)................. 6,158,250
------------
HOUSEHOLD - GENERAL PRODUCTS (6.0%)
-----------------------------------
694,000 Avon Products, Inc.................... 37,649,500
127,200 Gillette Company (The)................ 9,508,200
100,000 Proctor & Gamble Co................... 9,900,000
------------
57,057,700
------------
MACHINERY (1.1%)
----------------
342,400 Johnstown America Industries, Inc.*... 1,155,600
262,700 Trinity Industries, Inc............... 9,095,987
------------
10,251,587
------------
<CAPTION>
- ---------------------------------------------------------------
SHARES SECURITY VALUE
- ---------------------------------------------------------------
<S> <C> <C>
OIL & GAS (9.0%)
----------------
161,900 Mobil Corp............................ $ 18,901,825
476,700 Texaco Inc............................ 48,444,638
513,600 Unocal Corp........................... 18,810,600
------------
86,157,063
------------
PAPER AND FOREST PRODUCTS (1.3%)
--------------------------------
362,900 Bowater Inc........................... 12,837,587
------------
PRINTING & PUBLISHING (8.6%)
----------------------------
760,000 American Greetings Corp. Class A...... 22,277,500
301,800 Dun & Bradstreet Corp................. 17,466,675
211,700 Gannett Co., Inc...................... 16,062,737
297,300 Gibson Greetings, Inc.*............... 4,645,313
100,000 Tribune Co............................ 8,175,000
40,900 Washington Post Co. (The), Class B.... 13,456,100
------------
82,083,325
------------
RETAIL (0.9%)
-------------
325,300 Wal-Mart Stores Inc................... 8,661,112
------------
TELECOMMUNICATIONS (0.3%)
-------------------------
100,000 MCI Communications Corp............... 2,512,500
------------
TOYS (2.7%)
-----------
908,840 Mattel, Inc........................... 26,242,755
------------
Total common stocks
(cost $572,700,339)................... 948,855,559
------------
</TABLE>
8
<PAGE> 107
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONWIDE(R) FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (0.5%)
------------------------
$7,826,000 Consorcio G. Grupo Dina, 8.00%, 2004
(cost $7,249,051)..................... $ 4,715,165
------------
COMMERCIAL PAPER (0.7%)
-----------------------
3,870,000 Merrill Lynch & Co.
5.26%, due 11/12/96.............. 3,863,255
2,480,000 Banc One Corp.
5.30%, due 11/21/96.............. 2,479,995
------------
Total commercial paper
(cost $6,336,478)..................... 6,343,250
------------
REPURCHASE AGREEMENT (0.1%)
---------------------------
591,493 Merrill Lynch & Co., Inc.
5.63%, due 11/01/96, Collateralized by
$610,000 GNMA CMO, 5.50%, due 07/20/26,
market value $604,759
(cost $591,493)....................... 591,493
------------
Total investments
(cost $586,877,361)................... $960,505,467
============
<FN>
The abbreviations in the above statement stand for the following:
GNMA Government National Mortgage Association
CMO Collateral Mortgage Obligation
*Denotes a non-income producing security.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
[PHOTO]
Back row, l. to r.: Ron Hubbard -- Nationwide(R) Fund, Charles Hubbard, Juanita
Miller-Hubbard and Lucille Hubbard
[PHOTO]
Clara Duncan Clemens -- Nationwide(R) Fund, Bond Fund, Tax-Free Fund and Money
Market Fund, celebrates with her husband, Reece, on her graduation day from
college at age 64.
9
<PAGE> 108
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) BOND FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the year ended October 31, 1996, the Nationwide Bond Fund's total return was
5.05% assuming all distributions were reinvested, compared to the Lehman
Brothers Long-Term Government/Corporate Bond Index total return of 4.39%. Bond
yields on October 31, 1996, as compared to November 1, 1995, were lower (prices
higher) on securities having a maturity longer than one year. The effect was to
steepen the slope of the yield curve in the maturities less than five years and
to flatten the curve in the longer maturity range. In spite of the fact that
treasuries with longer maturities (15 to 30 years) performed better than ones
with 10-15 year maturities, the Nationwide Bond Fund (Bond Fund) with an average
maturity of 13.2 years performed better than the longer Lehman Brothers Index.
The yield spread between bonds and U.S. Treasuries continued to narrow. The
opportunities to improve the return on corporate bond holdings were limited and
few trades were transacted. The list of the top holdings of the Bond Fund
remained relatively the same. Overall the Bond Fund has maintained approximately
79% of its holdings in long-term corporate bonds.
The remainder of the Bond Fund's holdings are divided among mortgage-backed
securities, Canadian bonds, U.S. Treasuries, and commercial paper and repurchase
agreements. Opportunities to improve the return and future performance of
individual securities were most prevalent in the mortgage-backed securities
(MBS) area. The characteristics and payment history of MBS are continually
changing, thus presenting opportunities to trade into a better-performing
security.
The Bond Fund's portfolio consists of high-quality corporates, U.S. Governments,
mortgage-backed securities (secured by pools of home mortgages from the Federal
National Mortgage Association, the Government National Mortgage Association, and
the Federal Home Loan Mortgage Corporation), and high-quality Canadian
securities. This type of portfolio has low credit risk; however, since the
average maturity of the securities in the portfolio is fairly long, the interest
rate risk is relatively high. Changes in interest rates will cause valuation
changes in the bond holdings and changes in the price of shares of the Bond
Fund. Quarter by quarter for the past 12 months, interest rates were down in the
first quarter, up the second quarter, slightly up the third quarter and down the
fourth quarter. This volatility carries over to the share prices of the Bond
Fund. A basic premise for a long-term corporate bond fund is that the price of
its shares will fluctuate with the market.
MICHAEL D. GROSECLOSE, MBA, CFA, PORTFOLIO MANAGER
FUND VALUE $133,252,732
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
<S> <C>
CORPORATE BONDS....................................78.5%
MORTGAGE-BACKED SECURITIES..........................9.1%
CANADIAN GOVERNMENT.................................4.6%
U.S. GOVERNMENT OBLIGATIONS.........................4.0%
OTHER ASSETS LESS LIABILITIES.......................3.8%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Berkley, (WR) Corp. $5,998,810 4.5%
Seagram (JE) & Sons 5,741,050 4.3%
U.S. Treasury Note 5,293,155 4.0%
Prudential Surplus Note 5,027,810 3.8%
AMBAC Inc. 4,814,088 3.6%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond $20,471
CPI $14,365
LT G/C $25,146
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Bond Fund, the
Lehman Brothers Long-Term Govt/Corp Bond Index* and the Consumer Price Index
(CPI)** over a 10-year period ended 10/31/96.
* The Lehman Brothers Long-Term Govt/Corp Bond Index represents an unmanaged
group of bonds that are not adjusted for expenses and includes bonds of
lower quality than those purchased by our Fund.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Bond Fund, does not reflect
any fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge.............5.05%.......7.52%.......7.92%
With sales charge................0.32%.......6.53%.......7.42%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes a 4.5% sales charge was paid which has the most
dramatic effect on the one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Nationwide(R) Bond Fund is for investors seeking monthly income from
high-quality bonds and other fixed-income securities. Corporate bonds selected
for its portfolio consist primarily of securities rated "A" or above by Moody's
Investor Services and Standard & Poor's Corporation.
Investments of Nationwide(R) Bond Fund are made in different types of securities
among many companies and industries which provide diversification and help to
minimize risk.
Nationwide(R) Bond Fund has consistently provided a steady stream of income for
its shareholders -- paying dividends every month since inception (March 1,
1980).
10
<PAGE> 109
STATEMENT OF INVESTMENTS
NATIONWIDE(R) BOND FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
CANADIAN GOVERNMENT BONDS (4.6%)
--------------------------------
<S> <C>
$1,000,000 Hydro-Quebec, 11.75%, 02/01/12........ $ 1,401,239
2,000,000 Hydro-Quebec, 8.05%, 07/07/24......... 2,175,000
2,250,000 Quebec (Prov. of), 8.625%, 01/19/05... 2,537,397
------------
Total Canadian government bonds
(cost $5,706,065)..................... 6,113,636
------------
CORPORATE BONDS (78.5%)
-----------------------
BANKS (5.2%)
------------
1,000,000 Banc One Corp., 10.00%, 08/15/10...... 1,241,730
3,000,000 Banc One Corp., 9.875%, 03/01/09...... 3,665,475
2,000,000 Toronto-Dominion Bank, NY., 7.875%,
due 08/15/04....................... 2,056,758
------------
6,963,963
------------
BROKER/DEALER (7.0%)
--------------------
2,000,000 Bear Stearns Companies, Inc., 8.75%,
03/15/04........................... 2,196,972
1,000,000 Bear Stearns Companies, Inc., 9.375%,
06/01/01........................... 1,106,481
1,000,000 Lehman Brothers Holdings, Inc., 11.625%,
05/15/05........................... 1,265,700
3,000,000 Morgan Stanley Group, Inc., 10.00%,
10/15/08........................... 3,649,452
1,000,000 Morgan Stanley Group, Inc., 8.10%,
06/24/02........................... 1,067,483
------------
9,286,088
------------
CHEMICALS (1.6%)
----------------
2,000,000 ICI Wilmington, Inc., 7.50%, 01/15/02. 2,089,780
------------
FINANCE (14.6%)
---------------
2,500,000 Associates Corp. of North America, 8.15%,
O8/01/09.............................. 2,704,140
2,000,000 Bass America, Inc., 8.125%, 03/31/02.. 2,145,810
2,000,000 Ford Capital BV Notes, 10.125%,
11/15/00.............................. 2,250,036
3,000,000 Ford Capital BV Notes, 9.50%,
06/01/10.............................. 3,572,562
1,000,000 General Electric Capital Corp., 8.75%,
09/25/00.............................. 1,081,448
3,235,000 General Electric Capital Corp., 8.50%,
07/24/08.............................. 3,658,212
3,515,000 Loew's Corp., 8.875%, 04/15/11........ 4,039,624
------------
19,451,832
------------
FOOD & BEVERAGE (4.3%)
----------------------
5,000,000 Seagram, (J.E.) & Sons, Inc., 8.875%,
09/15/11.............................. 5,741,050
------------
INSURANCE (17.4%)
-----------------
1,000,000 AMBAC, Inc., 7.50%, 05/01/23.......... 1,008,044
4,000,000 AMBAC, Inc., 9.375%, 08/01/11......... 4,814,088
4,500,000 Aetna Life & Casualty Co., 6.75%,
09/15/13.............................. 4,222,202
5,000,000 Berkley (W.R.) Corp., 9.875%, 05/15/08 5,998,810
2,000,000 Equitable of Iowa Companies, 8.50%,
02/15/05.............................. 2,158,806
5,000,000 Prudential Surplus Note, 8.10%,
07/15/15*............................. 5,027,810
------------
23,229,760
------------
PAPER & FOREST PRODUCTS (0.8%)
------------------------------
1,000,000 Temple-Inland, Inc., 9.00%, 05/01/01.. 1,093,996
------------
PUBLISHING (1.5%)
-----------------
2,000,000 Times Mirror Co., 7.25%, 03/01/13..... 1,989,122
------------
RETAIL TRADE (10.4%)
--------------------
3,000,000 Dayton Hudson Co., 8.60%, 01/15/12.... 3,351,015
2,000,000 Dayton Hudson Co., 9.25%, 08/15/11.... 2,361,566
3,000,000 May Department Stores Company., 10.625%,
11/01/10.............................. 4,007,505
2,000,000 Wal-Mart Stores, Inc., 7.25%, 01/01/13 2,030,554
2,000,000 Wal-Mart Stores, Inc., 7.50%, 05/15/04 2,102,106
------------
13,852,746
------------
UTILITIES : GAS & ELECTRIC (1.0%)
---------------------------------
1,250,000 Pacific Gas & Electric Co., 8.75%,
01/01/01.............................. 1,334,910
------------
OTHER (14.7%)
-------------
4,000,000 Armstong World Industries, Inc., 9.75%,
04/15/08.............................. 4,683,252
4,000,000 Englis China Clays Delaware, Inc., 7.375%,
10/01/02.............................. 4,158,100
2,000,000 Grand Metropolitan Inv. (G) 9.00%,
08/15/11.............................. 2,349,296
2,000,000 Kaiser Foundation, 9.55%, 07/15/05.... 2,348,702
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
$2,000,000 Waste Management, Inc., 7.65%,
03/15/11 $ 2,098,940
3,500,000 Waste Management, Inc., 8.75%,
05/01/18.............................. 3,944,234
------------
19,582,524
------------
Total corporate bonds
(cost $102,498,898)................... 104,615,771
------------
MORTGAGE-BACKED SECURITIES (9.1%)
---------------------------------
1,000,000 FHLMC (REMIC) Class 1188-H, 7.50%,
12/15/20.............................. 1,016,559
700,000 FHLMC (REMIC) Class 1228-G, 7.00%,
01/15/21.............................. 692,348
500,000 FHLMC (REMIC) Class 1358-I, 7.00%,
07/15/21.............................. 495,510
500,000 FHLMC (REMIC) Class 1360-VK, 7.50%,
08/15/07............................. 515,840
990,530 FHLMC (REMIC) Class 1709-EA, 7.25%,
12/15/23.............................. 963,467
183,595 FHLMC-GNMA (REMIC) Class 29X, 6.75%,
02/25/23 ............................. 179,666
367,190 FHLMC-GNMA (REMIC) Class 29Z, 6.75%,
04/25/24 ............................. 338,615
500,000 FNMA (REMIC) Class 1991-118K, 7.00%,
08/25/21.............................. 487,120
929,000 FNMA (REMIC) Class 1992-145E, 7.00%,
08/25/22.............................. 935,762
353,239 FNMA (REMIC) Class 1994-96D, 8.00%,
09/25/24.............................. 348,551
1,000,000 FNMA (REMIC) Class 92-200 MB, 7.50%, .
01/25/22.............................. 990,559
646,000 FNMA (REMIC) Class G1992-15G, 7.00%,
04/25/20.............................. 643,945
590,540 FNMA (REMIC) Class G1992-64M, 7.00%,
11/25/22.............................. 571,235
537,688 FNMA (REMIC) Class G1992-65NA, 7.00%,
11/25/22.............................. 509,841
500,000 FNMA (REMIC) Class G1993-10G, 5.00%,
05/25/22.............................. 428,490
1,010,000 FNMA (REMIC) Class G1993-10H, 5.00%,
08/25/22.............................. 822,573
2,396,000 FNMA (REMIC) Class S G93-10E, 5.00%,
04/25/20.............................. 2,246,487
------------
Total mortgage-backed securities
(cost $12,094,761).................... 12,186,566
------------
U.S. GOVERNMENT LONG-TERM OBLIGATION (4.0%)
-------------------------------------------
5,000,000 U.S. Treasury Note, 7.50%, 11/15/01
(cost $5,237,271)..................... 5,293,155
------------
COMMERCIAL PAPER (1.7%)
-----------------------
880,000 Dean Witter, Discover & Company, 5.24%,
due 11/25/96.......................... 876,805
931,000 Merrill Lynch & Co, Inc., 5.27%, due
11/13/96.............................. 929,242
426,000 National Rural Utilities Cooperative,
5.24%, due 11/14/96................... 425,134
------------
Total commercial paper
(cost $2,231,484)..................... 2,231,181
------------
REPURCHASE AGREEMENT (0.4%)
---------------------------
578,037 MBS Tri Party 5.63%, due 11/01/96,
Collaterlized by $595,000 GNMA CMO, 5.50%,
due 07/20/26, market value $589,888
(cost $578,037)....................... 578,037
------------
Total investments
(cost $128,346,516)................... $131,018,346
============
<FN>
The abbreviations in the above statement stand for the following:
* Represents a security registered under Rule 144-A, which limits the resale to
certain qualified buyers.
The abbreviations in the above statement stand for the following:
FHLMC Federal Home Loan Mortgage Corp.
REMIC Real Estate Mortgage Investment Conduit
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
CMO Collateralized Mortgage Obligation
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 110
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) TAX-FREE INCOME FUND
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The Nationwide Tax-Free Income Fund's total return for the year ended October
31, 1996, was 5.31% assuming all distributions were reinvested while the Lehman
Brothers Municipal Bond Index returned 5.70%.
During fiscal year 1996 the municipal bond market performed well. Demand for
municipal bonds remained strong, fear of tax reform diminished while the economy
grew at a slow manageable noninflationary pace. The 11-Bond General Obligation
Index as published by the Bond Buyer declined from 5.62% to 5.60%, only .02%,
while the 30-year Treasury rose from 6.29% to 6.64%, a .35% increase.
Issuers taking advantage of the current low interest rate environment increased
issuance of municipal bonds during the latter part of the period. Issuers were
concerned about the results that the upcoming election would have upon the
economy and interest rates. However, the increased supply was quickly absorbed
by property and casualty companies and bond funds.
The yield spread on a 20-year AA rated General Obligation bond as compared to a
20-year A rated General Obligation Municipal bond declined from .18% to .16%
during the period. Faced with such narrow quality spreads, current low yields
and uncertainties about interest rates, the strategy of the Fund did not change.
Management maintained an average credit rating of AA and an average maturity of
approximately 19 years. Assets will continue to be managed for the long term.
ALPHA L. BENSON, MBA, PORTFOLIO MANAGER
FUND VALUE $264,641,760
PORTFOLIO COMPOSITION
MUNICIPAL SECURITIES...............................98.4%
OTHER ASSETS LESS LIABILITIES.......................1.6%
TOP FIVE HOLDINGS BY STATE
<TABLE>
<CAPTION>
VALUE %
- --------------------------------------------------------------
<S> <C> <C>
Texas $40,510,025 15.3%
Virginia 35,247,131 13.3%
Illinois 24,985,213 9.4%
Washington 18,885,979 7.1%
North Carolina 15,800,219 6.0%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
Tax-Free CPI LBMBI
<S> <C> <C> <C>
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 $18,783 $14,365 $21,240
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Tax-Free Income
Fund, the Lehman Brothers Municipal Bond Index* and the Consumer Price Index
(CPI)** over a 10-year period ended 10/31/96.
* The Lehman Brothers Municipal Bond Index represents an unmanaged group of
bonds that are not adjusted for expenses and includes bonds of lower
quality than those purchased by our Fund.
** The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Tax-Free Income Fund, does
not reflect any fees or expenses.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge.............5.31%.......6.67%.......6.50%
With sales charge................0.31%.......6.52%.......6.50%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 5 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Nationwide(R) Tax-Free Income Fund offers a monthly income that's free from
federal taxes. For certain shareholders, a portion of income may be subject to
state, local or federal alternative minimum tax.
By investing in the Nationwide(R) Tax-Free Income Fund, you can earn tax-free
dividends from municipal bonds carefully selected for their relative safety and
security.
The Nationwide(R) Tax-Free Income Fund invests in a diversified portfolio of
high-quality and intermediate-term (maturities of from 3-10 years) and long-term
(maturities over 10 years) municipal obligations.
12
<PAGE> 111
STATEMENT OF INVESTMENTS
NATIONIDE(R) TAX-FREE INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
LONG-TERM MUNICIPAL SECURITIES (98.4%)
--------------------------------------
ALABAMA (4.9%)
--------------
$3,000,000 Alabama Housing Finance Authority Single-
Family Mortgage Revenue Bonds
(Collateralized Home Mortgage Revenue
Bond Program), 1996 Series D, 6.00%,
10/01/16........................... $ 3,026,250
1,100,000 Birmingham, Alabama General Obligation
Parking Warrants, Series 1995-A, 5.90%,
06/01/18........................... 1,102,750
2,500,000 Birmingham, Alabama General Obligation
Refunding Revenue, Series 1992 B,
6.25%, 04/01/16 ................... 2,609,375
2,480,000 Birmingham, Alabama Water Works & Sewer
Board Refunding Revenue,
Series 1992, 6.125%, 01/01/12 ..... 2,569,900
3,500,000 Huntsville, Alabama General Obligation
Limited Tax Warrants, Series 1992 A,
6.00%, 11/01/12.................... 3,626,875
----------
12,935,150
----------
ARIZONA (2.9%)
--------------
5,100,000 Salt River Project, Agricultural Improvement
& Power District, Arizona Electric System
Revenue Bonds, Series 1992 C,
6.00%, 01/01/16.................... 5,182,875
2,500,000 Salt River Project, Agricultural Improvement
& Power District, Arizona Electric System
Revenue Bonds, Series 1992 C, 6.20%,
01/01/12........................... 2,596,875
----------
7,779,750
----------
COLORADO (0.4%)
---------------
1,000,000 Colorado Housing Finance Authority Single-
Family Housing Revenue Refunding Bonds,
Series 1991-A, 7.15%, 11/01/14..... 1,060,000
----------
CONNECTICUT (2.0%)
------------------
5,000,000 Connecticut Housing Finance Authority Housing
Mortgage Finance Program Bonds,
Series 1992-B, 6.70%, 11/15/12..... 5,275,000
----------
FLORIDA (2.3%)
--------------
2,205,000 Florida State Board of Education General
Obligation Full Faith and Credit Public
Education Capital Outlay Refunding Bonds,
1995 Series A, 5.50%, 06/01/15..... 2,199,488
1,320,000 Florida State Full Faith and Credit State Board
of Education Public Education Capital Outlay
Bonds, 1992 Series D, 5.20%, 06/01/13 1,273,800
2,400,000 Jacksonville, Florida Electric Authority Bulk
Power Revenue Bonds, (Scherer 4 Project,
Issue One, Series 1991-A), 7.00%, 10/01/12 2,652,000
----------
6,125,288
----------
GEORGIA (2.0%)
--------------
1,210,000 Dekalb County, Georgia General Obligation
Refunding Bonds, 6.00%, 01/01/12... 1,261,425
2,750,000 Georgia Municipal Electric Authority Power
Revenue Bonds,
Series 1991-V, 6.60%, 01/01/18..... 3,031,875
1,005,000 Georgia Residential Financial Authority
Revenue Bonds, Series A, 7.50%, 06/01/17 1,053,994
----------
5,347,294
----------
ILLINOIS (9.4%)
---------------
3,000,000 Chicago, Illinois General Airport Revenue
Refunding Bonds, Series 1993-A
(Chicago-O'Hare International Airport),
5.00%, 01/01/16.................... 2,722,500
2,185,000 Illinois Educational Facility Authority Revenue,
Series 1991-A, Loyola University, 7.125%,
07/01/21........................... 2,367,994
1,975,000 Illinois Regional Transportation Authority
General Obligation Refunding Bonds,
Series 1996, 5.40%, 06/01/15....... 1,898,469
$7,500,000 Illinois State Builders Illinois Bonds Sales Tax
Revenue, Series O, 6.00%, 06/15/18. $7,537,500
2,500,000 llinois State Builders Illinois Bonds Sales Tax
Revenue, Series V, 6.375%, 06/15/17 2,603,125
3,000,000 Illinois State General Obligation Bonds,
Series of March 1994, 5.80%, 04/01/19 3,003,750
1,350,000 Illinois State General Obligation Bonds,
Series of July 1995, 5.75%, 07/01/16 1,350,000
2,500,000 Illinois State General Obligation Bonds,
Series of December 1995, 5.125%, 12/01/17 2,340,625
1,000,000 Palatine, Illinois Corporate Purpose General
Obligation Bonds, Series 1985, 9.90%, 01/01/16 1,161,250
----------
24,985,213
----------
INDIANA (2.8%)
--------------
5,335,000 Indiana State Toll Road Commission East-West
Toll Road Revenue Bonds,
Series 1980, 9.00%, 01/01/15....... 7,302,281
----------
MARYLAND (0.4%)
---------------
1,000,000 Howard County, Maryland Public Improvement
General Obligation Unlimited Tax,
Series 1994 A, 6.00%, 05/15/14..... 1,035,000
----------
MASSACHUSETTS (3.9%)
--------------------
3,775,000 Massachusetts State General Obligation
Bonds Consolidated
Loan, Series 1992-B, 6.50%, 06/01/13 4,015,656
2,500,000 Massachusetts State General Obligation Bonds,
Consolidated Loan of 1995,
Series D, 5.125%, 11/01/12......... 2,400,000
4,000,000 Massachusetts Water Resources Authority
General Revenue Bonds,
Series 1992A, 5.50%, 07/15/22...... 3,850,000
----------
10,265,656
----------
MICHIGAN (1.5%)
---------------
3,500,000 Michigan State General Obligation Bonds,
Environmental Protection Program,
Series 1992, 6.25%, 11/01/12....... 3,823,750
----------
MINNESOTA (2.4%)
----------------
2,300,000 Minnesota Housing Finance Agency
Rental Housing Revenue
Bonds, 1995 Series D, 5.90%, 08/01/15 2,300,000
3,950,000 Minnesota State Housing Finance Agency
Single Family Mortgage Revenue Bonds,
Series 1994 K, 6.40%, 01/01/15.... 4,058,625
----------
6,358,625
----------
MISSOURI (0.8%)
---------------
2,000,000 Missouri State Environmental Improvement
& Energy Resources Authority Water
Pollution Control Revenue
Bonds, 6.55%, 07/01/14............. 2,152,500
----------
NEBRASKA (2.0%)
---------------
5,000,000 Nebraska Public Power District Power
Supply System Revenue Bonds,
Series 1993, 6.125%, 01/01/15...... 5,137,500
----------
NEVADA (0.9%)
-------------
2,190,000 Nevada State Colorado River Commission
General Obligation (Limited Tax, Revenue
Supported) Bonds Series November 1, 1994
6.50%, 07/01/19.................... 2,433,637
----------
NORTH CAROLINA (6.0%)
---------------------
1,035,000 Charlotte-Mecklenburg Hospital Authority,
North Carolina Health Care System
Revenue Bonds, Series 1992, 6.00%, 01/01/22 1,046,644
3,460,000 North Carolina Housing Finance Agency
Multi-Family Revenue
Refunding Bonds, Series H, 5.95%, 07/01/21 3,468,650
</TABLE>
13
<PAGE> 112
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONIDE(R) TAX-FREE INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
$2,035,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series AA, 6.25%, 03/01/17......... $ 2,088,419
2,185,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series GG, 5.90%, 03/01/13......... 2,193,194
1,910,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series N, 7.40%, 03/01/28.......... 2,003,112
1,880,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series J, 7.40%, 03/01/22.......... 1,955,200
1,000,000 North Carolina Medical Care Commission
Hospital Revenue Bonds, Duke University
Hospital Project, Series C, 5.25%, 06/01/17 955,000
2,000,000 North Carolina Medical Care Commission
Hospital Revenue Refunding Bonds,
Series 1992 A (North Carolina Baptist
Hospitals Project), 6.375%, 06/01/14 2,090,000
----------
15,800,219
----------
OHIO (2.0%)
-----------
1,000,000 Columbus, Ohio Water Works & Sewer Board
Refunding Revenue, Series 1991, 6.375%, 11/01/10 1,061,250
1,100,000 Franklin County, Ohio Hospital Refunding and
Improvement Revenue Bonds,
(The Children's Hospital Project)
1996 Series A, 5.75%, 11/01/20..... 1,100,000
1,250,000 Ohio Housing Finance Agency Mortgage
Revenue Bonds Residential Mortgage Backed
Securities, Series A-1, 5.70%, 03/01/17 1,248,437
2,000,000 Ohio Turnpike Commission Turnpike Revenue
Bonds 1996 Series A, 5.70%, 02/15/17 2,017,500
----------
5,427,187
----------
PENNSYLVANIA (3.5%)
-------------------
4,055,000 Pennsylvania Housing Finance Agency
Rental Housing Refunding Revenue Bonds,
Issue 1992, 6.40%, 07/01/12........ 4,161,444
1,500,000 Pennsylvania Housing Finance Agency
Rental Housing Refunding Revenue Bonds,
Issue 1992, 6.25%, 07/01/07........ 1,554,375
2,000,000 Pennsylvania State Turnpike Commission
Oil Franchise Tax
Revenue, Series A, 6.00%, 12/01/14. 2,087,500
1,500,000 Pittsburgh, Pennsylvania Water and Sewer
Authority, Water and Sewer System First Lien
Revenue Bonds, Series A of 1995,
5.50%, 09/01/15.................... 1,468,125
----------
9,271,444
----------
SOUTH CAROLINA (5.6%)
---------------------
6,980,000 Charleston, South Carolina Waterworks
& Sewer System Refunding & Capital
Improvement Revenue Bonds,
Series 1991, 6.00%, 01/01/18....... 7,171,950
1,400,000 Greenville, South Carolina Hospital System
Revenue Bonds Hospital Facilities,
Series B, 5.25%, 05/01/17.......... 1,309,000
1,500,000 South Carolina State Housing Finance
& Development Authority Multi-Family
Development Revenue Refunding,
Series 1992-A, 6.875%, 11/15/23.... 1,556,250
2,075,000 South Carolina State Housing Finance &
Development Authority Homeownership
Mortgage Purchase Bonds,
Series 1994 A, 6.375%, 07/01/16.... 2,106,125
1,500,000 Spartanburg, South Carolina Water System
Improvement & Refunding Revenue Bonds,
Series 1992, 6.25%, 06/01/17....... 1,563,750
1,000,000 Spartanburg, South Carolina Water System
Revenue Bonds,
Series 1996, 6.10%, 06/01/21....... 1,033,750
----------
14,740,825
----------
TENNESSEE (1.8%)
----------------
$1,000,000 Nashville & Davidson County, Tennessee General
Obligation Multi-Purpose Improvement Bonds,
Series 1994, 6.125%, 05/15/14...... $ 1,037,500
1,500,000 Nashville & Davidson County, Tennessee Health
& Educational Facilities Revenue Bonds,
Series 1979, 7.875%, 12/01/04...... 1,668,750
1,000,000 Shelby County, Tennessee General Obligation
School Bonds, Series 1994 B,
6.00%, 03/01/14.................... 1,033,750
1,000,000 Shelby County, Tennessee General Obligation
Public Improvement Bonds,
1996 Series A, 5.85%, 06/01/17..... 1,010,890
----------
4,750,890
----------
TEXAS (15.3%)
-------------
1,250,000 Bexar County, Texas Combination Tax and
Revenue Certificates, Series 1992, 6.20%,
06/15/12........................... 1,342,188
1,000,000 Carrollton-Farmers Branch Independent
School District, Texas General Obligation
Permanent School Fund
Guarantee, Series 1996, 5.70%, 02/15/17 1,002,500
3,500,000 Conroe, Texas Independent School District
Unlimited Tax Schoolhouse and Refunding
Bonds, Series 1993, 5.00%, 02/01/18 3,198,125
1,100,000 Cypress-Fairbanks Independent School District,
Texas General Obligation Permanent School
Fund Guarantee, Series 1996,
5.375%, 02/15/19................... 1,061,500
2,300,000 Fort Bend Independent School District,
Texas General Obligation Permanent School
Fund Guarantee, Series 1996, 5.00%, 02/15/18 2,127,500
1,000,000 Harris County, Texas Detention Facility
Certificates, Series 1992, 6.00%, 12/15/10 1,065,000
3,500,000 Harris County, Texas General Obligation
Tax and Revenue Certificates,
Series 1994, 6.10%, 10/01/13....... 3,666,250
7,720,000 Houston, Texas Water & Sewer Junior Lien
Revenue Refunding, Series 1991-C,
6.375%, 12/01/17................... 8,192,850
1,215,000 Irving, Texas Independent School District
Unlimited Tax School Building Bonds,
Series 1991-C-Permanent School
Fund, 5.25%, 02/15/09.............. 1,202,850
270,000 Lower Colorado River Authority Texas Junior
Lien Refunding Revenue Bonds,
Series 1992 (ETC), 6.00%, 01/01/17. 289,912
490,000 Lower Colorado River Authority Texas Junior
Lien Refunding Revenue Bonds,
Series 1992 (ETM), 6.00%, 01/01/17 515,725
2,630,000 Lower Colorado River Authority Texas Junior
Lien Refunding Revenue Bonds,
Series 1992 (Unrefunded), 6.00%, 01/01/17 2,656,300
2,000,000 Texas A&M University System Board of Regents
Revenue Financing System Bonds,
Series 1996, 5.375%, 05/15/14...... 1,950,000
3,175,000 Texas State Water Development Bonds,
Series 1994, 6.90%, 08/01/17....... 3,516,312
2,000,000 University of Texas Revenue Financing System
Bonds, Series 1991, 6.50%, 07/01/11 2,195,000
2,000,000 University of Texas System Permanent University
Fund Bonds, Series 1992B, 6.25%, 07/01/13 2,157,500
3,000,000 Weatherford, Texas Independent School
District Unlimited Tax School Building and
Refunding Bonds, Series 1994, 6.50%, 02/15/15 3,213,750
1,090,000 Weatherford, Texas Independent School District
Unlimited Tax School Building and Refunding
Bonds, Series 1994, 6.40%, 02/15/12 1,156,763
----------
40,510,025
----------
UTAH (1.1%)
-----------
3,080,000 Intermountain Power Agency, Utah Power
Supply Revenue Refunding Bonds,
Series 1993-A, 5.50%, 07/01/20..... 2,937,550
----------
</TABLE>
14
<PAGE> 113
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONIDE(R) TAX-FREE INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
VIRGINIA (13.3%)
----------------
$1,500,000 Fairfax County, Virginia Water Authority
Water Refunding Revenue
Series 1992, 6.00%, 04/01/22....... $ 1,537,500
4,250,000 Henrico County, Virginia Water and Sewer
System Refunding Revenue Bonds,
Series 1994, 5.875%, 05/01/14...... 4,281,875
1,985,000 Newport News, Virgina General Improvement
Bonds, Series 1993 E, 5.20%, 01/01/13 1,908,081
8,000,000 Richmond, Virginia General Obligation Public
Improvement Refunding Bonds,
Series 1991-B, 6.25%, 01/15/18..... 8,280,000
2,150,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1993 H, 5.25%, 07/01/23..... 1,980,687
2,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds, Series 1992
C Subseries C-7, 6.30%, 01/01/15... 2,035,000
1,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds, Series 1995
B Subseries B-3, 6.35%, 01/01/15... 1,021,250
5,500,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1992 A, 7.10%, 01/01/22.... 5,651,250
1,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds, Series B
Subseries B-2, 6.50%, 01/01/10..... 1,066,250
1,080,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1995-D, Subseries D-1, 5.95%, 01/01/13 1,085,400
2,000,000 Virginia Public School Authority School
Financing Bonds (1991 Resolution),
Series 1994 A, 6.20%, 08/01/13..... 2,115,000
4,595,000 Virginia Public School Authority School
Financing Bonds (1991 Resolution),
Series 1995 C, 5.00%, 08/01/16..... 4,284,838
----------
35,247,131
----------
WASHINGTON (7.1%)
-----------------
$2,950,000 Seattle, Washington Metropolitan General
Obligation Bonds,
Series 1991, 6.875%, 01/01/20...... $ 3,015,991
6,150,000 Seattle, Washington Water System and
Refunding Revenue Bonds, 1993, 5.50%,
06/01/18........................... 5,996,250
7,635,000 Washington State General Obligation,
Series 1992 A and
AT-6, 5.75%, 02/01/17.............. 7,654,088
2,155,000 Washington State General Obligation
Unlimited Tax Bonds,
Series DD-14 and B, 6.00%, 09/01/15 2,219,650
----------
18,885,979
----------
WISCONSIN (4.1%)
----------------
2,000,000 Wisconsin State General Obligation,
Series 1992-A, 6.30%, 05/01/11..... 2,157,500
3,065,000 Wisconsin State General Obligation Refunding
Bonds of 1996,
Series1, 5.00%, 05/01/14........... 2,900,256
2,000,000 Wisconsin State General Obligation Bonds
of 1994, Series A, 5.00%, 05/01/14. 1,892,500
2,500,000 Wisconsin State Transportation Revenue Bonds,
Series A, 5.50%, 07/01/12.......... 2,481,250
1,500,00 Wisconsin State Transportation Revenue
Bonds,1994 Series A, 5.50%, 07/01/11 1,462,500
----------
10,894,006
----------
Total long-term municipal securities
(cost $249,797,168)................... $260,481,900
============
</TABLE>
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
[PHOTO] [PHOTO]
Mary Ellen Gere-Penna-- E. Chris Evan--Nationwide(R)
Growth Fund and Money Fund and Government Bond
Market Fund, with her pet Fund, portrays Ohio Civil War
Sheltie, Mackenzie. General William T. Sherman.
15
<PAGE> 114
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The total return for the Nationwide U.S. Government Income Fund for the year
ended October 31, 1996, was 5.28% compared to a total return of 5.67% for its
benchmark index, the Lehman Brothers Intermediate Government Bond Index.
The past 12 months have been a volatile period for the U.S. bond market. Early
in the year, fears of a strengthening economy and higher inflation led to an
increase in interest rates. More recently, as favorable inflation results have
been released, inflationary concerns have eased and rates have declined from
their highs at midyear. Content with the current state of the economy, the
Federal Reserve has left the federal funds rate unchanged at 5.00% since early
this year. The net change in interest rates over the past 12 months was an
increase of approximately .35% in intermediate and long rates. The Fund
under-performed the index during this period due to the Fund having a slightly
longer average maturity than the index.
The U.S. Government Income Fund continues to be invested in sectors of the
government agency and mortgage-backed markets perceived to be undervalued.
Approximately 80% of portfolio assets are invested in the collateralized
mortgage obligation (CMO) market. The yield on these conservatively structured
investments continues to make them attractive portfolio holdings. The remainder
of the portfolio is invested in repurchase agreements for liquidity purposes and
callable government agency notes for increased portfolio yield.
Wayne T. Frisbee, CFA, Portfolio Manager
FUND VALUE $39,497,205
PORTFOLIO COMPOSITION
<TABLE>
<S> <C>
Mortgage-backed securities.........................78.8%
U.S. government and agency long-term obligations...18.2%
Other assets less liabilities.......................3.0%
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
VALUE %
- -------------------------------------------------------------------------------
<S> <C> <C>
FHLMC (REMIC) Series 1462, Class PT $5,155,545 13.1%
FNMA (REMIC) Series 93-203, Class PJ 4,905,045 12.4%
Federal Home Loan Banks 4,012,716 10.2%
FNMA (REMIC) Series 92-151, Class H 3,745,596 9.5%
FHLMC (REMIC) Series 1344, Class D 3,735,156 9.5%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C>
U.S.G.I. $13,532
CPI $11,413
L. Int. Govt. $13,504
<FN>
Comparative performance of $10,00 invested in the Nationwide(R) U.S. Government
Income Fund since inception (2/10/92), the Lehman Brothers Intermediate
Government Bond Index* and the Consumer Price Index (CPI)** over the period
since inception ended 10/31/96.
* The Lehaman Bothers Intermediate Government Bond Index represents an
unmanaged group of bonds that are not adjusted for expense and includes
bonds of lower quality than those purchaseed by our Fund.
** The Consumer Price Index is a broad index reflecting the price changes in a
market basket of consumer goods and, unlike the U.S.G.I. Fund, does not
reflect any fees or expenses.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDED 10/31/96
<TABLE>
<CAPTION>
1 YEAR LIFE
<S> <C> <C>
Without sales charge.......................5.28%.........6.81%
With sales charge..........................0.32%.........6.64%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes the applicable contigent deferred sales charge
(CDSC) was paid on withdrawls wich has the most dramatic effect on the one-year
performance figures. The CDSC declines from 5% in the first year to 0% after 5
years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND HIGHLIGHTS
Monthly income is paid by the Nationwide(R) U.S. Government
Income Fund from a high-quality portfolio of government securities. These
securities are generally considered among the safest, though they are not
specifically rated by the credit rating agencies.
In a attempt to minimize share price fluctuation, the Nation- wide(R) U. S.
Government Income Fund maintains an average portfolio maturity of 10 years or
less. Generally, shorter maturities are less subject to price fluctuation. Of
course, all bond prices (U.S. Government, municipal and corporate) are affected
by interest rates.
16
<PAGE> 115
STATEMENT OF INVESTMENTS
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
MORTGAGE-BACKED SECURITIES (78.8%)
----------------------------------
$1,500,000 FNMA Series 92-126, Class VB,
8.00%, 07/25/02.................... $ 1,553,774
5,000,000 FHLMC REMIC Series 1462, Class PT,
7.50%, 01/15/03.................... 5,155,545
3,000,000 FHLMC REMIC Series 1313, Class G,
7.25%, 06/15/07.................... 3,054,297
4,000,000 FHLMC REMIC Series 1344, Class D,
6.00%, 08/15/07.................... 3,735,156
4,000,000 FNMA REMIC Series 92-151, Class H,
6.00%, 08/25/07................... 3,745,596
414,545 FNMA REMIC Series 1988-25, Class B,
9.25%, 10/25/18.................... 439,405
2,614,713 FNMA REMIC Series 1990-7, Class B,
8.50%, 01/25/20.................... 2,722,698
3,437,917 FHLMC REMIC Series 31, Class E,
7.55%, 05/15/20.................... 3,482,847
2,180,509 FNMA REMIC Series 1992-81, Class Z,
8.50%, 04/25/22.................... 2,314,019
5,000,000 FNMA REMIC Series 1993-203, Class PJ,
6.50%, 10/15/23.................... 4,905,045
----------
Total mortgage backed securities
(cost $30,801,959).................... 31,108,382
----------
U.S. GOVERNMENT AND AGENCY
LONG-TERM OBLIGATIONS (18.2%)
-----------------------------
1,000,000 Federal Home Loan Mortgage Corp.
7.445%, 04/14/04................... 1,015,967
4,000,000 Federal Home Loan Banks
6.36%, 03/21/01.................... 4,012,716
1,550,000 Federal National Mortgage Association
7.26%, 10/05/05.................... 1,545,296
2,000,000 Resolution Funding STRIPS,
0.00%, 07/15/13.................... 633,058
----------
Total U.S. government and agency
long-term obligations
(cost $6,992,990)..................... 7,207,037
----------
REPURCHASE AGREEMENT (2.7%)
---------------------------
1,055,000 Prudential Securities
5.55%, due 11/01/96, Collateralized by
$1,075,000 Student Loan Marketing
Association Fund 0.00%, due 04/10/97,
market value $1,077,688 (cost $1,055,000) 1,055,000
----------
Total investments
(cost $38,849,949).................... $ 39,370,419
============
<FN>
The abbreviations in the statement above stand for the following:
FNMA Federal National Mortgage Association
FHLMC Federal Home Loan Mortgage Corporation
REMIC Real Estate Mortgage Investment Conduit
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
</TABLE>
[PHOTO]
Christopher M. Hungerford (right)-
Growth Fund, accepts his first place
certificate for winning the Champlain
Country Club's 1995 Jr. Championship in
St. Albans, Vermont.
[PHOTO]
From l. to r. Miranda, Katrina and Desiree (twins)
and Nichole are the daughters of Timothy Guaraldi-
Nationwide(R) Fund and Growth Fund.
17
<PAGE> 116
NATIONWIDE(R) FAMILY OF FUNDS
NATIONWIDE(R) MONEY MARKET FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The year ended October 31, 1996, has been one of very stable short-term interest
rates, which has produced the consistent yield in the Nationwide Money Market
Fund. The total return for the year ended October 31, 1996, was 5.05% compared
to the Consumer Price Index total return of 2.99%.
The Federal Reserve Board (Feds) has not found sufficient justification to alter
monetary policy, and has left the discount rate unchanged at 5.00% since January
of this year. Market rates have been nearly as steady. For example, 30-day prime
commercial paper has traded between 5.16% and 5.45% this year, and 3-month U.S.
Treasury bills have traded between 5.02% and 5.48%.
The absence of inflation has allowed the Feds to stay the course despite
periodic indications of strength in the economy and upward pressure on some
commodity prices, particularly oil. Both consumer and producer prices have held
in what is perceived by the markets as an acceptable range.
Prime commercial paper has continued to provide the best risk/return profile,
accounting for its dominant portfolio weighting. The strategy of selecting
securities which provide the optimal relative value within a balanced maturity
structure will continue, with the focus on liquidity and a stable share value.
William M. Burtch, MBA, Portfolio Manager
FUND VALUE $729,499,762
PORTFOLIO COMPOSITION
<TABLE>
<S> <C>
Commercial paper................................................ 92.4%
Canadian government............................................. 5.1%
U.S. government obligations and other assets less liabilities .. 2.5%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE %
- ------------------------------------------------------------------------------
<S> <C> <C>
Merrill Lynch & Co. $29,181,062 4.0%
MetLife Funding, Inc. 28,247,486 3.9%
Old Republic Capital Corp. 28,036,983 3.8%
National Rural Utilities 27,891,342 3.8%
Norwest Corporation 27,027,238 3.7%
</TABLE>
<TABLE>
<CAPTION>
FUND PERFORMAMCE
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MMF $17,176
CPI $14,365
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Money market
Fund and the Consumer Price Index (CPI)* over a 10-year period ended 10/31/96.
* The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Money Market Fund, does not
reflect any fees or expenses.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Without sales charge.............5.05%.......3.99%.......5.55%
</TABLE>
An investment in the Money Market Fund is neither insured nor guaranteed by the
U.S. Government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share. There are no sales charges in the
Nationwide(R) Money Market Fund. Past performance is no guarantee of future
results.
FUND HIGHLIGHTS
Due to daily dividend compounding from a high-quality portfolio, the
Nationwide(R) Money Market Fund offers high current market rates -- plus
stability of principal since the Fund seeks to maintain a constant $1.00 per
share net asset value. During the Fund's life, its share price has always been
$1.00.
Benefits of the Nationwide(R) Money Market Fund include liquidity without
penalty, competitive current market rates, daily compounding, security of
principal and free checkwriting privileges ($500 minimum).
18
<PAGE> 117
STATEMENT OF INVESTMENTS
NATIONWIDE(R) MONEY MARKET FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
CANADIAN GOVERNMENT OBLIGATIONS (5.1%)
--------------------------------------
British Columbia (Providence Of)
$5,000,000 5.23%, due 11/18/96................... $ 4,987,652
5,000,000 5.23%, due 12/27/96................... 4,959,322
5,000,000 5.37%, due 02/10/97................... 4,924,671
5,000,000 5.44%, due 03/13/97................... 4,900,267
Canadian Wheat Board
5,000,000 5.35%, due 11/20/96................... 4,985,882
8,000,000 5.37%, due 12/16/96................... 7,946,300
1,500,000 5.27%, due 12/20/96................... 1,489,240
3,395,000 5.25%, due 01/10/97................... 3,360,343
-----------
Total Canadian government obligations
(cost $37,553,677).................... 37,553,677
-----------
COMMERCIAL PAPER (92.4%)
--------------------------
Auto/Finance (2.5%)
Ford Motor Credit Co.
4,000,000 5.48%, due 11/07/96................... 3,996,347
3,800,000 5.30%, due 11/12/96................... 3,793,846
5,500,000 5.25%, due 12/09/96................... 5,469,521
5,440,000 5.31%, due 01/30/97................... 5,367,784
-----------
18,627,498
-----------
BANKS (12.0%)
-------------
Banc One Corp.
5,000,000 5.30%, due 11/15/96................... 4,989,694
5,000,000 5.24%, due 12/13/96................... 4,969,433
Corestates Capital Corp.
8,000,000 5.32%, due 01/28/97................... 7,895,964
J.P. Morgan & Co., Inc.
4,000,000 5.23%, due 11/06/96................... 3,997,094
3,000,000 5.48%, due 11/08/96................... 2,996,804
5,000,000 5.47%, due 11/12/96................... 4,991,643
8,640,000 5.42%, due 12/12/96................... 8,586,667
5,000,000 5.40%, due 12/13/96................... 4,968,500
National City Credit Corp.
9,000,000 5.35%, due 11/06/96................... 8,993,313
8,000,000 5.26%, due 12/04/96................... 7,961,427
Norwest Corp.
6,000,000 5.42%, due 11/04/96................... 5,997,290
7,530,000 5.30%, due 11/26/96................... 7,502,285
9,480,000 5.30%, due 01/08/97................... 9,385,095
4,185,000 5.29%, due 01/09/97................... 4,142,568
-----------
87,377,777
-----------
BROKER-DEALERS (14.1%)
----------------------
Bear Stearns Companies, Inc.
8,000,000 5.34%, due 11/08/96................... 7,991,693
7,000,000 5.42%, due 11/12/96................... 6,988,407
8,000,000 5.42%, due 01/03/97................... 7,924,120
Dean Witter Discover & Co.
5,000,000 5.30%, due 01/31/97................... 4,933,014
5,000,000 5.31%, due 01/31/97................... 4,932,888
Goldman Sachs Group
8,000,000 5.25%, due 11/18/96................... 7,980,167
2,123,000 5.26%, due 11/21/96................... 2,116,796
8,000,000 5.24%, due 11/25/96................... 7,972,053
Merrill Lynch & Co., Inc.
2,912,000 5.62%, due 11/01/96................... 2,912,000
3,165,000 5.26%, due 11/05/96................... 3,163,150
7,900,000 5.37%, due 11/07/96................... 7,892,930
4,150,000 5.43%, due 11/19/96................... 4,138,733
5,000,000 5.40%, due 11/22/96................... 4,984,250
870,000 5.27%, due 11/27/96................... 866,689
4,000,000 5.30%, due 11/27/96................... 3,984,689
1,245,000 5.27%, due 12/06/96................... 1,238,621
Morgan Stanley Group, Inc.
8,000,000 5.52%, due 01/13/97................... 7,910,453
6,000,000 5.32%, due 01/15/97................... 5,933,500
Smith Barney, Inc.
9,055,000 5.27%, due 11/04/96................... 9,051,023
-----------
102,915,176
-----------
CHEMICALS (7.2%)
----------------
Great Lakes Chemical Corp.
5,000,000 5.25%, due 11/18/96................... 4,987,604
$8,000,000 5.25%, due 11/20/96................... $ 7,977,833
6,545,000 5.25%, due 12/02/96................... 6,515,411
Monsanto Co.
6,116,000 5.45%, due 11/22/96................... 6,096,556
7,000,000 5.25%, due 12/06/96................... 6,964,271
5,000,000 5.25%, due 12/09/96................... 4,972,292
7,000,000 5.32%, due 01/08/97................... 6,929,658
PPG Industries, Inc.
8,000,000 5.24%, due 12/18/96................... 7,945,271
-----------
52,388,896
-----------
CONSUMER PRODUCTS (1.1%)
------------------------
Clorox Co.
8,000,000 5.40%, due 12/09/96................... 7,954,400
-----------
CONSUMER SALES FINANCE (5.5%)
-----------------------------
Associates Corp. of North America
8,050,000 5.33%, due 12/02/96................... 8,013,053
6,000,000 5.28%, due 12/11/96................... 5,964,800
7,000,000 5.26%, due 12/17/96................... 6,952,952
5,260,000 5.30%, due 01/10/97................... 5,205,793
Avco Financial Services, Inc.
6,000,000 5.29%, due 01/28/97................... 5,922,413
Beneficial Corp.
8,370,000 5.38%, due 11/14/96.................. 8,353,739
-----------
40,412,750
-----------
CORPORATE CREDIT UNIONS (1.5%)
------------------------------
U.S. Central Credit
2,570,000 5.25%, due 11/07/96................... 2,567,751
8,730,000 5.32%, due 12/03/96................... 8,688,717
-----------
11,256,468
-----------
DIVERSIFIED FINANCE (3.5%)
--------------------------
General Electric Capital Corp.
3,000,000 5.40%, due 11/20/96................... 2,991,450
7,000,000 5.39%, due 11/25/96................... 6,974,847
8,375,000 5.33%, due 11/27/96................... 8,342,761
4,400,000 5.425%, due 12/05/96.................. 4,377,456
3,240,000 5.33%, due 03/06/97................... 3,180,038
-----------
25,866,552
-----------
ELECTRIC UTILITY (3.8%)
-----------------------
National Rural Utilities Cooperative Finance Corp.
4,247,000 5.36%, due 11/01/96................... 4,247,000
375,000 5.36%, due 11/18/96................... 374,051
7,455,000 5.25%, due 12/10/96................... 7,412,600
6,000,000 5.33%, due 12/10/96................... 5,965,355
5,000,000 5.32%, due 01/09/97................... 4,949,017
5,000,000 5.30%, due 01/17/97................... 4,943,319
-----------
27,891,342
-----------
ENTERTAINMENT (3.2%)
--------------------
Walt Disney Co.
8,000,000 5.28%, due 12/04/96................... 7,961,280
8,000,000 5.27%, due 01/06/97................... 7,922,707
2,545,000 5.27%, due 01/06/97................... 2,520,411
5,000,000 5.28%, due 02/03/97................... 4,931,067
-----------
23,335,465
-----------
FINANCE (2.7%)
--------------
American Express Credit Corp.
6,000,000 5.28%, due 12/11/96................... 5,964,800
8,000,000 5.26%, due 12/12/96................... 7,952,076
6,000,000 5.24%, due 12/20/96................... 5,957,207
-----------
19,874,083
-----------
FOOD & BEVERAGES (6.2%)
-----------------------
CPC International, Inc.
2,790,000 5.27%, due 11/20/96................... 2,782,240
6,747,000 5.30%, due 12/03/96................... 6,715,214
8,765,000 5.31%, due 01/13/97................... 8,670,623
3,200,000 5.31%, due 01/27/97................... 3,158,936
Campbell Soup Co.
5,000,000 5.46%, due 12/05/96................... 4,974,217
</TABLE>
19
<PAGE> 118
STATEMENT OF INVESTMENTS (CONTINUED)
NATIONWIDE(R) MONEY MARKET FUND
OCTOBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C>
$8,000,000 5.47%, due 12/30/96................... $ 7,928,283
Heinz (H.J.) Co.
8,000,000 5.24%, due 11/26/96................... 7,970,889
2,790,000 5.25%, due 12/04/96................... 2,776,573
-----------
44,976,975
-----------
HEAVY EQUIPMENT FINANCE (1.9%)
------------------------------
Caterpillar Financial Services
8,000,000 5.27%, due 11/01/96................... 8,000,000
5,675,000 5.27%, due 12/03/96................... 5,648,416
-----------
13,648,416
-----------
INSURANCE (9.2%)
----------------
Marsh & McLennan Co.
4,535,000 5.26%, due 11/05/96................... 4,532,350
MetLife Funding, Inc.
8,065,000 5.38%, due 11/05/96................... 8,060,179
9,290,000 5.28%, due 11/14/96................... 9,272,287
6,000,000 5.23%, due 12/06/96................... 5,969,492
5,000,000 5.30%, due 01/14/97................... 4,945,528
Old Republic Capital Corp.
5,000,000 5.53%, due 11/06/96................... 4,996,160
5,000,000 5.37%, due 12/04/96................... 4,975,387
5,000,000 5.26%, due 12/10/96................... 4,971,508
2,171,000 5.26%, due 12/10/96................... 2,158,629
5,000,000 5.55%, due 01/07/97................... 4,948,354
6,050,000 5.60%, due 01/07/97................... 5,986,945
Principal Mutual Life Co., Inc.
1,000,000 5.24%, due 11/05/96................... 999,418
5,000,000 5.24%, due 11/08/96................... 4,994,906
-----------
66,811,143
-----------
LEASE FINANCING (1.9%)
----------------------
PHH Corp.
9,000,000 5.23%, due 11/13/96................... 8,984,310
5,000,000 5.25%, due 12/17/96................... 4,966,458
-----------
13,950,768
-----------
MISCELLANEOUS MANUFACTURING (1.1%)
----------------------------------
Illinois Tool Works
3,000,000 5.32%, due 11/19/96................... 2,992,020
5,000,000 5.37%, due 11/19/96................... 4,986,575
-----------
7,978,595
-----------
OFFICE EQUIPMENT & SUPPLIES (1.2%)
----------------------------------
Pitney Bowes Credit Corp.
5,000,000 5.47%, due 02/20/97................... 4,915,671
4,275,000 5.42%, due 02/24/97................... 4,200,982
-----------
9,116,653
-----------
OIL & GAS (0.2%)
----------------
Koch Industries, Inc.
1,193,000 5.24%, due 12/17/96................... 1,185,012
-----------
PACKAGING/CONTAINERS (2.0%)
---------------------------
Bemis Co., Inc.
8,600,000 5.28%, due 11/04/96................... 8,596,215
6,000,000 5.25%, due 12/03/96................... 5,972,000
-----------
14,568,215
-----------
PAPER & FOREST PRODUCTS (0.7%)
------------------------------
Sonoco Products Co.
5,000,000 5.38%, due 11/12/96................... 4,991,780
-----------
PHARMACEUTICALS/PERSONAL CARE (3.2%)
------------------------------------
Abbott Laboratories
2,350,000 5.27%, due 01/16/97................... 2,323,855
Glaxo Wellcome
3,000,000 5.31%, due 01/22/97................... 2,963,715
8,000,000 5.31%, due 01/22/97................... 7,903,240
Schering Corp.
2,040,000 5.27%, due 11/21/96................... 2,034,027
8,000,000 5.30%, due 03/18/97................... 7,838,643
-----------
23,063,480
-----------
PREMIUM FINANCE (1.7%)
----------------------
A.I. Credit Corp.
$3,000,000 5.27%, due 01/06/97................... $ 2,971,015
9,600,000 5.30%, due 03/10/97................... 9,417,680
-----------
12,388,695
-----------
PRINTING & PUBLISHING (3.6%)
----------------------------
Donnelley RR & Sons
5,000,000 5.25%, due 12/16/96................... 4,967,188
6,600,000 5.25%, due 12/16/96................... 6,556,688
McGraw-Hill, Inc.
9,740,000 5.33%, due 11/19/96................... 9,714,043
4,684,000 5.45%, due 11/26/96................... 4,666,271
-----------
25,904,190
-----------
RAILROADS (2.4%)
----------------
Norfolk & Southern Railway Co.
5,000,000 5.29%, due 12/06/96................... 4,974,285
8,000,000 5.42%, due 12/19/96................... 7,942,187
5,000,000 5.30%, due 01/14/97................... 4,945,528
-----------
17,862,000
-----------
Total commercial paper
(cost $674,346,329)................... 674,346,329
-----------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (2.4%)
------------------
U.S. Treasury Bills
5,000,000 4.81%, due 11/14/96................... 4,991,316
3,090,000 4.86%, due 01/09/97................... 3,061,216
5,000,000 5.08%, due 02/06/97................... 4,931,562
5,000,000 5.41%, due 05/29/97................... 4,842,960
-----------
Total U.S. government and agency obligations
(cost $17,827,054).................... 17,827,054
-----------
Total investments
(cost $729,727,060)................... $729,727,060
============
<FN>
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent value as a percentage of net assets.
See accompanying notes to financial statements.
</TABLE>
20
<PAGE> 119
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
GROWTH NATIONWIDE(R) BOND TAX-FREE U.S. GOV'T MONEY MARKET
FUND FUND FUND INCOME FUND INCOME FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value $ 652,778,128 $960,505,467 $ 131,018,346 $ 260,481,900 $ 39,370,419 $ 729,727,060
(cost $494,088,843; $586,877,361;
$128,346,516; $249,797,168;
$38,849,949 and $729,727,060,
respectively)
Cash 94,763 50,014 29,236 -- 6,124 283,618
Receivable for Fund shares sold 210,998 -- 37,561 27,805 41,813 116,465
Receivable for investment
securities sold 2,528,450 782,206 973,125 1,442,362 -- --
Accrued interest and dividends
receivable 427,232 1,751,914 2,595,433 5,172,757 225,705 --
---------------------------------------------------------------------------------------------
Total assets 656,039,571 963,089,601 134,653,701 267,124,824 39,644,061 730,127,143
---------------------------------------------------------------------------------------------
LIABILITIES
Bank loan -- -- -- 502,400 -- --
Payable for Fund shares redeemed -- 1,222,647 189,600 379,446 60,012 97,247
Payable for investment securities
purchased -- 2,726,188 994,063 1,031,040 -- --
Accrued management fees 281,477 402,203 55,806 145,200 21,576 270,342
Accrued transfer agent fees 59,010 60,499 13,201 26,200 3,553 57,390
Accrued distribution fees -- -- -- 44,732 6,639 --
Dividends payable (892) 3,907 122,798 321,112 48,045 126,215
Other accrued expenses 84,271 84,387 25,501 32,934 7,031 76,187
---------------------------------------------------------------------------------------------
Total liabilities 423,866 4,499,831 1,400,969 2,483,064 146,856 627,381
---------------------------------------------------------------------------------------------
NET ASSETS $ 655,615,705 $958,589,770 $ 133,252,732 $ 264,641,760 $ 39,497,205 $ 729,499,762
=============================================================================================
NET ASSETS REPRESENTED BY:
Capital Shares, $1 par value
outstanding $ 49,152,969 $ 46,957,777 $ 14,264,079 $ 25,842,939 $ 3,932,514 $ 729,501,084
Capital paid in excess of par value 402,016,940 477,434,454 125,775,070 231,376,463 35,480,301 --
Net unrealized appreciation 158,689,285 373,628,106 2,671,830 10,684,732 520,470 --
Accumulated undistributed net
realized gain (loss) 45,458,844 59,191,383 (9,525,283) (3,251,345) (401,674) --
Accumulated undistributed
(distributions in excess of)
net investment income 297,667 1,378,050 67,036 (11,029) (34,406) (1,322)
---------------------------------------------------------------------------------------------
NET ASSETS $ 655,615,705 $958,589,770 $ 133,252,732 $ 264,641,760 $ 39,497,205 $ 729,499,762
=============================================================================================
Shares outstanding (unlimited
number of shares authorized) 49,152,969 46,957,777 14,264,079 25,842,939 3,932,514 729,501,084
=============================================================================================
Net asset value per share $ 13.34 $ 20.41 $ 9.34 $ 10.24 $ 10.04 $ 1.00
=============================================================================================
Offering price (100%/(100%-Maximum
Sales Charge) of net asset value
adjusted to nearest cent) per
share* $ 13.97 $ 21.37 $ 9.78 $ 10.24 $ 10.04 $ 1.00
=============================================================================================
Maximum sales charge 4.50% 4.50% 4.50% -- -- --
=============================================================================================
<FN>
*For Nationwide(R) Tax-Free Income Fund and U.S. Government Income Fund,
redemption price per share varies by length of time shares are held.
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 120
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
GROWTH NATIONWIDE(R) BOND TAX-FREE U.S. GOV'T MONEY MARKET
FUND FUND FUND INCOME FUND INCOME FUND FUND
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 8,494,220 $ 20,514,352 -- -- -- --
Interest 3,349,087 1,573,774 $9,681,741 $15,653,726 $ 2,717,130 $36,273,232
---------------------------------------------------------------------------------
Total income 11,843,307 22,088,126 9,681,741 15,653,726 2,717,130 36,273,232
---------------------------------------------------------------------------------
EXPENSES:
Investment management fees 3,212,196 4,425,921 663,545 1,704,966 255,149 3,280,802
Distribution fees -- -- -- 921,340 137,388 --
Transfer agent fees 683,043 698,913 161,300 159,115 40,299 653,631
Shareholders' reports 138,109 139,217 65,742 52,776 15,248 190,601
Registration fees -- -- -- 22,972 15,000 --
Professional services 29,866 32,656 5,234 12,679 1,260 24,893
Custodian fees 31,869 43,290 16,048 41,455 7,400 41,694
Trustees' fees and expenses 17,978 21,747 3,822 2,743 396 18,215
Other 26,307 34,960 6,992 12,994 2,336 27,000
---------------------------------------------------------------------------------
Total expenses before waived expenses 4,139,368 5,396,704 922,683 2,931,040 474,476 4,236,836
Total waived expenses -- -- -- 394,860 58,881 328,076
Net expenses 4,139,368 5,396,704 922,683 2,536,180 415,595 3,908,760
---------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 7,703,939 $16,691,422 $8,759,058 $13,117,546 $ 2,301,535 $32,364,472
=================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments $45,484,621 $ 59,251,910 $ (171,239) $ 2,055,736 $ 34,406 --
Net change in unrealized appreciation
(depreciation) 20,001,960 127,452,048 (2,045,242) (1,473,376) (277,059) --
---------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 65,486,581 186,703,958 (2,216,481) 582,360 (242,653) --
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $73,190,520 $203,395,380 $6,542,577 $13,699,906 $2,058,882 $32,364,472
=================================================================================
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 121
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
GROWTH FUND FUND BOND FUND
Year ended Year ended Year ended Year ended Year ended Year ended
October 31, October 31, October 31, October 31, October 31, October 31,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 7,703,939 $ 8,424,199 $ 16,691,422 $ 14,301,965 $ 8,759,058 $ 8,946,837
Net realized gain (loss) on investment 45,484,621 55,104,961 59,251,910 42,454,076 (171,239) (2,695,214)
Net change in unrealized appreciation
(depreciation) of investments 20,001,960 34,260,953 127,452,048 73,761,567 (2,045,242) 17,358,003
---------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 73,190,520 97,790,113 203,395,380 130,517,608 6,542,577 23,609,626
Distributions to shareholders from:
Net investment income (7,521,249) (8,424,199) (16,077,181) (14,459,586) (8,801,481) (8,917,890)
In excess of net investment income -- (50,491) -- -- -- --
Net realized gain from investment
transactions (55,130,738) (9,636,714) (42,514,603) (54,955,514) -- --
---------------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (62,651,987) (18,111,404) (58,591,784) (69,415,100) (8,801,481) (8,917,890)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 91,753,548 78,233,932 100,830,600 44,342,114 17,666,533 14,412,502
Net asset value of shares issued to
shareholders from reinvestment of
dividends 61,359,336 17,836,103 51,530,171 60,306,894 7,287,372 7,950,830
Cost of shares redeemed (90,962,567) (57,537,318) (134,240,940) (76,759,052) (23,074,853) (27,877,661)
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets
derived from capital share
transactions 62,150,317 38,532,717 18,119,831 27,889,956 1,879,052 (5,514,329)
---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 72,688,850 118,211,426 162,923,427 88,992,464 (379,852) 9,177,407
NET ASSETS-BEGINNING OF PERIOD 582,926,855 464,715,429 795,666,343 706,673,879 133,632,584 124,455,177
---------------------------------------------------------------------------------------------
NET ASSETS-END OF PERIOD $ 655,615,705 $ 582,926,855 $ 958,589,770 $ 795,666,343 $ 133,252,732 $ 133,632,584
=============================================================================================
Undistributed net realized gain (loss)
on investments included in net assets
at end of period $ 45,458,844 $ 55,104,961 $ 59,191,383 $ 42,454,076 $ (9,525,283) $ (9,354,044)
=============================================================================================
Undistributed net investment income
included in net assets at end
of period $ 297,667 $ 114,977 $ 1,378,050 $ 763,809 $ 67,036 $ 109,459
=============================================================================================
SHARE ACTIVITY:
Shares sold 7,069,963 6,444,023 5,349,375 2,806,172 1,897,464 1,613,435
Reinvestment of dividends 4,952,188 1,578,080 2,874,632 4,081,126 784,086 892,591
Shares redeemed (6,978,391) (4,861,121) (7,129,736) (4,857,164) (2,486,318) (3,144,695)
---------------------------------------------------------------------------------------------
Net increase (decrease) in number
of shares 5,043,760 3,160,982 1,094,271 2,030,134 195,232 (638,669)
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 122
NATIONWIDE(R) FAMILY OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R) NATIONWIDE(R)
TAX-FREE INCOME FUND U.S. GOV'T INCOME FUND MONEY MARKET FUND
Year ended Year ended Year ended Year ended Year ended Year ended
October 31, October 31, October 31, October 31, October 31, October 31,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income $ 13,117,546 $ 13,060,318 $ 2,301,535 $ 2,266,549 $ 32,364,472 $ 29,238,839
Net realized gain (loss) on
investments 2,055,736 (3,951,178) 34,406 70,730 -- 4,106
Net change in unrealized
appreciation (depreciation)
of investments (1,473,376) 24,981,359 (277,059) 3,505,345 -- --
---------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 13,699,906 34,090,499 2,058,882 5,842,624 32,364,472 29,242,945
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (13,122,781) (13,407,484) (2,301,535) (2,266,549) (32,359,207) (29,239,264)
In excess of net investment
income (11,029) -- (34,406) -- -- (6,587)
Net realized gain from
investment transactions -- -- -- -- (4,106) --
Paid in capital -- -- (10) (14,726) -- --
---------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (13,133,810) (13,407,484) (2,335,951) (2,281,275) (32,363,313) (29,245,851)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 20,245,316 18,662,663 4,773,320 3,165,132 746,407,569 626,666,560
Net asset value of shares
issued to shareholders from
reinvestment of dividends 9,330,442 10,382,144 1,753,068 1,830,091 30,963,908 29,971,841
Cost of shares redeemed (27,983,697) (28,340,872) (6,529,084) (6,528,260) (652,583,762)
---------------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from capital
share transactions 1,592,061 703,935 (2,696) (1,533,037) 124,787,715 112,976,889
---------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 2,158,157 21,386,950 (279,765) 2,028,312 124,788,874 112,973,983
NET ASSETS-BEGINNING OF PERIOD 262,483,603 241,096,653 39,776,970 37,748,658 604,710,888 491,736,905
---------------------------------------------------------------------------------------
NET ASSETS-END OF PERIOD $ 264,641,760 $ 262,483,603 $ 39,497,205 $ 39,776,970 $ 729,499,762 $ 604,710,888
=======================================================================================
Undistributed net realized
gain (loss) on investments
included in net assets
at end of period $ (3,251,345) $ (5,307,081) $ (401,674) $ (436,080) $ -- $ 4,106
=======================================================================================
Undistributed (distributions
in excess of) net investment
income included in net assets
at end of period $ (11,029) $ 5,235 $ (34,406) $ -- $ (1,322) $ (6,587)
=======================================================================================
SHARE ACTIVITY:
Shares sold 1,986,252 1,898,854 482,073 326,609 746,407,569 626,666,560
Reinvestment of dividends 914,259 1,056,582 175,851 189,664 30,963,908 29,971,841
Shares redeemed (2,748,350) (2,901,957) (655,486) (681,184) (652,583,762) (543,661,512)
---------------------------------------------------------------------------------------
Net increase (decrease) in
number of shares 152,161 53,479 2,438 (164,911) 124,787,715 112,976,889
=======================================================================================
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 123
NATIONWIDE(R) FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<TABLE>
<CAPTION>
NATIONWIDE(R) GROWTH FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 13.22 $ 11.35 $ 11.14 $ 9.94 $ 9.57
Net investment income 0.16 0.21 0.09 0.17 0.20
Net realized gain (loss) and unrealized
appreciation (depreciation) 1.36 2.10 0.53 1.41 0.46
------------------------------------------------------------------------------
Total from investment operations 1.52 2.31 0.62 1.58 0.66
Dividends from net investment income (0.16) (0.20) (0.19) (0.17) (0.20)
Distributions from net realized gain from
investment transactions (1.24) (0.24) (0.22) (0.21) (0.09)
------------------------------------------------------------------------------
Total distributions (1.40) (0.44) (0.41) (0.38) (0.29)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.12 1.87 0.21 1.20 0.37
NET ASSET VALUE-END OF PERIOD $ 13.34 $ 13.22 $ 11.35 $ 11.14 $ 9.94
==============================================================================
Total Return (excludes sales charges) 12.36% 21.01% 5.73% 16.16% 6.94%
Net Assets, End of Period (000) $ 655,616 $ 582,927 $ 464,715 $ 411,853 $ 330,950
Ratio of expenses to average net assets 0.64% 0.66% 0.68% 0.68% 0.65%
Ratio of net investment income to average net assets 1.20% 1.66% 1.71% 1.63% 1.97%
Portfolio turnover 25.61% 27.10% 14.50% 10.20% 13.10%
Average commission rate paid * 5.3923(cent) - - -
<CAPTION>
NATIONWIDE(R) FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 17.35 $ 16.12 $ 16.55 $ 16.31 $ 15.77
Net investment income 0.36 0.31 0.37 0.31 0.37
Net realized gain (loss) and unrealized
appreciation (depreciation) 3.98 2.49 0.41 0.67 0.98
------------------------------------------------------------------------------
Total from investment operations 4.34 2.80 0.78 0.98 1.35
Dividends from net investment income (0.35) (0.31) (0.36) (0.33) (0.36)
Distributions from net realized gain from
investment transactions (0.93) (1.26) (0.85) (0.41) (0.45)
------------------------------------------------------------------------------
Total distributions (1.28) (1.57) (1.21) (0.74) (0.81)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value 3.06 1.23 (0.43) 0.24 0.54
------------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 20.41 $ 17.35 $ 16.12 $ 16.55 $ 16.31
==============================================================================
Total Return (excludes sales charges) 26.11% 19.24% 4.88% 6.16% 8.68%
Net Assets, End of Period (000) $ 958,590 $ 795,666 $ 706,674 $ 753,239 $ 726,012
Ratio of expenses to average net assets 0.61% 0.63% 0.63% 0.62% 0.61%
Ratio of net investment income to average net assets 1.89% 1.95% 2.26% 1.96% 2.32%
Portfolio turnover 16.71% 16.50% 15.40% 25.80% 12.80%
Average commission rate paid * 5.9393(cent) - - - -
<FN>
* Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 124
NATIONWIDE(R) FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<TABLE>
<CAPTION>
NATIONWIDE(R) BOND FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 9.50 $ 8.46 $ 10.07 $ 9.58 $ 9.46
Net investment income 0.61 0.63 0.60 0.74 0.76
Net realized gain (loss) and unrealized
appreciation (depreciation) (0.15) 1.04 (1.56) 0.52 0.23
---------------------------------------------------------------------------
Total from investment operations 0.46 1.67 (.96) 1.26 0.99
Dividends from net investment income (0.62) (0.63) (0.65) (0.77) (0.85)
Distribution from paid in capital - - - - (0.02)
---------------------------------------------------------------------------
Total distributions (0.62) (0.63) (0.65) (0.77) (0.87)
---------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.16) 1.04 (1.61) 0.49 0.12
NET ASSET VALUE-END OF PERIOD $ 9.34 $ 9.50 $ 8.46 $ 10.07 $ 9.58
===========================================================================
Total Return (excludes sales charges) 5.05% 20.41% (9.81%) 13.61% 10.85%
Net Assets, End of Period (000) $ 133,253 $ 133,633 $ 124,455 $ 151,090 $ 90,187
Ratio of expenses to average net assets 0.70% 0.71% 0.71% 0.68% 0.65%
Ratio of net investment income to average net assets 6.60% 7.04% 7.11% 7.63% 8.63%
Portfolio turnover 38.95% 70.40% 58.00% 68.50% 100.80%
<CAPTION>
NATIONWIDE(R) TAX-FREE INCOME FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.22 $ 9.40 $ 10.95 $ 9.94 $ 9.81
Net investment income 0.51 0.51 0.53 0.54 0.56
Net realized gain (loss) and unrealized
appreciation (depreciation) 0.02 0.84 (1.45) 1.10 0.13
---------------------------------------------------------------------------
Total from investment operations 0.53 1.35 (0.92) 1.64 0.69
Dividends from net investment income (0.51) (0.53) (0.51) (0.54) (0.56)
Distributions from net realized gain from
investment transactions - - (0.12) (0.09) -
-
---------------------------------------------------------------------------
Total distributions (0.51) (0.53) (0.63) (0.63) (0.56)
---------------------------------------------------------------------------
Net increase (decrease) in net asset value 0.02 0.82 (1.55) 1.01 0.13
---------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 10.24 $ 10.22 $ 9.40 $ 10.95 $ 9.94
===========================================================================
Total Return 5.31% 14.66% (8.74%) 16.97% 7.18%
Net Assets, End of Period (000) $ 264,642 $ 262,484 $ 241,097 $ 253,042 $170,650
Ratio of expenses to average net assets 0.96% 0.98% 0.99% 0.98% 0.98%
Ratio of expenses to average net assets * 1.11% 1.13% 1.14% 1.13% 1.13%
Ratio of net investment income to average net assets 4.98% 5.20% 5.02% 5.07% 5.62%
Ratio of net investment income to average net assets * 4.83% 5.05% 4.87% 4.92% 5.47%
Portfolio turnover 24.15% 31.70% 59.20% 28.40% 69.80%
<FN>
* Ratio calculated as if no expenses were waived.
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 125
NATIONWIDE(R) FAMILY OF FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<TABLE>
<CAPTION>
NATIONWIDE(R) U.S. GOV'T INCOME FUND
Years ended October 31,
Period from 2/10/92
(commencement
of operations)
1996 1995 1994 1993 to 10/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 10.12 $ 9.22 $ 10.26 $ 9.97 $ 10.00
Net investment income 0.59 0.59 0.54 0.53 0.46
Net realized gain (loss) and unrealized
appreciation (depreciation) (0.08) 0.89 (0.96) 0.45 (0.03)
------------------------------------------------------------------------------
Total from investment operations 0.51 1.48 (0.42) 0.98 0.43
Dividends from net investment income (0.58) (0.58) (0.55) (0.53) (0.46)
In excess of net investment income (0.01) -- -- -- --
Distributions from net realized gain from
investment transactions -- -- (0.07) (0.16) --
------------------------------------------------------------------------------
Total distributions (0.59) (0.58) (0.62) (0.69) (0.46)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value (0.08) 0.90 (1.04) 0.29 (0.03)
------------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 10.04 $ 10.12 $ 9.22 $ 10.26 $ 9.97
==============================================================================
Total Return 5.28% 16.47% (4.20%) 10.15% 7.26%*
Net Assets, End of Period (000) $ 39,497 $ 39,777 $ 37,749 $ 38,452 $ 18,211
Ratio of expenses to average net assets 1.06% 1.08% 1.09% 1.10% 1.00%*
Ratio of expenses to average net assets ** 1.21% 1.23% 1.24% 1.25% 1.17%*
Ratio of net investment income to average net assets 5.86% 5.92% 5.62% 5.12% 6.38%*
Ratio of net investment income to average net assets ** 5.71% 5.77% 5.47% 4.97% 6.21%*
Portfolio turnover 9.30% 25.40% 67.50% 99.00% 157.40%
<CAPTION>
NATIONWIDE(R) MONEY MARKET FUND
Years ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.05 0.05 0.03 0.03 0.03
Dividends from net investment income (0.05) (0.05) (0.03) (0.03) (0.03)
------------------------------------------------------------------------------
Net increase (decrease) in net asset value - - - - -
------------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================
Total Return 5.05% 5.46% 3.34% 2.60% 3.53%
Net Assets, End of Period (000) $ 729,500 $ 604,711 $ 491,737 $ 418,615 $488,998
Ratio of expenses to average net assets 0.60% 0.62% 0.65% 0.70% 0.71%
Ratio of expenses to average net assets ** 0.65% 0.67% 0.70% 0.73% 0.71%
Ratio of net investment income to average net assets 4.93% 5.34% 3.33% 2.57% 3.50%
Ratio of net investment income to average net assets ** 4.88% 5.29% 3.28% 2.54% 3.50%
<FN>
* Total Return and ratios are annualized for periods of less than one year.
** Ratios calculated as if no expenses were waived.
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 126
NATIONWIDE(R) FAMILY OF FUNDS
NOTES TO FINANICAL STATEMENTS
OCTOBER 31, 1996
1. Summary of Significant Accounting Policies
Nationwide Investing Foundation (NIF) and Nationwide Investing Foundation II
(NIF-II) are diversified, open-end investment companies. NIF was created under
the laws of Michigan by an Indenture of Trust, dated May 5, 1933. NIF-II was
created under the laws of Massachusetts as a Massachusetts Business Trust on
October 5, 1985. The Trusts, which are registered under the Investment Company
Act of 1940, as amended, offer shares in six separate mutual funds.
(a) Security Valuation
----------------------
(1) Growth, Fund, Bond, Tax-Free Income, and U.S. Government Income
Funds:
Securities traded on a national securities exchange are valued at
closing prices. Listed securities for which no sale was reported on
the valuation date are valued at quoted bid prices or fair market
procedures authorized by the Boards of Trustees.
(2) Money Market Fund:
Securities are valued at amortized cost, which approximates market
value, in accordance with Rule 2a-7 of the Investment Company Act of
1940 as amended.
The value of a repurchase agreement generally equals the purchase
price paid by the Fund (cost) plus the interest accrued to date. The
seller, under the repurchase agreement, is required to maintain the
market value of the underlying collateral at not less than the value
of the repurchase agreement. Securities subject to repurchase
agreements are held by the Federal Reserve/Treasury book-entry system
or by the Fund's custodian or an approved sub-custodian.
(b) Security Transactions and Investment Income
-----------------------------------------------
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date; interest income is recorded on an
accrual basis and includes, where applicable, the pro rata amortization of
premium or discount.
(c) Federal Income Taxes
------------------------
NIF and NIF-II qualify as regulated investment companies under the
Internal Revenue Code during the periods covered by the accompanying
statements. No provision has been made for federal income taxes as it is
the intention to continue such qualification and to distribute all taxable
income to shareholders. To the extent net realized gains are offset
through the application of a capital loss carryover, they will not be
distributed to shareholders but will be retained by the Trusts.
As of October 31, 1996, the Nationwide Bond, Tax-Free Income, and U.S.
Government Income Funds had net capital loss carry forwards in the
amounts of $9,525,283, $3,251,345, and $401,674, respectively. The Bond
Fund carry forwards will expire within 5 to 8 years, the Tax-Free Income
Fund carry forwards will expire within 7 years, and the U.S. Government
Income Fund carry forwards will expire within 6 years.
(d) Dividends to Shareholders
-----------------------------
(1) Growth and Nationwide Funds:
Dividends are paid quarterly and are recorded on the ex-dividend date.
(2) Bond, Tax-Free Income, U.S. Government Income, and Money Market Funds:
Dividends are declared daily and paid monthly from the sum of the net
investment income
Distributable net realized capital gains are declared and distributed at
least annually for all funds.
Dividends and distributions to shareholders are determined in accordance
with federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax" differences are considered
either permanent or temporary in nature. In accordance with AICPA Statement
of Position 93-2, permanent differences are reclassified within the capital
accounts based on their nature for federal income tax purposes; temporary
differences do not require reclassification. Dividends and distributions
that exceed net investment income and net realized gains for financial
reporting purposes but not for tax purposes are reported as dividends in
excess of net investment income and net realized gains. To the extent
distributions exceed current and accumulated earnings and profits for
federal income tax purposes, they are reported as distributions of
paid-in-capital. These reclassifications have no effect upon the net asset
value of the respective funds.
(e) Expenses
------------
Direct expenses of a fund are allocated to that fund. General expenses of
the Trusts are allocated to the funds based upon each fund's relative
average net assets.
(f) Use of Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
(a) Growth, Fund, Bond, and Money Market Funds
----------------------------------------------
As investment manager for the NIF Funds, Nationwide Advisory Services,
Inc. (NAS), (formerly Nationwide Financial Services, Inc.), an affiliated
company, earns an annual fee of
28
<PAGE> 127
NATIONWIDE(R) FAMILY OF FUNDS
NOTES TO FINANICAL STATEMENTS
OCTOBER 31, 1996
.5% based on the average daily net assets; this fee would not be payable in
full if the effect of such payment would increase total expense (excluding
taxes other than payroll taxes and brokerage commissions on portfolio
transactions) to an amount exceeding 1% of average daily net assets for any
fiscal year. Such limitations on total expenses did not affect management
fees during the periods covered by the financial statements.
The investment manager voluntarily waived annual fees totaling .05% of
average daily net assets in the Money Market Fund for the year ended
October 31, 1996, or $328,076 representing $.0005 per average share
outstanding.
NAS also receives fees for services as principal underwriter. Such fees are
deducted from and are not included in proceeds from sales of capital
shares. From such fees, NAS pays sales commissions, salaries, and other
expenses. Such fees aggregated $1,029,727 on Growth Fund shares, $1,089,371
on Fund Shares, and $202,206 on Bond Fund shares for the year ended October
31, 1996.
(b) Tax-Free Income, and U.S. Government Income Funds
-----------------------------------------------------
As investment manager for each NIF-II Fund, NAS earns an annual fee based
on average daily net assets of each Fund at the rate of .65% on the first
$250 million, .60% on the next $250 million, .55% on the next $250 million,
and .50% on the average daily net assets in excess of $750 million. Total
annual expenses will not exceed the limits prescribed by any state in which
the Fund shares are offered for sale. Such limitation did not affect the
management fees for the year ended October 31, 1996.
NAS may also receive fees on the NIF-II Funds for distribution pursuant to
a Rule 12b-1 Distribution Plan approved by the Board of Trustees. These
fees are based on average daily net assets of each Fund at an annual rate
of .35%. During the year ended October 31, 1996, each Fund paid
distribution fees at the annual rate of .20% of average daily net assets,
with the distributor voluntarily waiving the remaining .15%. During the
year ended October 31, 1996, NAS waived $394,860 and $58,881 for both the
Tax-Free Income and U.S. Government Income Funds, representing $.015 per
average share outstanding for each fund.
NAS also receives fees for services as principal underwriter. Such fees are
contingent deferred sales charges for the NIF-II Funds ranging from 5% to
1% imposed on redemptions which cause the current value of an account to
fall below the total purchase payments made during the past five years.
Contingent deferred sales charges aggregated $169,310 on the Tax-Free
Income Fund shares and $58,918 on the U.S. Government Income Fund shares
for the year ended October 31, 1996.
A subsidiary of NAS (Nationwide Investors Services, Inc.) acts as Transfer and
Dividend Disbursing Agent for the Funds.
3. BANK LOANS
Both NIF and NIF II Trusts have unsecured bank lines of credit of $25,000,000
each. Borrowings under these arrangements bear interest at the Federal Funds
rate plus .50%. These interest costs are included in custodian fees in the
Statements of Operations. No compensating balances are required. The Tax-Free
Income Fund had an outstanding balance on these lines at October 31, 1996, of
$502,400.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding U.S. Government and short-term
securities), and purchases and sales of U.S. Government Obligations for the year
ended October 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
SECURITIES OBLIGATIONS
PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C>
Growth............ $189,946,018 $149,806,703 $140,798,139 $177,258,794
Fund.............. 152,063,007 162,300,308 -- --
Bond.............. 45,363,936 44,199,913 5,484,075 5,655,312
Tax-Free Income... 64,427,275 63,072,201 -- --
U.S. Gov't Income 2,349,359 549,166 2,548,984 2,993,516
Money Market...... -- -- 31,107,476 42,347,000
</TABLE>
Realized gains and losses have been computed on the first-in, first-out basis.
Included in net unrealized appreciation (depreciation) at October 31, 1996, are
the following components:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
GAINS LOSSES APPRECIATION
<S> <C> <C> <C>
Growth................ $174,291,915 $(15,602,630) $158,689,285
Fund ................ 387,579,796 (13,951,690) 373,628,106
Bond.................. 3,405,725 (733,895) 2,671,830
Tax-Free Income....... 11,242,731 (557,999) 10,684,732
U.S. Gov't Income..... 773,537 (253,067) 520,470
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For corporate shareholders, 89.3% of the Growth Fund and 97.5% of the Fund
income dividends and short-term capital gain distributions in the fiscal year
ended October 31, 1996, qualify for the corporate dividend received deduction.
All of the distributions paid by the Tax-Free Income Fund during the fiscal year
are exempt from federal income tax.
29
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Nationwide Investing Foundation
The Nationwide Investing Foundation II:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of The Nationwide Investing
Foundation--Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund,
Nationwide Money Market Fund, and of The Nationwide Investing Foundation
II--Nationwide Tax-Free Income Fund and Nationwide U.S. Government Income Fund,
as of October 31, 1996, and the related statements of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and the financial highlights are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
October 31, 1996, by confirmation with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Nationwide Investing Foundation and
The Nationwide Investing Foundation II as of October 31, 1996, the results of
their operations, the changes in their net assets and the financial highlights
for each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
December 13, 1996
30
<PAGE> 129
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, Baa 1, Ba 1 and B 1.
Excerpts from Standard & Poor's Corporation description of its three highest
bond ratings: AAA--highest grade obligations; they possess the ultimate degree
of protection as to principal and interest; AA--also qualify as high grade
obligations, and, in the majority of instances, differ from AAA issues only in a
small degree;
A--strong ability to pay interest and repay principal although more susceptible
to change in circumstances.
COMMERCIAL PAPER
Excerpts from Standard & Poor's Corporation description of its two highest
commercial paper ratings:
A-1--judged to be the highest investment grade category possessing the highest
relative strength;
A-2--investment grade category possessing less relative strength than the
highest rating.
Excerpts from Moody's Investors Service, Inc., description of its two highest
commercial paper ratings:
P-1--the highest grade possessing greatest relative strength;
P-2--second highest grade possessing less relative strength than the highest
grade.
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 or from
established and broad-based access to the market for refinancing, or both.
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.
18
<PAGE> 1
SUPPLEMENT DATED
SEPTEMBER 5, 1997
TO
PROSPECTUS DATED
FEBRUARY 28, 1997
FINANCIAL HORIZONS INVESTMENT TRUST
GROWTH FUND
MUNICIPAL BOND FUND
GOVERNMENT BOND FUND
CASH RESERVE FUND
On August 29, 1997, John M. Schaffner replaced Laura Klebe
as portfolio manager of the Growth Fund. On page 8 of the
prospectus, the paragraph entitled Growth Fund is hereby
deleted in its entirety and replaced by the following:
GROWTH FUND - John M. Schaffner, Director - Equity
Securities. John received a Bachelor of Arts in
Economics from Occidental College. He received a Master
of Business Administration degree from the University
of Michigan and is a Chartered Financial Analyst.
John managed the Growth Fund from its inception until
June 1994, and returned as portfolio manager of the
Fund in August 1997. He has managed the Nationwide(R)
Growth Fund since 1981.
PLEASE KEEP THIS SUPPLEMENT WITH YOUR PROSPECTUS
FOR FURTHER REFERENCE.
<PAGE> 2
SUPPLEMENT DATED
MARCH 17, 1997
TO
PROSPECTUS DATED
FEBRUARY 28, 1997
FINANCIAL HORIZONS INVESTMENT TRUST
On March 11, 1997, Alpha Benson replaced J. Randall Baney as portfolio manager
of the Financial Horizons Investment Trust Municipal Bond Fund. On page 8 of
the prospectus, the paragraph entitled Municipal Bond Fund is hereby deleted in
its entirety and replaced by the following:
Municipal Bond Fund - Alpha Benson, Director, Municipal Securities.
Alpha received a Bachelor of Science in Accounting from Central State
University and a Masters of Business Administration from the University
of Dayton. She began managing the Municipal Bond Fund on March 11,
1997. Alpha also manages the Nationwide(R) Tax-Free Income Fund. She
has managed the Tax-Free Income Fund since its inception in March 1986.
CONTINUED ON OTHER SIDE
PLEASE KEEP THIS SUPPLEMENT WITH YOUR PROSPECTUS FOR FURTHER REFERENCE.
<PAGE> 3
SUPPLEMENT DATED
MARCH 17, 1997
TO
PROSPECTUS DATED
FEBRUARY 28, 1997
FINANCIAL HORIZONS INVESTMENT TRUST
On March 11, 1997, Kimberly Bingle and Gary Hunt joined Wayne Frisbee as
portfolio managers for the Financial Horizons Investment Trust Government Bond
Fund. On page 8 of the prospectus, the paragraph entitled Government Bond Fund,
is hereby deleted in its entirety and replaced by the following:
Government Bond Fund - Wayne T. Frisbee, Director Investments; Kimberly
Bingle, Senior Investments Manager, and Gary Hunt, Senior Investment
Analyst. Wayne received a Bachelor of Science from The Ohio State
University and is a Chartered Financial Analyst. He has managed the
Government Bond Fund since its inception in 1988. Kimberly received a
Bachelor of Arts in Finance from The Pennsylvania State University, is a
Chartered Financial Analyst, is a Fellow of the Life Management Institute,
and began managing the Government Bond Fund on March 11, 1997. From April
1992 to March 11, 1997, she managed the fixed income fund which is part of
the Nationwide Insurance Enterprise incentive savings plan. Prior to April
1992, Kimberly co-managed the Nationwide Foundation bond portfolio. Gary
received a Bachelor of Science in Finance and a Master of Business
Administration from The Ohio State University. He began managing the
Government Bond Fund on March 11, 1997. Since joining Nationwide in 1992,
Gary has been responsible for the analysis of agency CMOs and U.S. treasury
securities. In addition, Gary has managed the commercial mortgage-backed
securities sector for Nationwide Life Insurance Company and its affiliates.
PLEASE KEEP THIS SUPPLEMENT WITH YOUR PROSPECTUS FOR FURTHER REFERENCE.
<PAGE> 4
FEBRUARY 28, 1997
FINANCIAL HORIZONS INVESTMENT TRUST
-- CASH RESERVE FUND
-- GOVERNMENT BOND FUND
-- MUNICIPAL BOND FUND
-- GROWTH FUND
FINANCIAL HORIZONS INVESTMENT TRUST
P.O. BOX 1492
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216-1492
FOR INFORMATION AND ASSISTANCE, CALL
1-800-848-0920
Financial Horizons Investment Trust ("Trust") is an open-end, diversified
investment company organized under the laws of Massachusetts, by a Declaration
of Trust, dated May 9, 1988. The Trust offers shares in four separate series
("Funds"), each with its own investment objective.
- --------------------------------------------------------------------------------
The investment objective of the Cash Reserve Fund is to seek as high a level
of current income as is consistent with the preservation of capital and
maintenance of liquidity through investing in a diversified portfolio of high
quality money market instruments maturing in 397 days or less.
The investment objective of the Government Bond Fund is to provide as high a
level of income as is consistent with capital preservation from securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities.
The investment objective of the Municipal Bond Fund is to provide as high a
level of municipal income as is consistent with the preservation of capital
through investing in diversified portfolio of investment grade municipal bonds.
The investment objective of the Growth Fund is to provide long-term capital
appreciation through investing in equity securities with above average,
long-term growth potential.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY OF TRUST EXPENSES........................... 2
FINANCIAL HIGHLIGHTS................................ 3
INVESTMENT OBJECTIVES AND POLICIES.................. 4
MANAGEMENT OF THE TRUST............................. 8
HOW TO INVEST....................................... 9
PRIVILEGES AND SERVICES............................. 10
HOW TO REDEEM SHARES................................ 12
ADDITIONAL INFORMATION.............................. 14
NET INCOME AND DISTRIBUTIONS........................ 14
TAX STATUS.......................................... 15
DESCRIPTION OF SECURITIES........................... 16
INVESTMENT TECHNIQUES............................... 18
</TABLE>
- --------------------------------------------------------------------------------
This Prospectus provides you with the basic information you should know before
investing in shares of the Trust. You should read it and keep it for future
reference. A Statement of Additional Information, dated February 28, 1997, has
been filed with the Securities and Exchange Commission. You can obtain a copy
without charge by calling 1-800-848-0920 or writing Nationwide Advisory
Services, Inc., P.O. Box 1492, Three Nationwide Plaza, Columbus, Ohio
43216-1492.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
AN INVESTMENT IN THE CASH RESERVE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE CASH RESERVE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
UNLIKE CERTIFICATES OF DEPOSITS AND OTHER TRADITIONAL BANK PRODUCTS,
SHARES OF FINANCIAL HORIZONS INVESTMENT TRUST ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR INSURED BY, ANY BANK OR FINANCIAL
INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL
RESERVE BOARD OR ANY OTHER STATE OR FEDERAL AGENCY. SHARES OF FINANCIAL
HORIZONS INVESTMENT TRUST ARE SUBJECT TO RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL, AND MAY FLUCTUATE IN VALUE. FINANCIAL HORIZONS INVESTMENT TRUST
SHARES ARE OFFERED BY LICENSED REGISTERED REPRESENTATIVES OF VARIOUS
BROKER-DEALERS AND NOT BY YOUR BANK OR OTHER FINANCIAL INSTITUTION. YOUR
BANK OR OTHER FINANCIAL INSTITUTION IS NOT A BROKER-DEALER.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED FEBRUARY 28, 1997,
IS INCORPORATED HEREIN BY REFERENCE.
<PAGE> 5
=================================================
-------------------------------------------------
SUMMARY OF TRUST
EXPENSES
The purpose of this summary is to assist an investor in understanding the
various costs and expenses that will be borne directly or indirectly by
investing in the Funds. For a more detailed explanation of these expenses, see
"Management of the Trust" and "How to Redeem Shares."
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
GOVERN- MUNICI-
CASH MENT PAL
RESERVE BOND BOND GROWTH
----------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Load
Imposed on Purchases None None None None
Maximum Sales Load
Imposed on Reinvested
Dividends None None None None
Redemption or Exchange
Fees None None None None
Deferred Sales Load (as a
percent of redemption
proceeds) None 5.00% 5.00% 5.00%
</TABLE>
A deferred sales load is imposed at the following declining rates for
applicable Funds. If you choose to have your redemption wired to your bank, a $5
wire transfer fee will be deducted from the proceeds. (See "How to Redeem
Shares.")
<TABLE>
<CAPTION>
MONTHS SINCE PERCENTAGE OF
PURCHASE REDEMPTION
PAYMENTS MADE PROCEEDS
- ---------------- ----------------
<S> <C>
0-12 5.00%
13-24 5.00%
25-36 4.00%
37-48 3.00%
49-60 2.00%
61-72 1.00%
73 & thereafter 0.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CASH GOVERNMENT MUNICIPAL
RESERVE BOND BOND GROWTH
------- ---------- --------- ------
<S> <C> <C> <C> <C>
Management Fees 0.40% 0.65% 0.65% 0.65%
12b-1 Fees* 0.00% 0.00%* 0.50%* 0.50%*
Other Expenses 0.25% 0.19% 0.21% 0.29%
------- --- --- ------
Total Fund
Operating
Expenses** 0.65% 0.84% 1.36% 1.44%
</TABLE>
The expenses and fees set forth in the preceding table and the following example
are for the fiscal year ended October 31, 1996.
* The Distributor waived .25% of the total .75% 12b-1 fee on the Government
Bond, Municipal Bond, and Growth funds and waived an additional .50% of 12b-1
fees on the Government Bond Fund pursuant to NASD guidelines which limit sales
charges and distribution fees.
Effective November 8, 1996 until further written notice, the distributor will
waive the entire .75% 12b-1 fee on all applicable funds.
** During the year ended October 31, 1996, total fund operating expenses if no
expenses were waived would have been 1.59%, 1.61%, and 1.69% respectively on the
Government Bond, Municipal Bond, and Growth Fund.
EXAMPLE:
The following table illustrates the expenses an investor would pay on a $1,000
investment over various time periods assuming (1) a 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
CASH GOVERNMENT MUNICIPAL
RESERVE BOND BOND GROWTH
------- ---------- --------- ------
<S> <C> <C> <C> <C>
1 Year $ 7 $ 59 $ 64 $ 65
3 Years $21 $ 67 $ 83 $ 86
5 Years $36 $ 67 $ 94 $ 99
10 Years $81 $104 $ 164 $172
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
CASH GOVERNMENT MUNICIPAL
RESERVE BOND BOND GROWTH
------- ---------- --------- ------
<S> <C> <C> <C> <C>
1 Year $ 7 $ 9 $ 14 $ 15
3 Years $21 $ 27 $ 43 $ 46
5 Years $36 $ 47 $ 74 $ 79
10 Years $81 $104 $ 164 $172
</TABLE>
The above example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
2
<PAGE> 6
FINANCIAL HIGHLIGHTS
(YEARS ENDED OCTOBER 31,)
- ------------------------------------------
<TABLE>
<CAPTION>
Net Distributions
Realized from
Net Gain (Loss) Dividends Net Net
Asset Net and Total from Realized Asset
Value-- Investment Unrealized from Net Gain from Total Value--
Beginning Income Appreciation Investment Investment Investment Distribu- End of
of Period (Loss) (Depreciation) Operations Income Transactions tions Period
- ------------------------------------------------------------------------ -------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
- ------------------------------------------------------------------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
$ 10.00 $ .25 $ .34 $ .59 $ (.11) $ -- $(.11) $10.48
- -----------------------------------------------------------------------------------------------------------------------------------
10.48 .32 (1.90) (1.58) (.25) -- (.25) 8.65
- -----------------------------------------------------------------------------------------------------------------------------------
8.65 .17 3.72 3.89 (.30) (.25) (.55) 11.99
- -----------------------------------------------------------------------------------------------------------------------------------
11.99 .22 .43 .65 (.18) -- (.18) 12.46
- -----------------------------------------------------------------------------------------------------------------------------------
12.46 .08 1.73 1.81 (.10) -- (.10) 14.17
- -----------------------------------------------------------------------------------------------------------------------------------
14.17 .03 .95 .98 (.04) -- (.04) 15.11
- -----------------------------------------------------------------------------------------------------------------------------------
15.11 (.01) 3.23 3.22 (.01)+ (.15) (.16) 18.17
- -----------------------------------------------------------------------------------------------------------------------------------
18.17 .01 3.28 3.29 -- (1.99) (1.99) 19.47
===================================================================================================================================
MUNICIPAL BOND FUND
$ 10.00 $ .51 $ .19 $ .70 $ (.51) $ -- $(.51) $10.19
- -----------------------------------------------------------------------------------------------------------------------------------
10.19 .68 (.15) .53 (.68) (.04) (.72) 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
10.00 .65 .61 1.26 (.65) -- (.65) 10.61
- -----------------------------------------------------------------------------------------------------------------------------------
10.61 .61 .07 .68 (.61) (.04) (.65) 10.64
- -----------------------------------------------------------------------------------------------------------------------------------
10.64 .56 1.22 1.78 (.56) (.11) (.67) 11.75
- -----------------------------------------------------------------------------------------------------------------------------------
11.75 .49 (1.62) (1.13) (.49) (.27) (.76) 9.86
- -----------------------------------------------------------------------------------------------------------------------------------
9.86 .50 .90 1.40 (.50) -- (.50) 10.76
- -----------------------------------------------------------------------------------------------------------------------------------
10.76 .48 .01 .49 (.48) -- (.48) 10.77
===================================================================================================================================
GOVERNMENT BOND FUND
$ 10.00 $ .73 $ .41 $ 1.14 $ (.73) $ -- $(.73) $10.41
- -----------------------------------------------------------------------------------------------------------------------------------
10.41 .96 (.28) .68 (.96) -- (.96) 10.13
- -----------------------------------------------------------------------------------------------------------------------------------
10.13 .90 .68 1.58 (.89) (.01) (.90) 10.81
- -----------------------------------------------------------------------------------------------------------------------------------
10.81 .89 .25 1.14 (.89) (.06) (.95) 11.00
- -----------------------------------------------------------------------------------------------------------------------------------
11.00 .63 .50 1.13 (.66) (.16) (.82) 11.31
- -----------------------------------------------------------------------------------------------------------------------------------
11.31 .58 (1.10) (.52) (.58) (.09) (.67) 10.12
- -----------------------------------------------------------------------------------------------------------------------------------
10.12 .68 .95 1.63 (.68) -- (.68) 11.07
- -----------------------------------------------------------------------------------------------------------------------------------
11.07 .68 (.15) .53 (.68) -- (.68) 10.92
===================================================================================================================================
CASH RESERVE FUND
$ 1.00 $ .06 $ -- $ .06 $ (.06) $ -- $(.06) $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
1.00 .07 -- .07 (.07) -- (.07) 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
1.00 .05 -- .05 (.05) -- (.05) 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
1.00 .03 -- .03 (.03) -- (.03) 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
1.00 .02 -- .02 (.02) -- (.02) 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
1.00 .03 -- .03 (.03) -- (.03) 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
1.00 .05 -- .05 (.05) -- (.05) 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
1.00 .05 -- .05 (.05) -- (.05) 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net Net
Investment Investment
Income Income
Expenses (Loss) to Expenses (Loss) to Net Assets
to Average Average to Average Average Average at End of
Total Net Net Net Net Portfolio Commission Period
Return Assets Assets Assets* Assets* Turnover Rate Paid (000's)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
6.5% 1.48% 2.62% 2.17% 1.73% 22.4% -- $ 531
- -----------------------------------------------------------------------------------------------------------------------------------
(15.5) 1.42 3.49 2.17 2.73 47.5 -- 526
- -----------------------------------------------------------------------------------------------------------------------------------
46.7 1.20 2.01 1.95 1.26 5.7 -- 1,175
- -----------------------------------------------------------------------------------------------------------------------------------
5.4 1.27 1.45 2.02 .70 12.1 -- 3,095
- -----------------------------------------------------------------------------------------------------------------------------------
14.6 1.44 0.63 2.03 .05 13.0 -- 5,165
- -----------------------------------------------------------------------------------------------------------------------------------
6.9 1.59 0.21 1.90 (.82) 14.1 -- 6,787
- -----------------------------------------------------------------------------------------------------------------------------------
21.6 1.47 (.05) 1.72 (.30) 29.2 -- 7,594
- -----------------------------------------------------------------------------------------------------------------------------------
19.4 1.44 .03 1.69 (.22) 17.2 5.9080(cents) 9,095
===================================================================================================================================
MUNICIPAL BOND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
8.2% 1.43% 5.79% 2.12% 4.65% 34.5% -- $1,073
- -----------------------------------------------------------------------------------------------------------------------------------
4.8 .69 6.63 2.10 5.25 16.1 -- 1,709
- -----------------------------------------------------------------------------------------------------------------------------------
13.0 .30 6.28 1.69 4.85 45.1 -- 5,632
- -----------------------------------------------------------------------------------------------------------------------------------
6.6 .65 5.65 1.62 4.68 58.0 -- 14,641
- -----------------------------------------------------------------------------------------------------------------------------------
17.2 1.01 4.81 1.61 4.11 47.0 -- 25,858
- -----------------------------------------------------------------------------------------------------------------------------------
(10.1) 1.27 4.58 1.57 4.28 69.7 -- 26,412
- -----------------------------------------------------------------------------------------------------------------------------------
14.5 1.35 4.82 1.60 4.57 60.8 -- 25,806
- -----------------------------------------------------------------------------------------------------------------------------------
4.7 1.36 4.53 1.61 4.28 38.8 -- 20,500
===================================================================================================================================
GOVERNMENT BOND FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
13.5% 1.42% 8.33% 2.11% 6.98% --% -- $1,119
- -----------------------------------------------------------------------------------------------------------------------------------
6.9 -- 9.32 1.98 7.37 51.0 -- 3,150
- -----------------------------------------------------------------------------------------------------------------------------------
16.3 -- 8.22 1.73 6.49 95.3 -- 25,873
- -----------------------------------------------------------------------------------------------------------------------------------
10.9 .65 8.18 1.66 7.17 87.7 -- 64,249
- -----------------------------------------------------------------------------------------------------------------------------------
10.8 1.00 5.55 1.61 4.93 143.6 -- 84,602
- -----------------------------------------------------------------------------------------------------------------------------------
(4.8) 1.28 5.42 1.58 5.12 174.4 -- 70,218
- -----------------------------------------------------------------------------------------------------------------------------------
16.7 .89 6.42 1.58 5.73 140.6 -- 69,190
- -----------------------------------------------------------------------------------------------------------------------------------
5.0 .84 6.26 1.59 5.51 21.0 -- 58,737
===================================================================================================================================
CASH RESERVE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
7.5% 1.53% 7.39% 2.23% 6.17% --% -- $2,133
- -----------------------------------------------------------------------------------------------------------------------------------
6.9 1.46 6.64 2.21 5.87 -- -- 2,413
- -----------------------------------------------------------------------------------------------------------------------------------
5.3 1.06 5.10 1.81 4.34 -- -- 2,416
- -----------------------------------------------------------------------------------------------------------------------------------
3.1 1.06 3.02 1.82 2.28 -- -- 2,538
- -----------------------------------------------------------------------------------------------------------------------------------
2.1 1.17 2.04 2.20 .79 -- -- 2,788
- -----------------------------------------------------------------------------------------------------------------------------------
3.1 .84 3.14 1.06 2.92 -- -- 3,950
- -----------------------------------------------------------------------------------------------------------------------------------
5.4 .65 5.29 .65 5.29 -- -- 4,150
- -----------------------------------------------------------------------------------------------------------------------------------
5.0 .65 4.86 .65 4.86 -- -- 4,243
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S
GROWTH FUND
- --------------------
1989**
- --------------------
1990
- --------------------
1991
- --------------------
1992
- --------------------
1993
- --------------------
1994
- --------------------
1995
- --------------------
1996
====================
MUNICIPAL BOND FUND
- --------------------
1989**
- --------------------
1990
- --------------------
1991
- --------------------
1992
- --------------------
1993
- --------------------
1994
- --------------------
1995
- --------------------
1996
====================
GOVERNMENT BOND FUND
- --------------------
1989**
- --------------------
1990
- --------------------
1991
- --------------------
1992
- --------------------
1993
- --------------------
1994
- --------------------
1995
- --------------------
1996
====================
CASH RESERVE FUND
- --------------------
1989**
- --------------------
1990
- --------------------
1991
- --------------------
1992
- --------------------
1993
- --------------------
1994
- --------------------
1995
- --------------------
1996
- --------------------
</TABLE>
* Ratios calculated as if no expenses were waived.
+ Distribution in excess of net investment income.
** Period from December 19, 1988 (commencement of operations) through
October 31, 1989. Total return and ratios are annualized for periods of
less than twelve months.
The information in the above table has been audited by KPMG Peat
Marwick LLP, Independent Auditors, whose report thereon, insofar as it
relates to each of the years in the five year period ended October 31,
1996, appears in the Statement of Additional Information. The Statement
of Additional Information and the Annual Report, which contains further
information about the Fund's performance including Managements
Discussion of Fund Performance may be obtained free of charge by
calling 1-800-848-0920.
<PAGE> 7
=================================================
-------------------------------------------------
WHAT IS A MUTUAL
FUND?
A mutual fund is an investment company which makes investments on behalf of
many individuals who share common goals. The money from all of the investors,
whether a large or small amount, is pooled with that of others. Professional
money managers then invest that pooled money in stocks, bonds or other
securities, that, in the manager's judgment, will help the investors to achieve
their objectives. Each investor, or shareholder, has a beneficial ownership of a
share of the assets in the fund. This structure enables the smallest investors
to enjoy the same rates of return and benefits of diversification that are
generally reserved for only the most affluent investors.
WHAT ARE SOME OF THE ADVANTAGES OF
INVESTING IN A FUND?
- ------------------------------------------------------------
DIVERSIFICATION
We all know it's not wise to place all of our investment dollars into one
basket. In a mutual fund, managers generally distribute the shareholders'
dollars among dozens of securities, thereby reducing the risk inherent in owning
a smaller number of securities.
PROFESSIONAL MANAGEMENT
Professional money managers make decisions regarding the purchase and sale of
securities within the funds. Their decisions are based on extensive research and
analysis. Very few individual investors have the time or the expertise to
duplicate their efforts.
LIQUIDITY
As a mutual fund investor, you can redeem all or part of your shares on any
business day. Since the value of your beneficial ownership of a share of the
fund may fluctuate from day to day, the amount you receive upon redemption may
be more or less than your original investment.
CONVENIENCE
As a shareholder, you can expect to receive confirmations and statements
involving the ownership of your shares, including information relevant to
dividends and capital gains (if any). In addition, you may make purchases or
sales of your shares on any business day that the financial markets are open.
A VARIETY OF CHOICES
Many funds, such as the Financial Horizons Investment Trust funds, offer a
variety of funds, known as a "family." Each of the funds offers a different
investment objective, ranging from the more conservative to the more aggressive.
As your needs change, you may find it advantageous to transfer all or a part of
your money to another fund within the family.
=================================================
-------------------------------------------------
INVESTMENT OBJECTIVES
AND POLICIES
The Trust is designed to enable long-term investors to pursue a wide range of
financial goals and to shift assets among the different Funds in response to
changing personal objectives or economic conditions. Investments in each of the
Funds of the Trust are made in many different securities which provide
diversification to reduce risk. While there is careful selection and constant
supervision by a team of professional investment managers, there can be no
guarantee that the Funds' objectives will be achieved. Shareholder approval is
required to change each Fund's investment objective and to change the investment
restrictions of the Trust.
CASH RESERVE FUND
- ------------------------------------------------------------
The Cash Reserve Fund is designed to seek as high a level of current income as
is considered consistent with the preservation of capital and liquidity through
investments in a portfolio of money market instruments with a remaining maturity
of 397 days or less. The Fund seeks to achieve its objective by investing in
instruments receiving a rating in one of the two highest categories by the
4
<PAGE> 8
following six nationally recognized statistical rating organizations (NRSROs):
Duff and Phelps, Inc. (D&P); Fitch Investors Services, Inc. (Fitch); Moody's
Investors Service, Inc. (Moody's); Standard & Poors Corp. (S&P); IBCA Limited
and its affiliate, IBCA, Inc. (IBCA); and Thomson Bank Watch (Thomson).
The types of instruments in which the Fund may invest are:
- Obligations issued or guaranteed as to interest and principal by the U.S.
government, its agencies or instrumentalities, U.S. dollar denominated
obligations of foreign governments, or any federally chartered corporation.
- Repurchase Agreements may be entered into by the Fund in respect to any of
the securities described above. The agreement is to purchase obligations, which
the Fund is qualified to purchase, and at the same time the Fund resells it to
the vendor and is obligated to redeliver the security to the vendor on an agreed
date in the future and at an agreed price. The resale price is in excess of the
purchase price and unrelated to the rate on the purchased security. These
transactions afford the Fund an opportunity to earn, at no market risk, a return
on cash which is only temporarily available. However, no more than 10% of its
assets may be subject to repurchase agreements maturing in more than seven days.
Potential risks associated with investment in repurchase agreements are twofold:
1) in the event of default of an issuer and a decrease in the value of the
underlying securities below the repurchase price, the Fund could suffer a loss;
and 2) in the event of an issuer's bankruptcy, a Fund's ability to dispose of
underlying securities could be delayed.
- Obligations of banks which, at the date of investment, are rated A2 or
better by IBCA and TBW1 by Thomson, and have total assets in excess of $500
million, and the obligations of the 50 largest foreign banks in terms of assets
with branches or agencies in the United States. Obligations of savings and loan
associations (including certificates of deposit and bankers' acceptances) which
at the date of investment have capital, surplus, and undivided profits (as of
the date of their most recently published financial statements) in excess of
$500 million; and obligations of other banks or savings and loan associations if
such obligations of other banks or savings and loan associations are insured by
the Federal Deposit Insurance Corporation, provided that not more than 10% of
the Fund's total assets shall be invested in such insured obligations.
- Taxable or partly taxable obligations issued by state, county, or municipal
governments.
- Commercial Paper which at the date of investment is rated Duff 1 or Duff 2
by D&P, F-1 or F-2 by Fitch, P-1 or P-2 by Moody's, or A-1 or A-2 by S&P; or if
not rated, is issued or guaranteed as to payment of principal and interest by
companies which at the date of investment have an outstanding debt issue rated
AA or Better by D&P, AA or better by Fitch, Aa or better by Moody's, or AA or
better by S&P.
The Fund may also invest up to 5% of its total assets in commercial paper
which at the date of investment is rated F-2 by Fitch, Duff 2 by D&P, P-2 by
Moody's, or A-2 by S&P. However, the Fund is limited as to the amount it may
invest in the commercial paper of a single issuer to the greater of 1% of the
Fund's total assets or $1 million.
- Short-term corporate obligations which, at the date of investment, are rated
AA or better by D&P, AA or better by Fitch, Aa or better by Moody's, or AA or
better by S&P.
- Bank loan participation agreements representing corporations and banks
having a short-term rating, at the date of investment, of F-1 or F-2 by Fitch,
Duff 1 or Duff 2 by D&P, P-1 or P-2 by Moody's, or A-1 or A-2 by S&P, 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
the creditworthiness of the borrower.
The Fund may invest in securities of foreign corporate issuers and in the
securities of foreign branches of U.S. banks, such as negotiable certificates of
deposit (Eurodollars) in U.S. dollar denominations which at the date of
investment are rated A1 or A2 by IBCA or TBW1 by Thomson. Because of this,
investment in the Fund involves risks that are different in some respects from
an investment in a fund which invests only in debt obligations of U.S. domestic
issuers. Such risks may include: future political and economic developments; the
possible imposition of foreign withholding taxes on interest income payable on
the securities held in
5
<PAGE> 9
the portfolio; possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on securities in the portfolio.
All the assets of the Fund will be invested in obligations with stated
remaining maturities of 397 days or less and which generally will be held to
maturity. The Fund will, to the extent feasible, make portfolio investments
primarily in anticipation of or in response to, changing business, economic and
financial conditions. The Fund will attempt to maximize the return on its
investments through careful analysis of a wide range of investments available
and the different yield relationships existing among various sectors of the
market. The dollar weighted average maturity of the Fund's investment may not
exceed 90 days. There can, however, be no assurance that the Fund's investment
objective will be achieved.
The Cash Reserve Fund is designed for investors who are seeking a place to
temporarily invest funds while awaiting opportunities in other markets or for
those investors who are currently unsure in which of the other Funds to invest.
A description of NRSRO ratings is found in the Appendix to the Statement of
Additional Information on page 10.
GOVERNMENT BOND FUND
- ------------------------------------------------------------
The investment objective of the Government Bond Fund ("Government Fund") is to
provide as high a level of income as is consistent with the preservation of
capital. The Government Fund will normally invest at least 65% of its assets in
bonds issued by the U.S. government, and its agencies and instrumentalities (see
Description of Securities, U.S. Government Securities, p. 16). These bonds pay
interest at regular intervals, usually semi-annually, and pay principal at
maturity.
The Government Fund may invest up to 35% of its assets in zero coupon
securities (see "Description of Securities, Zero Coupon Securities," p. 17) or
mortgage-related securities (see Description of Securities, Mortgage-Related
Securities, p. 17) and up to 20% of its assets in securities purchased on a
"when-issued" or on a "forward delivery" basis (see Investment Techniques,
When-Issued Securities, p. 19). The Government Fund may also enter into
repurchase agreements (see Investment Techniques, Repurchase Agreements, p. 18)
in any of the securities described above.
The Government Fund will normally invest no more than 20% of its assets in
repurchase agreements or in U.S. Government Securities maturing in less than one
year (see Statement of Additional Information for a further discussion of the
risks associated with bond funds). For temporary defensive purposes, however,
the Fund may invest up to 100% of its assets in these securities.
There is minimal default risk involved in the purchase of U.S. government or
U.S. government guaranteed securities. Securities issued by U.S. government
agencies or instrumentalities, while perhaps having the implicit backing of the
U.S. government, may not have an explicit guarantee of the payment of principal
and interest (see Description of Securities, U.S. Government Securities, p. 16).
The value of shares of the Government Fund will vary inversely with changes in
interest rates. As with any fixed income investment, interest rate risk (when
interest rates decline, the market value of a portfolio invested at higher
yields can be expected to rise; conversely, when interest rates rise, the market
value of a portfolio invested at lower yields can be expected to fall) does
exist. While the Government Fund will engage in portfolio trading (shortening
the average maturity of the portfolio in anticipation of a rise in interest
rates so as to minimize depreciation of principal or lengthening the portfolio
in anticipation of a decline in interest rates so as to maximize appreciation of
capital) to manage this risk, there is no assurance that capital will be
preserved. Thus, the Government Fund is designed for those willing to accept
market fluctuations to obtain income.
MUNICIPAL BOND FUND
- ------------------------------------------------------------
The investment objective of the Municipal Bond Fund ("Municipal Fund") is to
provide as high a level of municipal income as is consistent with the
preservation of capital. Municipal income is used herein to mean income earned
on municipal obligations. The Municipal Fund will normally invest
6
<PAGE> 10
at least 65% of the value of its total assets in debt securities generally
called bonds.
A fundamental policy of the Municipal Fund is that it will normally invest at
least 80% of its assets in the following municipal obligations (see Description
of Securities, Municipal Obligations, p. 18): (a) municipal bonds rated within
the four highest credit categories Aaa, Aa, A or Baa by Moody's and/or AAA, AA,
A or BBB by S&P, (b) state and municipal notes rated MIG-1 and MIG-2 by Moody's
and/or SP-1 by S&P and (c) other types of short-term municipal securities such
as commercial paper, provided that such securities are rated at least Prime-2 by
Moody's or A-2 by S&P (see the appendix to the Statement of Additional
Information for an explanation of Moody's and S&P's ratings). The categories Baa
by Moody's and BBB by S&P are considered to lack outstanding investment
characteristics and do have some speculative characteristics. An obligation, not
rated by either Moody's or S&P, may be considered once an equivalent rating has
been assigned by the Investment Adviser.
The Municipal Fund may invest up to 40% of its assets in securities purchased
on a "when-issued" or on a "forward delivery" basis (see Investment Techniques,
When-Issued Securities, p. 19). It may also invest in securities affected by
alternative minimum tax to the extent that such investments would be
advantageous.
The Municipal Fund will normally invest no more than 20% of its assets in
short-term debt securities. (See Description of Securities, Short Term Debt
Securities, p. 16.) For temporary defensive purposes, the Municipal Fund may
invest up to 100% of its assets in either municipal or taxable short-term debt
securities.
There are three types of risks: interest rate risk, credit risk and
diversification risk. The value of shares of the Municipal Fund will vary
inversely with changes in interest rates. It also can be affected by the
market's perception of changes in risk associated with specific credits. As
perceived credit risk increases, the value of a specific credit generally
decreases, and the converse is also true. Additionally, an increase in the
Fund's concentration in specific market segments or specific credits results in
less diversification and potentially an increase in the Fund's market risk.
Because of these risks, the Municipal Fund's net asset value per share will
fluctuate. Thus, the Municipal Fund is designated for those investors who are
willing to accept possible market fluctuations to obtain income.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal securities may be enacted in the future. Before investing
in any fixed income security, you should determine whether your after-tax return
is likely to be higher with a taxable or with a municipal security. (Refer to
Tax Status, p. 15, for more information.)
GROWTH FUND
- ------------------------------------------------------------
The investment objective of the Growth Fund is to provide long-term capital
appreciation. The Growth Fund will focus on investments that are seen to unfold
over the long term, and will avoid investing on the basis of cyclical
opportunity. Generally, long term would mean a period of between two and five
years.
The Growth Fund looks at a long term investment as one that will likely
provide total return greater than that of the market in general over the
relevant investment horizon. This total return would be composed of dividends
paid plus increased price valuation of the security compared to its purchase
price valuation.
In evaluating the prospects for the earnings or asset growth that should
provide increased price valuation, the Growth Fund normally considers: a)
quality of management and sufficient financial wherewithal to successfully
exploit the company's business opportunities, b)social, economic, demographic,
and/or technological trends that present the company with significant future
business opportunities, and c)the degree to which there are barriers to
competition in the company's business, with higher barriers tending to increase
the company's opportunity to achieve superior growth.
The above criteria, present in sufficient degree, will normally present the
Fund with numerous investment alternatives. However, the Fund will not invest
unless it believes it is buying at a price valuation considerably lower than the
future valuation over the relevant investment horizon.
Management anticipates that over the long term, sufficient investments will be
available under the criteria listed above to meet its objectives. However,
7
<PAGE> 11
it is not restricted to those criteria should market conditions dictate that its
objective be met by adopting, in full or in part, other investment criteria.
The Growth Fund maintains a policy of maximum flexibility in managing its
portfolio. While it is generally intended to invest in common stocks or in
issues convertible to common stock, there are no restrictive provisions covering
the portion of one or another class of securities that may be held which in any
way inhibit management in the selection of appropriate investments to reach
objectives.
While there is careful selection and constant supervision of the Growth Fund,
there can be no guarantee that its objectives will be achieved. In seeking
appreciation in price valuation, the Growth Fund may, for example, invest in a
developmental stage company. Such an investment may not pay a dividend or
produce the anticipated price valuation. It could even experience a reduction in
price valuation with no capital gain resulting from its sale. In no event,
however, may the Growth Fund invest more than 5% of its assets in companies
which have a record of less than three years continuous operation or in
securities for which market quotations are not readily available.
The Growth Fund is designed to serve investors who do not require income, but
are primarily interested in the growth of their capital. More details on
investment objectives, investment policies, and investment restrictions are
contained in the Statement of Additional Information.
=================================================
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MANAGEMENT OF
THE TRUST
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The Board of Trustees sets and reviews policies regarding the
operation of the Trust whereas the officers perform the daily functions of the
Trust.
Under the terms of the Investment Advisory Agreement, Nationwide Advisory
Services, Inc. ("NAS" or "Adviser"), Three Nationwide Plaza, Columbus, Ohio
43215, manages the investment of the assets and, subject to the supervision of
the Trustees, provides various administrative services and supervises the daily
business affairs of the Trust. NAS, an Ohio corporation, is a wholly owned
subsidiary of Nationwide Life Insurance Company, which in turn is a wholly owned
subsidiary of Nationwide Financial Services, Inc. NAS was incorporated in 1960
and has served as a registered investment advisor for 37 years. The Trust pays
to the Adviser fees based on the average daily net assets of the Funds at the
rate of .65% per annum for the Growth Fund, Municipal Bond Fund and Government
Bond Fund, and .40% per annum for the Cash Reserve Fund. NAS, as Distributor,
markets the shares of the Funds of the Trust. It also provides the accounting
services, including daily valuation of each Fund's shares, preparation of
financial statements, taxes and regulatory reports. The individuals primarily
responsible for the day to day management of each fund's portfolio are as
follows:
GROWTH FUND -- Laura Klebe, Senior Investment Analyst. Laura received Bachelor
of Science and Masters of Business Administration Degrees from Case Western
Reserve University. Before joining Nationwide in June of 1994, Laura was
employed at Dow Chemical for two and one-half years as an Equity Securities
Analyst. She has managed the Growth Fund since January 1996.
MUNICIPAL BOND FUND -- J. Randall Baney, Director -- Municipal Securities.
Randy received a Bachelor of Science Degree with a major in Economics and
Statistical Analysis from The Ohio State University and an MBA from the
University of Dayton. He has managed the Municipal Bond Fund since its inception
in 1988.
GOVERNMENT BOND FUND -- Wayne T. Frisbee, Director -- Investments. Wayne
received a Bachelor of Science Degree in Business Administration from The Ohio
State University. He has managed the Government Bond Fund since its inception in
1988.
CASH RESERVE FUND -- Karen G. Mader, Securities Portfolio Manager. Karen
received a Bachelor of Arts degree in Political Science and a Masters degree in
International Business and Political Science, both from The Ohio State
University. She has managed the Cash Reserve Fund since its inception in 1988.
DISTRIBUTION
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the
8
<PAGE> 12
Investment Company Act of 1940. The Plan provides that the Trust will pay NAS,
as Distributor, compensation accrued daily and paid monthly at the annual rate
of .75% of average daily net assets of the Growth Fund, Municipal Bond Fund and
Government Bond Fund. No distribution fees will be paid by the Cash Reserve
Fund. On March 1, 1994, NAS began waiving .25% of the total .75% annual 12b-1
fees for the Growth, Municipal Bond and Government Bond Funds. Effective
November 8, 1996, the Distributor began waiving the entire .75% annual 12b-1 fee
and will continue to waive all the 12b-1 fee until further written notice. The
Distributor also receives the proceeds of contingent deferred sales charges
imposed on certain redemptions of shares of the Growth Fund, Municipal Bond Fund
and Government Bond Fund.
The purpose of the payments to NAS under the Trust's Plan is to compensate NAS
for its distribution services to the Trust. Distribution expenses paid by NAS
may include costs of printing and mailing prospectuses and sales literature to
prospective investors and compensation to broker-dealers.
SHAREHOLDER SERVICES
Nationwide Investors Services, Inc. ("NIS"), Three Nationwide Plaza, Columbus,
Ohio 43215, serves as transfer agent and dividend disbursing agent for the
Trust. NIS is a wholly owned subsidiary of NAS.
NIS, in its capacity as transfer agent, shall maintain appropriate shareholder
account information, deposit and process all investments on a timely basis,
process and mail redemption checks, examine and process legal changes in share
registrations, respond to inquiries from investors, and prepare and mail
confirmation statements. In its capacity as dividend disbursing agent, NIS shall
calculate shareholder's dividends and capital gain distributions, prepare and
mail distribution checks or cause reinvestment of distributions where required
and prepare and mail dividend distribution confirmations. Additionally, NIS
shall prepare, mail and tabulate all proxies relating to shareholder meetings,
address and mail various reports including semiannual and annual reports, and
solicit taxpayer identification numbers.
=================================================
-------------------------------------------------
EXPENSES
In addition to the investment management fees and transfer agent fees
previously discussed, the Trust will be responsible for certain other expenses,
including custodian fees, printing and postage related to shareholders' reports,
auditing and legal fees and trustee fees and expenses.
=================================================
-------------------------------------------------
MANAGEMENT'S DISCUSSIONS OF
FUND'S PERFORMANCE
The 1996 Annual Report contains management's discussion of each Fund's
performance including narrative discussions by the Funds' portfolio managers and
line graphs comparing the performance of each fund since their inception to that
of the S&P 500 Index, Lehman Brothers Municipal Bond Index, Merrill Lynch
Government Master Index, or Merrill Lynch Mortgage Master Index, as appropriate,
and the Consumers Price Index over the same periods. Copies of the 1996 Annual
Report can be obtained free of charge by writing the Funds or calling the toll
free number (1-800-848-0920).
=================================================
-------------------------------------------------
HOW TO INVEST
A minimum investment of $1,000 is required and subsequent investments of $100
or more may be made at any time. The Funds reserve the right to reject any
order. A confirmation statement will be mailed to you after each purchase.
There are three ways to invest:
1. BY MAIL -- Complete the application in this Prospectus (additional payments
to an existing account do not require the submission of a new application)
and mail with your check or other negotiable bank draft payable to:
Financial Horizons Investment Trust
P.O. Box 1492
Columbus, Ohio 43216-1492
9
<PAGE> 13
Orders for the purchase of shares accompanied by a check or other negotiable
bank draft received in good order will receive the net asset value determined
upon the date of receipt by the Transfer Agent, NIS. The Funds reserve the
right to refuse certain third party checks.
BY CONFIRMED ORDER -- Only a broker dealer firm may place a confirmed order.
Complete the application in this prospectus with your Account Executive
(additional payments to an existing account do not require the submission of
a new application) and deliver to your Account Executive a check or other
negotiable bank draft. All confirmed orders for the purchase of shares of any
of the funds will receive the net asset value next determined after receipt
of the order by NIS.
2.BY WIRE -- Request that your bank transmit immediately available funds by wire
to the Funds' custodian bank. If you choose to establish your account or make
subsequent investments by wire directly from your bank to the Funds' custodian
bank, you must telephone our Customer Service Center (1-800-848-0920) by 11
a.m. Eastern Time and the wire must be received by the Funds' custodian bank
by 2 p.m. Eastern Time in order to obtain same day investment. The bank that
wires your money may charge a small fee for this service. If you are opening a
new account, you must then complete an application and mail it to NIS.
PURCHASE OF SHARES
Shares are purchased at net asset value. The net asset value is computed as of
the close of the New York Stock Exchange (usually 4:00 p.m. Eastern Time) on
days when the New York Stock Exchange is open and on such other days as the
Board of Trustees determines and on days on which there is sufficient trading in
a Fund's portfolio to materially affect the net asset value of that Fund. The
Trust will not compute net asset value on customary national business holidays,
including Christmas, New Year's 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. In determining the total net assets, portfolio securities, except
for the Cash Reserve Fund, are valued at the quoted closing sale price or, if
none, at their bid quotations obtained from an independent pricing organization
which employs a combination of methods, including, among others, the obtaining
of market valuations from dealers who make markets and deal in such securities
and by comparing valuations with those of other comparable securities in a
matrix of such securities. The pricing service activities and results are
reviewed by an officer of the Trust. Securities for which market quotations are
not readily available are valued at fair value in accordance with procedures
adopted by the Board of Trustees. Money market instruments held by the Cash
Reserve Fund are valued at amortized cost in accordance with the rules of the
Securities and Exchange Commission. Expenses and fees are accrued daily. The net
asset value per share of the Cash Reserve Fund is ordinarily $1.00.
=================================================
-------------------------------------------------
PRIVILEGES AND
SERVICES
The Funds offer the following privileges and services to you. Additional
information about any of the services may be obtained by calling our toll free
telephone number listed on the cover page of this prospectus.
EXCHANGE PRIVILEGE -- The Exchange Privilege allows you to exchange from any
one of the Trust's Funds to any other of the Trust's Funds. The Exchange
Privilege is a convenient way to take advantage of the different investment
objectives of the Trust's Funds in order to respond to changes in your
investment goals or in market conditions.
An exchange is a sale and purchase of shares and, for federal 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 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.
There is no limit to
10
<PAGE> 14
the number of exchanges you may make. Amounts exchanged from the Growth,
Municipal Bond, and Government Bond Funds retain their original cost and
purchase date for purposes of the contingent deferred sales charge. An exchange
may be made in writing to Nationwide Investors Services, Inc., P.O. Box 1492,
Three Nationwide Plaza, 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.
You may use the Telephone Exchange Privilege if you have established that
privilege. You must telephone our toll free number listed on the cover page of
this prospectus by 4:00 p.m. Eastern Time to receive that day's closing share
price. You may not revoke your request once instructions have been recorded and
accepted.
The Trust 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. Election of the privilege authorizes the Trust and its
transfer agent to voice-record all instructions to exchange. The Trust will
employ reasonable procedures for the protection of shareholders to confirm that
instructions communicated by telephone are genuine, such as, but not limited to,
recording the conversation, requiring some form of personal identification and
providing written confirmation of the transaction. If these procedures are not
followed, the Trust may be liable for any loss due to unauthorized or fraudulent
instructions.
AUTOMATED DOLLAR COST AVERAGING -- This systematic investment plan is designed
especially for investors who want to invest large blocks of assets, but not all
at one time. An initial investment of $5,000 or more is made in the Cash Reserve
Fund. Then a fixed amount that you predetermine (minimum of $100) is transferred
systematically monthly into one of the other FHIT Funds.
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 transfer from the Cash Reserve Fund to the FHIT
Fund you select, buys more shares when share prices fall during low markets, and
fewer shares at inflated 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 cautious outlook on investing can transfer smaller sums
monthly and spread the transfer of assets into another FHIT Fund over a longer
period of time, while those with a less cautious 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 Cash Reserve Fund,
along with the stability offered by the Cash Reserve Fund's fixed share price.
The holding period for amounts transferred from the Cash Reserve Fund begins on
the date of transfer for purposes of the contingent deferred sales charge.
SYSTEMATIC INVESTMENT PLANS -- Begin a systematic investment plan ($100
minimum) by authorizing monthly transfers directly from your personal bank
checking account. The withdrawals from your bank account will begin on the 5,
15, or 20th of the month which you indicate, unless your application is received
less than 20 days prior to this date. If your application is received less than
20 days prior to the date that you have indicated as your first withdrawal date,
your first withdrawal will occur on the 5, 15, or 20th of the following month.
When the date falls on a weekend or holiday, the withdrawal from your bank
account will occur on the next business day. You pay no fee for this service.
You may terminate at any time.
TOLL-FREE INFORMATION AND ASSISTANCE -- Available between the hours of 8:00
a.m.-5:00 p.m. Eastern Time through our service representatives. Call
1-800-848-0920.
RETIREMENT PLANS -- Shares of the Cash Reserve Fund, Government Fund and
Growth Fund may be purchased for self-employed retirement plans, individual
retirement accounts (IRAs), simplified employee pension plans, corporate
retirement plans and other qualified plans. For a free information kit, call our
toll-free number.
SHAREHOLDER CONFIRMATION -- You will receive a confirmation statement within
ten business days following all transactions. Growth Fund shareholders receive a
statement semi-annually following the June and December dividend payments.
Shareholders of the Cash Reserve,
11
<PAGE> 15
Government Bond and Municipal Bond Funds receive a monthly statement.
SHAREHOLDER REPORTS -- All shareholders will receive semi-annual and annual
reports detailing the financial operations of the Trust.
WITHDRAWAL PLANS ($50 OR MORE) -- You may have checks for any fixed amount of
$50 or more sent to you (or anyone you designate) automatically and at regular
intervals from your Fund account. If you have an account of $5,000 or more, you
may receive such checks every quarter. If you have an account of $10,000 or
more, checks may be received every month. Withdrawal plan redemptions occur five
business days before the end of the calendar month. Withdrawal plans, like other
redemptions, are subject to the contingent deferred sales charge.
AVERAGE COST REPORTING -- Each calendar year, shareholders who had one or more
redemptions during the prior year will receive an Average Cost Statement. This
statement provides the gain or loss on the shares sold based upon the single
category average cost method. The Average Cost method is only one of four cost
basis methods available to shareholders. It is not available or applicable to
fiduciary or corporate accounts, nor to accounts opened by transfers with
different registrations.
=================================================
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HOW TO REDEEM SHARES
You may redeem all or part of your shares of any Fund at any time. Shares are
redeemed at net asset value at the closing of the New York Stock Exchange on the
day the properly completed request is received by NIS, the transfer agent, at
its office in Columbus, Ohio.
You can redeem shares in any of the following ways:
1. BY MAIL (NO MINIMUM) -- Write to the Financial Horizons Investment Trust, Box
1492, Columbus, Ohio 43216-1492. The Trust will send a check to you. Please be
sure that the letter requesting a withdrawal is signed exactly as the account is
registered and that the account number and the Fund from which the withdrawal is
to be made are included. Signature guarantees may be required for some
redemptions.
SIGNATURE GUARANTEE -- The funds reserve the right to require that your
signature be guaranteed by an authorized agent of an "eligible guarantor
institution," to include, but not be limited to, banks, credit unions, savings
associations, and member firms of national security exchanges. The requirement
for a guaranteed signature is for your protection by preventing an unauthorized
person from redeeming the shares and obtaining the proceeds. A notary public is
not an acceptable guarantor.
2. BY TELEPHONE ($1,000 OR MORE) -- The Trust will wire redemptions of $1,000 or
more directly to your account at a commercial bank if NAS has an authorization
on file. Just telephone the Trust at its toll free telephone number before 4:00
p.m. Normally, the money requested will be wired to your bank the next business
day after the withdrawal order has been received. A $5 fee will be deducted from
the proceeds for this service. If redemptions are mailed to a bank, no fee is
charged.
Before NAS can accept instructions for telephone redemptions, you must have
authorized this procedure. This can be done when the Application is completed.
The authorization will remain in effect until written notice of its termination
is received by the transfer agent.
Payment for shares redeemed is made within three business days of written
request. The Funds may delay payment of redemption proceeds for up to 12 days
from the purchase date until the purchase check has cleared. To avoid this
possible twelve day delay, you may make your investment by wire. You will
receive a confirmation from the Fund each time you liquidate shares.
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 Statement of Additional Information) or if trading is restricted
or if any emergency exists. 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 your cost.
A contingent deferred sales charge is imposed on any redemption in the Growth
Fund, Municipal Bond Fund or Government Bond Fund which causes the current value
of a shareholder's account to fall
12
<PAGE> 16
below the total purchase payments made during the past six years. When a
redemption is made, the charge is applied against the lesser of the purchase
amount or the current value. The amount of the charge will depend on the number
of months since the shareholder made the purchase payment from which an amount
is being redeemed, except for shares acquired through an exchange from the Cash
Reserve Fund in which case the holding period begins on the date of the
exchange, according to the following table:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
MONTHS SINCE PURCHASE/ SALES CHARGE
EXCHANGE WAS MADE PERCENTAGE
- ------------------------------- ------------
<S> <C>
0-12................. 5.00%
13-24................ 5.00%
25-36................ 4.00%
37-48................ 3.00%
49-60................ 2.00%
61-72................ 1.00%
73 and following..... 0.00%
</TABLE>
For purposes of the charge, it is assumed that the purchase payment from which
the redemption is made is the earliest purchase payment from which a redemption
has not already been effected. All payments during a month will be aggregated
and deemed to have been made on the last day of the preceding month.
There is no contingent deferred sales charge imposed on redemptions in the
Cash Reserve Fund except when shares redeemed were acquired through an exchange
from the Growth, Municipal or Government Bond Fund. The holding period for
purposes of determining the contingent deferred sales charge percentage begins
on the date the shares were originally purchased, not the date shares were
exchanged.
The contingent deferred sales charge does not apply to dividends reinvested
nor the appreciation on an original investment. The contingent deferred sales
charge is waived in the event of the shareholder's death or permanent
disability, as certified by a physician. If the account is owned jointly by
husband and wife, death or disability of either party will be considered
sufficient to waive contingent deferred sales charges; if ownership is other
than spousal, all owners must be deceased or disabled before contingent deferred
sales charges will be waived. The Contingent Deferred Sales Charge may be
reduced or eliminated when sales of the shares are made to Trustees of the
Trust, directors, officers or employees of the Advisor, its affiliates or broker
dealers which execute selling agreements with NAS where sales of the Fund's
shares result in savings of sales expenses. In addition, the Contingent Deferred
Sales Charge may be reduced or eliminated when shares are sold without
commission expense to employees of depository institutions through which the
Funds are offered for sale to the public.
If you redeem all or part of your shares, you have a one-time privilege to
reinvest all or part of the redemption proceeds in any of the Funds within
thirty days and receive credit for any contingent deferred sales charge prorated
according to the percentage of the reinvestment, e.g., 100% for a full
reinvestment, etc. Reinvestment will not alter any capital gains tax payable on
the redemptions and a loss may not be allowed for tax purposes.
If you are a shareholder of the Cash Reserve, Government Bond or Municipal
Bond funds and you redeem your shares, you will receive a check representing the
value of your account less any applicable contingent deferred sales charges on
the date of withdrawal, including all daily income dividends credited to your
account through the date of withdrawal. If you redeem your shares of the Growth
Fund after a dividend and/or capital gain has been declared, you will receive a
check shortly after the payable date which has been declared by the Fund.
The Trust may close any account which has a value of less than $250 due to
redemptions. However, you will be notified if your account value is less than
$250 and will be allowed ninety days to make additional investments before the
account is liquidated.
13
<PAGE> 17
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ADDITIONAL INFORMATION
PERFORMANCE ADVERTISING FOR
NON CASH RESERVE FUNDS
- ------------------------------------------------------------
The non Cash Reserve Funds 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 Funds 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 specified period. Historical performance should not be
considered a representation of performance of or shareholder experience in the
Funds in the future.
The Government Fund and Municipal Fund may advertise yield calculated by
dividing the net investment income per share earned during a thirty-day period
by the maximum offering price per share on the last day of the period.
Additionally, the Municipal Fund may advertise tax equivalent yield which is
calculated by dividing yield by one minus a standard income tax rate.
All performance advertising will reflect maximum sales charges and assume
reinvestment of all distributions.
VOTING RIGHTS -- A Board of Trustees, elected by the shareholders at an annual
meeting or at a special meeting, conducts the business of the Trust. The
Declaration of Trust does not require an annual meeting of the shareholders and
the Trustees do not anticipate having annual meetings. Any Trustee may resign or
be removed with cause by vote of two-thirds of the remaining Trustees. Any
vacancy may be filled by an appointment of the remaining Trustees.
Each shareholder of the Trust has one vote for each share held. Voting rights
cover the investment management agreement, distribution agreement, election and
removal of Trustees, termination of the Trust, sale of assets as a whole and
change of investment objectives and restrictions. The Trust shall comply with
all of the requirements of Section 16(c) of the Investment Company Act of 1940,
as amended, if the number of shareholders, as provided for in Section 16(c),
wish to communicate with other shareholders for the purpose of requesting a
meeting.
SHAREHOLDER LIABILITY -- No shareholder is subject to any personal liability
whatsoever in connection with any property owned by the Trust or the acts,
obligations or affairs of the Trust (see the Statement of Additional Information
for details).
SHAREHOLDER INQUIRIES -- All inquiries regarding the Trust should be directed to
the Trust at the telephone number or address shown on the cover page of this
Prospectus.
=================================================
-------------------------------------------------
NET INCOME AND
DISTRIBUTIONS
A shareholder may elect to receive dividends and, where applicable, capital
gains in cash by so indicating on the application, or, if the account has
already been opened, by written request signed by the shareholder. If the
account has already been opened and is NOT a retirement plan (including an IRA),
the election may also be changed by contacting the Customer Service Center at
1-800-848-0920 between the hours of 8:00 a.m.-5:00 p.m. Eastern Time on any
business day.
CASH RESERVE FUND
- ------------------------------------------------------------
The net income of the Cash Reserve Fund is determined once daily as of the
close of the New York Stock Exchange (usually 4:00 p.m. Eastern Time) on each
business day the New York Stock Exchange is open. All the net income of the Cash
Reserve Fund, so determined, is declared as a dividend to shareholders of record
at the time of such determination. (Shares purchased become entitled to
dividends declared as of the first day following the date of investment.)
Dividends are distributed in the form of additional shares of the Cash Reserve
Fund on the last business day of each month at the rate of one share (and
fraction thereof) of the Cash Reserve Fund for each $1 (and fraction thereof) of
dividend income.
For this purpose, the net income of the Cash Reserve Fund (from the time of
the immediately
14
<PAGE> 18
preceding determination thereof) shall consist of: (a) all interest income
accrued on the portfolio assets of the Cash Reserve Fund, (b) less all actual
and accrued expenses determined in accordance with generally accepted accounting
principles and (c) plus or minus net realized gains and losses on the assets of
the Fund. Interest income shall include discount earned (including both original
issue and market discount) on discount paper accrued ratably to the date of
maturity. Securities are valued at amortized cost for the purposes of complying
with the Investment Company Act of 1940, as amended.
GOVERNMENT FUND AND MUNICIPAL FUND
- ------------------------------------------------------------
Each of these Funds declare as a dividend substantially all of their net
investment income each day the New York Stock Exchange is open. The dividend is
payable to everyone who was a shareholder at the close of business the previous
day. These income dividends, if any, are declared each day, and the accumulated
total is credited to investors' accounts in the form of additional shares, or
may be distributed in cash, on the last business day of each month. Any accounts
that are completely redeemed before the end of the month will receive the
month-to-date dividends through the day of redemption. The funds will distribute
net realized capital gains, if any, annually after the close of the calendar
year.
GROWTH FUND
- ------------------------------------------------------------
The Growth Fund distributes to its shareholders semiannual dividends
substantially equal to all of its net investment income. The Growth Fund's net
investment income consists of the interest and dividend income it earns
(although such income is incidental to its investment objective) less expenses.
The Growth Fund will distribute net realized capital gains, if any, annually
after the close of the calendar year. Shareholders may elect to receive
dividends and capital gains distributions in either cash or additional shares.
The Trust will not mail checks for dividends of less than $5. Such dividends
will be reinvested, and you will receive a confirmation.
=================================================
-------------------------------------------------
TAX STATUS
FEDERAL TAXES -- Each of the Funds intends to qualify for treatment under
subchapter M of the Internal Revenue Code and, therefore, must distribute
substantially all of its net investment income and capital gains to shareholders
annually. In general, if the Funds distribute all of their net investment
income, they are not required to pay any federal income taxes. In addition, in
the event the Funds fail to distribute the required portion of its investment
income and capital gains in any year, they will be subject to a non-deductible
4% excise tax on the amount which they have failed to distribute. The Funds
intend to make distributions in a sufficient amount to avoid the imposition of
such tax.
Dividends paid by each of the Funds, other than the Municipal Bond Fund, are
taxable to the shareholder for federal income tax purposes.
Dividends paid by the Municipal Bond Fund will be exempt from federal income
tax to the extent that the income of the Fund is derived from bonds which
qualify for such exemption. It is possible that some portion of the income from
this Fund will be taxable annually. The taxable portion of each distribution
shall be based on the ratio, each year, between the Fund's taxable income and
total income. Such 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.
Under current tax law as of February 28, 1997, net long-term capital gains, if
any, realized by the Funds, are generally taxable to the shareholder at the same
rate as ordinary income, but in no event may the tax rate on such capital gains
exceed 28% for an individual or 35% for a corporation.
Shareholders not subject to tax on their income will not pay tax on amounts
distributed to them. The Trust will annually report to each shareholder the
shareholder's portion of the net amount of income and capital gain for each
fund, for inclusion in the shareholder's income.
Under current tax law as of February 28, 1997, individual and corporate
shareholders may be
15
<PAGE> 19
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 a rate as high as 28 per cent for individuals and 20 per
cent 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.
=================================================
-------------------------------------------------
DESCRIPTION
OF SECURITIES
SHORT TERM DEBT SECURITIES
- ------------------------------------------------------------
- Obligations of Commercial Banks and of Savings Associations include
certificates of deposit, bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation to pay at maturity), fixed time
deposits and documented discount notes (corporate promissory discount notes
accompanied by a commercial bank guarantee to pay at maturity) maturing in one
year or less;
- Commercial Paper is short-term unsecured promissory notes (up to 9 months)
issued in bearer form by bank holding companies, corporations and finance
companies; and
- Short-Term Corporate Obligations include corporate debt securities (other
than commercial paper) with maximum maturities of one year.
U.S. GOVERNMENT SECURITIES
- ------------------------------------------------------------
U.S. Government Securities include obligations issued ( 1) by the U.S.
Treasury and (2) by agencies and instrumentalities of the United States
government. (U.S. government agencies are government-sponsored organizations
acting under authority of Congress, such as Federal Land Banks, Central Banks
for Cooperatives, Federal Home Loan Banks, the Farmers Home Administration, and
the Federal Farm Credit System. U.S. government instrumentalities are organized
by Congress under a federal charter and supervised and regulated by the U.S.
government, such as the Federal National Mortgage Association and the Student
Loan Marketing Association.) A distinction must be made between these
obligations since some are supported by the full faith and credit of the U.S.
Treasury, others by the discretionary authority of the U.S. Government, and
still others only by the credit of the issuer.
Securities guaranteed by the U.S. Government include: (1) direct obligations
of the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as securities issued by the Farmers Home Association, the Federal
Financing Bank, the Government National Mortgage Association, the Maritime
Administration Guaranteed Ship Financing Bonds issued after 1972 and the Small
Business Administration). In these securities, the payment of principal and
interest is unconditionally guaranteed by the U.S. government; thus they are of
the highest possible credit quality.
Securities issued by U.S. government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the Treasury.
However, they involve federal sponsorship in one way or another: some are backed
by the issuer's right to borrow from the U.S. Treasury (such as securities
issued by the Farm Credit System and the Tennessee Valley authority); some are
supported by the authority of the U.S. Treasury to purchase obligations issued
by agencies
16
<PAGE> 20
or instrumentalities (such as the Federal National Mortgage Association, Student
Loan Marketing Association, and the Tennessee Valley Authority). Some are
supported only by the credit of the issuing government agency or instrumentality
(such as securities issued by the Financing Corporation, FICO).
ZERO-COUPON SECURITIES
- ------------------------------------------------------------
Zero-coupon securities are securities that make no periodic interest payments
but instead are sold at a deep discount from their face value. The buyer of such
a bond receives the rate of return by the gradual appreciation of the security,
which is redeemed at face value on a specified maturity date. For tax purposes,
the Internal Revenue Service maintains that the holder of a zero-coupon bond
owes income tax on the interest that has accrued each year, even though the
bondholder does not actually receive the cash until maturity.
The Government Fund will only invest in zero-coupon securities which are
direct obligations of the U.S. Treasury or agencies of the U.S. government. No
zero-coupon securities issued by brokerage firms will be purchased by the
Government Fund.
MORTGAGE-RELATED SECURITIES
- ------------------------------------------------------------
Mortgage-related securities include GNMA certificates, FNMA and FHLMC
mortgage-based obligations.
GNMA certificates are mortgage-backed securities representing part ownership
of a pool of mortgage loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. government. GNMA
certificates differ from typical bonds because principal is repaid monthly over
the term of the loan rather than returned in a lump sum at maturity. Because
both interest and principal payments (including prepayments) on the underlying
mortgage loans are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
The Federal National Mortgage Association ("FNMA"), a federally chartered and
privately-owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest but this guarantee is not backed by the full
faith and credit of the U.S. government.
Although the mortgage loans in a GNMA pool will have maturities of up to 30
years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the GNMA certificates. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the GNMA certificates. Accordingly, it is not possible to
accurately predict the average life of a particular pool. Reinvestment of
prepayments may occur at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to reinvest prepayments
of principal at current rates, GNMA certificates can be less effective than
typical bonds of similar maturities at "locking in" yields during periods of
declining interest rates, although they may have comparable risks of decline in
value during periods of rising interest rates. Because prepayments are made at
par value, losses could be sustained on prepayments of GNMA certificates which
had been purchased at prices above their par values.
The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the U.S. government, issues participation certificates which
represent an interest in a pool of conventional mortgage loans. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal and
maintains reserves to protect holders against losses due to default, but the
certificates are not backed by the full faith and credit of the U.S. government.
As is the case with GNMA certificates, the actual maturity of and realized
return on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
FNMA and FHLMC also issue collateralized mortgage obligations ("CMO's"). CMO's
are obligations fully collateralized directly or indirectly by
17
<PAGE> 21
a pool of mortgages on which payments of principal and interest are dedicated to
payment of principal and interest on the CMO's. Payments are passed through to
the holders although not necessarily on a pro rata basis on the same schedule as
they are received. Accordingly, a change in the rate of prepayments on the pool
of mortgages could change the effective maturity of a CMO.
MUNICIPAL OBLIGATIONS
- ------------------------------------------------------------
Municipal obligations are classified as long-term if they mature in over one
year, and as short-term if they mature in less than one year. Long-term
municipal obligations are municipal bonds. They include debt issued to obtain
funds for various purposes, including, but not limited to, funds for the
construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Municipal Bonds may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to loan to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, airport, mass transit or port facilities,
sewage disposal, solid waste disposal or hazardous waste treatment or disposal
facilities and certain local facilities for water supply, gas or electricity.
Other types of industrial development bonds, the proceeds of which are used for
the construction, equipment, repair or improvement of privately operated
industrial or commercial facilities, may constitute Municipal Bonds.
Short-term municipal obligations include municipal notes and commercial paper.
Municipal notes include debt obligations issued to smooth cash flows caused by
irregular flows of income into the treasuries of states and local units of
government. The credit of the issuer is generally the sole guarantee. Among the
most common such obligations are Bond Anticipation Notes (BANs), Revenue
Anticipation Notes (RANs) and Tax Anticipation Notes (TANs). BANs are issued in
anticipation of the sale of long-term bonds. RANs and TANs are issued in
anticipation of the collection of taxes and other expected revenues. Municipal
commercial paper is issued for interim finance or to provide working capital
during seasonal shortfalls in taxes or revenues.
Taxable or partly taxable issues in which the Cash Reserve Fund may invest
include, but are not limited to, municipal notes or bonds with one year or less
remaining until final maturity, issued to finance pollution control, sports
facilities, parking facilities, industrial parks, housing finance, tax
anticipation notes, bond anticipation notes, and revenue anticipation note
obligations.
All long-term, as well as short-term obligations, can be classified either as
general obligation or revenue issues. General obligation issues are secured by
the issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. The payment of such bonds may be dependent upon an
appropriation by the issuer's legislative body. The characteristics and
enforcement of general obligation bonds vary according to the law applicable to
the particular issuer. Revenue issues are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Industrial
development bonds which are Municipal Bonds are in most cases revenue bonds and
do not generally constitute the pledge of the credit of the issuer of such
bonds. There are, of course, variations in the security of Municipal Bonds, both
within a particular classification and between classifications, depending on
numerous factors.
=================================================
-------------------------------------------------
INVESTMENT
TECHNIQUES
REPURCHASE AGREEMENTS
- ------------------------------------------------------------
The Cash Reserve Fund and Government Bond Fund may enter into Repurchase
Agreements with banks and securities dealers. Under Repurchase Agreements, the
Fund buys a security and obtains a simultaneous commitment from the seller to
repurchase the security at a specified time and price. Repurchase agreements
permit the Funds to maintain liquidity and earn income over periods of
18
<PAGE> 22
time as short as overnight. The seller must maintain with the Fund's custodian
securities equal to at least 102% of the acquired security's market value as
monitored daily by the Investment Adviser. Each Fund only will enter into
repurchase agreements involving securities in which it could otherwise invest
and with selected banks and securities dealers whose financial condition is
monitored by the Investment Adviser, subject to review by the Board of Trustees.
If the seller under the repurchase agreement defaults, the Fund may incur a loss
if the value of the collateral securing the repurchase agreement has declined,
and may incur disposition costs in connection with liquidating the collateral.
If bankruptcy proceedings are commenced with respect to the seller, realization
of the collateral by the Fund may be delayed or limited.
WHEN-ISSUED SECURITIES
- ------------------------------------------------------------
In order to help ensure the availability of suitable securities for its
portfolio, the Government Fund and the Municipal Fund may purchase securities on
a "when-issued" or on a "forward delivery" basis which means that the
obligations will be delivered to the Fund making the purchase at a future date
beyond customary settlement time. It is expected that, under normal
circumstances, a Fund purchasing securities on a "when-issued" or "forward
delivery" basis will take delivery of such securities. In general, a Fund does
not pay for the securities or start earning interest on them until the
obligations are scheduled to be settled. While awaiting delivery of the
obligations purchased on such basis, a Fund will establish a segregated account
consisting of cash or high quality debt securities equal to the amount of the
commitments to purchase "when-issued" securities.
To the extent a Fund engages in "when-issued" or "forward delivery"
transactions, it will do so for the purpose of acquiring portfolio securities
consistent with the Fund's investment objectives and policies and not for the
purpose of investment leverage or to speculate in interest rate changes. The
Government Fund and the Municipal Fund will make commitments to purchase
securities on a "when-issued" or "forward delivery" basis only with the
intention of actually acquiring the securities, but the Funds reserve the right
to sell these securities before the settlement date if deemed advisable.
Because a Fund must set aside cash or liquid high grade securities to satisfy
its commitments to purchase "when-issued" or "forward delivery" securities,
management of a Fund's investments may be limited by commitments to purchase
"when-issued" or "forward delivery" securities.
19
<PAGE> 23
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
P.O. Box 1492
Three Nationwide Plaza
Columbus, Ohio 43216-1492
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Druen, Rath & Dietrich
One Nationwide Plaza
Columbus, Ohio 43215
DISTRIBUTOR AND INVESTMENT ADVISER
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
20
<PAGE> 24
APPLICATION INSTRUCTIONS
(1) You may choose to invest in any or all of the Funds using one check and
entering here the dollar amount you with to invest in each Fund.
(2) Check the appropriate box.
If a Custodial Account, lists custodian's name. A Social Security or Tax
Identification Number is required by federal law. For an individual
registration, use a social security number; for a Joint-Tenant, either
social security number; for a Trust, the owner's social security number or
tax identification number; for a Gift to Minors Act, the minor's social
security number.
(3) Complete if the account is to be established under the Uniform Gift to
Minors Act.
(4) Check how you wish to receive your dividends.
(5) By checking the box, you may phone the Fund and have amounts of $1,000 or
more wired to your bank from your Fund account. A fee of $5 applies.
(6) Telephone Redemptions up to $10,000 can be authorized with the appropriate
box marked.
(7) Systematic Investment Plan authorizes your bank to make monthly
investments directly from your checking account.
(8) Complete to receive checks for $50 or more monthly or quarterly from your
account.
(9) You must initial this box in order to exchange shares of any FHIT Fund for
shares of any other FHIT Fund free of charge by telephone.
(10) All owners shown in the Account Registration, Section 2, must sign.
<PAGE> 25
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 26
APPLICATION
FOR RETIREMENT PLANS USE IRA APPLICATION ON NEXT PAGE.
MAKE CHECKS PAYABLE TO:
FINANCIAL HORIZONS INVESTMENT TRUST
Mail application and check to:
FINANCIAL HORIZONS INVESTMENT TRUST
P.O. BOX 1492
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216-1492
For assistance in opening an account call toll-free between 8:00 a.m. and
5:00 p.m. EST
All states 1-800-848-0920
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
1 FUND SELECTION CASH RESERVE FUND GOVERNMENT BOND FUND MUNICIPAL BOND FUND GROWTH FUND
INITIAL $ --------------- $ --------------- $ --------------- $ ---------------
INVESTMENT Minimum $1,000 Minimum $1,000 Minimum $1,000 Minimum $1,000
- ------------------------------------------------------------------------------------------------------
2 ACCOUNT [ ] INDIVIDUAL [ ] JOINT TENANT [ ] OTHER (corp., [ ] TRANSFER
REGISTRATION & [ ] GIFTS TO MINORS WITH RIGHT OF assoc., partnership, ON DEATH
TAXPAYER (Complete #3) SURVIVORSHIP trust, custodial acct., (Complete
NUMBER etc. For TOD Form)
assistance, call
the toll- free
number above.)
</TABLE>
Social Security or Tax Identification Number (TIN) -------------------------
Name of individual (first name, middle initial,
last name), Corporation or Trustee. -------------------------
<TABLE>
<C> <S>
[ ] The Internal Revenue Service has notified me that I am subject
--------------------------------- to 31% back-up withholding due under-reporting of income.
Joint Tenant
TELEPHONE
ADDRESS ---------------------------------------------------------------------------- Business (----) ----------
Street City State Zip
I am a [ ] U.S. citizen [ ] Other (Specify) ----------------- Home (----) ----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
3. GIFT
TO MINORS custodian for
--------------------------------- ---------------------------------------------
Custodian (one only) Minor (one only)
under the Uniform Gift to Minor Act
--------------------------------- ---------------------------------------------
(State of Residence) (Minor's Date of Birth --
month/day/year
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
4. DIVIDEND OPTION [ ] Reinvest Dividends and Capital Gains [ ] Pay Dividends and Capital Gains in
Cash
Check One [ ] Pay Dividends in Cash and Reinvest Capital Gains
</TABLE>
SPECIAL PAYEE: If you would like you cash distribution checks made payable to
someone other than the registered owner and/or have your checks mailed to an
address other than the account registration address, please complete below:
Name of Payee: ------------------- Acct. No. (if applicable): --------------
Street of Address: -------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[ ] The Transfer Agent is authorized to honor telephoned requests from any person for
5. WIRE REDEMPTIONS the redemption of Fund shares (minimum $1,000) provided that proceeds are transmitted ONLY
(OPTIONAL) to this bank account.
Bank Name ------------------------------------- Acct. No. ---------------------------------
(Must be a member of the Federal (A voided check from this account
Reserve System) must be sent with this form.)
Bank Address ---------------------------------------------
City State Zip
</TABLE>
- --------------------------------------------------------------------------------
Continued on Back
<PAGE> 27
<TABLE>
<S> <C>
6. TELEPHONE REDEMPTIONS [ ] Yes [ ] No
(OPTIONAL) The fund or the agents are authorized to honor telephone or other instructions
from any person for the redemption of fund shares. The amount of the redemption
shall not exceed $10,000 and the proceeds are to be payable to the shareholder of
record and mailed to the address of record. Refer to page 12 of the Prospectus to
read the terms and conditions for this privilege.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
7. SYSTEMATIC [ ] Yes, I wish to establish a Systematic Investment Plan. (Submit voided check
INVESTMENT PLAN and signed Bank Authorization Form.) Please see the "Systematic Investment Plans"
section on page 11 to determine when the first withdrawal will occur from
your bank account.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
8. WITHDRAWAL PLAN Please issue a check for $____________ beginning on the 25th day of
($50 minimum) month/year
each [ ] month [ ] quarter. Please see the "Withdrawal Plans" section on page
11 for restrictions and information on receiving withdrawal plan checks from your
account.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
9. TELEPHONE EXCHANGE I authorize exchanges between the Funds upon instruction from any person by
telephone: [ ] yes [ ] no
If neither box is checked the telephone exchange privilege will be provided.
Refer to page 10 of the Prospectus to read the terms and conditions for this
privilege.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
10. SIGNATURES I am of legal age, have received the Trust prospectus dated February 29, 1996 and
agree to its terms. I understand that I will receive a confirmation of all
transactions. I certify under penalties of perjury, that I am not subject to
back-up withholding unless indicated above and that the information regarding tax
identification and Social Security number and back-up withholding is true,
correct and complete.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP WITHHOLDING.
X________ Date ________ X _________________
(Signature (with title, if any) of ALL Owners Shown in Account Registration
Above)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ACCOUNT
REPRESENTATIVE
(place agent
information
sticker here,
if available) Signature _____________________________________
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
HOME OFFICE USE
-------- --------------- ------------------------------ ------------------------------
A
-------- --------------- ------------------------------ ------------------------------
TAX CODE SOCIAL CODE INSTITUTION REPRESENTATIVE NO.
---------------------------------------------
------------------------ ---------------------------------------------
DATE RECEIVED AMOUNT
</TABLE>
<PAGE> 28
IRA APPLICATION
To open your IRA account, simply follow these 6 steps.
For additional assistance in completing this form, call 1-(800)-848-0920 between
8:00 a.m. and 5:00 p.m. Eastern Time.
- --------------------------------------------------------------------------------
1. NAME AND ADDRESS OF DEPOSITOR
Name ___________________________________________________
Address ________________________________________________
City ___________________ State ___________________ Zip ____________________
Social Security Number ____________________ Date of Birth ________________
[ ] Check if spousal IRA Name of non-employed spouse ___________________
(Two applications are needed for spousal plan.)
2. FUND SELECTION I wish to make the following initial purchase of shares and
authorize all subsequent purchases, dividends and capital gains be invested in:
[ ] Financial Horizons Cash Reserve Fund $ (Min. $1,000)
[ ] Financial Horizons Government Bond Fund $ (Min. $1,000)
[ ] Financial Horizons Growth Fund Fund $ (Min. $1,000)
3. BENEFICIARY. I wish to name the following person(s) as my beneficiary(ies)
of this account, to share equally unless otherwise specified. I further reserve
the right to revoke this designation of beneficiary without notice to any
beneficiary. No change shall be effective until received in writing by
Nationwide Advisory Services, Inc.
FULL NAME ADDRESS
SOC. SEC.
NO. RELATIONSHIP BIRTHDATE PERCENTAGE
FULL NAME ADDRESS
SOC. SEC.
NO. RELATIONSHIP BIRTHDATE PERCENTAGE
If no beneficiary is named or all named beneficiaries are deceased, distribution
of all shares shall be made to my estate.
4. ROLLOVER ACCOUNT ONLY. The amount stated above is a rollover contribution
from:
[ ] Qualified Corporate Plan [ ] Keogh Plan [ ] IRA
Plan
[ ] Other Qualified Plan, and (a) does not include any contributions made by me
(except for IRA Plan), and (b) it has not been more than 60 days since I
received the distribution.
5. TELEPHONE EXCHANGE PRIVILEGE: I authorize exchanges between the Funds upon
instruction from any person by telephone:
[ ] yes [ ] no
If neither box is checked, the telephone privilege will be provided. Refer to
page 11 of the Prospectus for terms and conditions of this privilege.
- --------------------------------------------------------------------------------
ACCOUNT
REPRESENTATIVE
(place agent
information
sticker here,
if available Signature _________________________________________
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HOME OFFICE USE
-------- --------------- ------------------------------ ------------------------------
A
-------- --------------- ------------------------------ ------------------------------
TAX CODE SOCIAL CODE INSTITUTION REPRESENTATIVE NO.
--------------------------------------------- ----------
Y N
------------------------ --------------------------------------------- ----------
DATE RECEIVED AMOUNT ROLLOVER
</TABLE>
6. ACKNOWLEDGEMENT Depositor
and Custodian hereby adopt an
agreement establishing an
Individual Retirement Account
utilizing the language of the
Individual Retirement Account
Custodial Agreement and as
supplemented by the provisions
of this application. Depositors
account shall be established
only after Depositor has
received a copy of the agreement
and the required disclosure
statement.
Depositor acknowledges:
(1) That this agreement shall be
construed, administered and
enforced according to the laws
of Massachusetts.
(2) That he or she is of legal
age to establish this IRA
custodial account and a copy of
the appropriate Financial
Horizons Prospectus, Nationwide
Advisory Services, Inc.
Custodial Agreement and
Nationwide Advisory Services,
Inc. IRA Disclosure Statement
was received and read prior to
the execution of this
application, and that he or she
understands the Fund(s)
investment objectives and has
determined that the fund(s) are
a suitable investment(s) based
upon his or her investment needs
and financial situation, and her
or she certifies that the Social
Security Number(s) on this form
are true, correct, and
complete.
(3) That Nationwide Advisory
Services, Inc. Investment Trust
is appointed to act as agent for
Depositor in buying shares for
the Individual Retirement
Account, and Nationwide Advisory
Services, Inc. is authorized to
deduct all applicable fees from
the account hereby established.
DEPOSITOR CERTIFIES THAT
CONTRIBUTION IS FOR TAX YEAR
________.
X ________________________
SIGNATURE OF DEPOSITOR
<PAGE> 29
MOVE YOUR RETIREMENT MONEY
TO OUR IRA TODAY.
<TABLE>
<S> <C>
TRANSFER PREVIOUS YEARS' TRANSFER your previous years' IRA contributions to our Family of Mutual Funds for
CONTRIBUTIONS TO A FINANCIAL professional money management, diversification, and opportunities for greater
HORIZONS INVESTMENT TRUST (FHIT) IRA return. By completing the transfer form on the next page, Nationwide Advisory
Services will contact your existing custodian and arrange to transfer your
existing IRA, or IRAs, to one or more of our mutual funds. This will be done
without any tax penalty, subject to the rules and restrictions of your present
custodian.
If you have already received the proceeds of your existing IRA, you may rollover
those proceeds to a Financial Horizons Investment Trust (FHIT) IRA. This rollover
must be completed within 60 days of your receipt of these proceeds and may only be
done once every 12 months.
ROLLOVER PENSION PLAN Are you about to receive a lump sum distribution from a qualified retirement plan?
DISTRIBUTIONS TO A FINANCIAL You may be able to ROLLOVER all or part of these proceeds into a rollover IRA with
HORIZONS INVESTMENT TRUST (FHIT) IRA no tax penalty by completing the rollover section of the IRA application. These
distributions must be rolled over within 60 days of receipt and your are not
allowed to rollover any nondeductible employee contributions you may have made to
the plan.
DIRECT TRANSFER AVOIDS If you elect to have your distribution paid to you directly, your employer is
20% WITHHOLDING required to withhold 20% for Federal income taxes (CAUTION: In total, your taxes
REQUIREMENT and penalties could exceed 20%). You can avoid this withholding requirement and
postpone current taxes by requesting your employer to make a DIRECT TRANSFER of
the proceeds to an FHIT IRA rollover account. Just ask your employer to make the
check payable to Financial Horizons Investment Trust (FHIT). If necessary, the
form on the next page is provided for your convenience.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT)
TRANSFER INSTRUCTIONS ROLLOVER INSTRUCTIONS
<S> <C> <C>
OUTSIDE IRA TO AN FHIT IRA... OUTSIDE IRA TO AN FHIT IRA... A CORPORATE RETIREMENT PLAN TO
AN FHIT IRA ROLLOVER ACCOUNT
1. Establish your FHIT IRA by 1. If you've received the proceeds 1. You can obtain the proceeds from
completing the application. from your existing plan, complete the corporation involved using
2. Complete and sign the Transfer the FHIT IRA application. their distribution forms (see
Authorization form. 2. On the FHIT IRA application note above regarding withholding
3. Send the Transfer Authorization complete Item #4 Rollover Account requirement), or use the form on
form, and the IRA application to Only by checking the block. the next page to request your
Nationwide Advisory Services. [X] IRA Plan employer to directly transfer the
4. We will send the Transfer 3. Attach a check made payable to proceeds to your FHIT IRA
Authorization form and a Letter FHIT along with an IRA rollover account.
of Acceptance to the current application and send both to 2. Rollover contributions may not
custodian/trustee of your present Nationwide Advisory Services. include nondeductible employee
IRA accepting the transfer to an 4. Additional contributions may be contributions. All earnings and
FHIT IRA. made to this type of account. contributions made by the
5. Additional contributions may be corporation may be rolled over.
made to this type of account. 3. Have the check made payable to
Financial Horizons Investment
Trust.
4. On the FHIT IRA application
complete Item #4 by checking the
block ROLLOVER ACCOUNT ONLY,
proceeds coming from a
[X] Qualified Corporate Plan.
5. In the event you took possession
of the proceeds, attach check to
the IRA application and send both
to Nationwide Advisory Services.
6. Additional contributions may be
made to this type of account,
however you should consult your
tax advisor before doing so.
</TABLE>
<PAGE> 30
1. Establish your new IRA with Nationwide Advisory Services by completing the
application.
2. Complete and sign the following Transfer Authorization.
TRANSFER/DIRECT ROLLOVER AUTHORIZATION
Date
Name of Plan Administrator/Trustee
Account No.
Address
Plan Administrator/Trustee:
I, ________________________________________, have established an IRA with
Nationwide Advisory Services, Inc. for investment in the ___________ Fund.
(name of the fund)
As Administrator/Trustee of the ________________________ , I instruct you to
(name of plan)
withdraw (liquidate) [ ] all or [ ] part ($______) of the assets from my
account in your custody and send a check, payable to Financial Horizons
Investment Trust, to:
NATIONWIDE
ADVISORY SERVICES, INC. Sincerely,
P.O. Box 1492 x __________________________
[LOGO] Columbus, Ohio 43216-1492 (plan participant)
3. Send this form together with your IRA application to: Financial Horizons
Investment Trust, P.O. Box 1492, Three Nationwide Plaza, Columbus, OH
43216-1492.
4. Financial Horizons will complete the following Letter of Acceptance and then
send this form to your current custodian/trustee.
LETTER OF ACCEPTANCE
Date
To the Plan Administrator/Trustee named above:
The Participant named on the above Transfer Authorization has established an IRA
under the FHIT prototype plan.
Nationwide Advisory Services, Inc, as Custodian for such Plan, agrees to accept
the direct transfer of the cash proceeds indicated above and to deposit same
under the rollover IRA. Please send a check payable to Financial Horizons
Investment Trust for ________________________________________'s IRA (Account
#____________), and mail such check to:
NATIONWIDE
ADVISORY SERVICES, INC.
P.O. Box 1492
Columbus, Ohio 43216-1492
[LOGO]
Date
By _____________________________
(Authorized Signature)
Please note that this direct rollover must be made in such a manner that the
participant will not be in actual or constructive receipt of any portion of the
plan assets, nor be subject to any adverse tax consequences.
<PAGE> 31
TRANSFER ON DEATH (TOD)
FOR INDIVIDUAL AND JOINT TENANCY ACCOUNTS ONLY
Shareholders in the Funds may choose to have their shares transferred upon death
directly to their designated beneficiaries. If you choose to name one or more
beneficiaries for the accounts(s) you are opening with this application, all
shares in the account, including those purchased in the future, will be
transferred directly to the designated beneficiaries upon your death. If you
designate one or more beneficiaries for your account(s), you have the right to
change or revoke the beneficiary designation at any time in the future. If you
elect to use this method of transferring the shares in your account upon your
death, please complete the section below. This form of transfer is available
only for individual and joint tenancy accounts.
I (We) request that any mutual fund account(s) that is opened with this
application be registered in beneficiary form under the Ohio Uniform Transfer On
Death Security Registration Act. I (We) assign ownership upon my (our) death to
the beneficiary(ies) named below and their lineal descendants, per stripes, in
the percentage shares indicated. I (We) direct the transfer agent to transfer
the shares in such account(s) and any unpaid dividends and capital gains
payments in accordance with this direction and the provisions of the Ohio
Uniform Transfer On Death Security Registration Act. If the account(s) created
with this application is/are established in joint tenancy, no transfer of
ownership of shares under this beneficiary designation will occur until the
death of all owners of the accounts(s). This beneficiary designation may be
modified or revoked for this account any time prior to the death of the last
surviving owner of the account, without the consent of the beneficiary(ies),
provided the modification or revocation is on the form provided by Nationwide
Advisory Services, Inc.,(NAS) and is received by NAS in Columbus, Ohio prior to
the death of the owner(s) of the account(s). NAS reserves the right to reject
any Transfer-On-Death forms which do not meet these and other terms and
conditions. NAS will only accept beneficiary designations in which shares are to
be divided among beneficiaries who survive shareholder(s).
NAME OF PRIMARY BENEFICIARY(IES):
(if he/she/they shall survive me (us)):
If naming a minor as beneficiary also list the legal guardian in whose name the
securities will be registered.
<TABLE>
<CAPTION>
DATE OF BIRTH
<S> <C> <C>
(1) % of shares
(2) % of shares
(3) % of shares
</TABLE>
Name of Guardian (if minor)
NAME OF CONTINGENT BENEFICIARY(IES):
(if primary beneficiary(ies) shall not survive me (us)):
If naming a minor as beneficiary also list the legal guardian in whose name the
securities will be registered.
<TABLE>
<CAPTION>
DATE OF BIRTH
<S> <C> <C> <C>
(1) % of shares
(2) % of shares
(3) % of shares
</TABLE>
Name of Guardian (if minor)
<TABLE>
<S> <C> <C> <C>
Date
Signature / /
Date
Signature / /
</TABLE>
<PAGE> 32
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 33
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 34
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 35
[FINANCIAL HORIZONS LOGO]
FINANCIAL HORIZONS
INVESTMENT TRUST
GROWTH FUND
MUNICIPAL BOND FUND
GOVERNMENT BOND FUND
CASH RESERVE FUND
PROSPECTUS
February 28, 1997
FINANCIAL HORIZONS INVESTMENT TRUST BULK RATE
P.O. BOX 1492 U.S. POSTAGE
THREE NATIONWIDE PLAZA PAID
COLUMBUS, OH 43216-1492 CLEVELAND, OHIO
PERMIT NO. 1702
FHT-1-H (3/97)
<PAGE> 36
PART B. STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1997
FINANCIAL HORIZONS INVESTMENT TRUST
- CASH RESERVE FUND
- GOVERNMENT BOND FUND
- MUNICIPAL BOND FUND
- GROWTH FUND
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the Prospectus
and should be read in conjunction with the Trust's Prospectus, dated February
28, 1997. The Prospectus may be obtained from Nationwide Advisory Services,
Inc., P.O. Box 1492, Three Nationwide Plaza, Columbus, Ohio 43216, or by calling
1-800-848-0920.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION AND HISTORY 1
ADDITIONAL INFORMATION AS TO
INVESTMENT OBJECTIVES AND POLICIES 1
ADDITIONAL INFORMATION AS TO
INVESTMENT TECHNIQUES 2
INVESTMENT RESTRICTIONS 3
MAJOR SHAREHOLDERS 5
TRUSTEES AND OFFICERS OF THE TRUST 6
CALCULATING YIELD - CASH RESERVE FUND 7
CALCULATING YIELD AND TOTAL RETURN
- NON-CASH RESERVE FUNDS 7
INVESTMENT ADVISER AND OTHER SERVICES 8
DISTRIBUTION AGREEMENT 8
PURCHASES, REDEMPTIONS AND PRICING OF SHARES 9
SHAREHOLDERS' RIGHTS 11
CUSTODIAN 11
BROKERAGE ALLOCATION 11
FINANCIAL STATEMENTS 13-24
INDEPENDENT AUDITORS' REPORT 25
APPENDIX 26-29
</TABLE>
GENERAL INFORMATION AND HISTORY
Financial Horizons Investment Trust ("Trust") is an open-end, diversified
investment company organized under the laws of Massachusetts, by a Declaration
of Trust, dated May 9, 1988. The Trust offers shares in four separate series
("Funds"), each with its own investment objective.
ADDITIONAL INFORMATION AS TO INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Funds' investment
objectives and policies discussed in the Prospectus.
The investment objectives and types of permitted investments described in the
Prospectus may be changed without prior approval by, or notice to, the
shareholders. There is no guarantee that the objectives will be realized. The
investment restrictions, set forth herein and in the prospectus, cannot be
changed without the approval of shareholders.
1
<PAGE> 37
- - RISKS AFFECTING FIXED INVESTMENTS
The net asset value of the shares of open-end investment companies such as the
Government Fund and the Municipal Fund, which invest in fixed income securities,
changes as the general levels of interest rates fluctuate. When interest rates
decline, the value of a portfolio invested at higher yields can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested at
lower yields can be expected to decline. Although changes in the value of
securities subsequent to their acquisition are reflected in the net asset value
of shares of a Fund, such changes will not affect the income received by that
Fund from such securities. However, since available yields and yield
differentials vary over time, no specific level of income or yield differential
can ever be assured. Also, the dividends paid by a Fund, if any, will increase
or decrease in relation to the income received by that Fund from its investments
which would, in any case, be reduced by that Fund's expenses before it is
distributed to shareholders.
Although the mortgage loans in a GNMA pool will have maturities of up to 30
years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the GNMA certificates. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the GNMA certificates. Accordingly, it is not possible to
accurately predict the average life of a particular pool. Reinvestment of
prepayments may occur at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to reinvest prepayments
of principal at current rates, GNMA certificates can be less effective than
typical bonds of similar maturities at "locking in" yields during periods of
declining interest rates, although they may have comparable risks of decline in
value during periods of rising interest rates. Because prepayments are made at
par value, losses could be sustained on prepayments of GNMA certificates which
had been purchased at prices above their par values.
ADDITIONAL INFORMATION AS TO INVESTMENT TECHNIQUES
- - REPURCHASE AGREEMENT
Repurchase agreements (Repos) are agreements between a seller and a buyer,
usually of U.S. Government securities, whereby the seller agrees to repurchase
the securities at an agreed upon price and, usually, at a stated time. Repos,
also called RPs or buybacks, are widely used both as a money market investment
vehicle and as an instrument of Federal Reserve Monetary Policy. Where a
repurchase agreement is used as a short-term investment, a government securities
dealer, usually a bank, borrows from an investor (for instance, a mutual fund)
with excess cash, to finance its inventory, using the securities as collateral.
Such RPs may have a fixed maturity date or be Open Repos, callable at any time.
Rates are negotiated directly by the parties involved, but are generally lower
than rates on collateralized loans made by New York banks. The attraction of
repos is the flexibility of maturities that makes them an ideal place to invest
excess funds on a temporary basis. The Trust will only invest in repurchase
agreements which are fully collateralized and monitored on a continuous basis by
the Investment Adviser and have been affirmed by the Board of Trustees. The
Trust will only enter into repos involving securities in which it would
otherwise invest and with selected banks and securities dealers whose financial
condition is evaluated regularly.
2
<PAGE> 38
- - WHEN-ISSUED SECURITIES
The Government Fund and Municipal Fund may purchase securities on a
"when-issued" or on a "forward delivery basis. It is expected that under normal
circumstances a Fund purchasing securities on a "when-issued" basis will take
delivery of such securities. When a Fund commits to purchase a security on a
"when-issued" or on a "forward-delivery" basis, it will follow procedures
consistent with Securities and Exchange Commission policies. Since those
policies currently recommend that an amount of a Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, a Fund will always have cash or high quality debt securities
sufficient to cover any commitments or to limit any potential risk. However,
although none of the Funds intends to make such purchases for speculative
purposes and each Fund intends to adhere to the provisions of Securities and
Exchange Commission policies, purchases of securities on such bases may involve
more risk than other types of purchases. For example, a Fund may have to sell
assets which have been set aside in order to meet redemptions. Also, if a Fund
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities before delivery, that Fund may
incur a loss because of market fluctuations since the time the commitment to
purchase such securities was made and any gain or loss would not be tax-exempt.
When the time comes to pay for "when-issued" or "forward delivery" securities, a
Fund will meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the "when-issued" or "forward delivery" securities themselves (which may have a
value greater or less than a Fund's payment obligation).
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions as fundamental policies which
cannot be changed without the approval of the holders of a majority of the
shares of the Fund for which the change is proposed and which apply to all four
Funds of the Trust, unless otherwise stated. All percentage limitations
expressed are measured immediately after the relevant transaction is made.
Each Fund may not:
1. Invest for the purpose of making short-term trading profits or for the
purpose of exercising control of management or deal with the Trustees in the
purchase and sale of securities.
2. Invest more than 5% of its total assets (excluding cash and cash items) in
the securities of any one issuer or own more than 10% of any class of voting or
non-voting securities of any issuer (except the U.S. Government, its agencies
and instrumentalities).
(a) For the Cash Reserve Fund, 25% of the Fund's total assets may be
invested in any class of voting or non-voting securities of commercial banks.
(b) For the Cash Reserve Fund, up to 10% of its assets may be invested
in any one issuer in First Tier Securities, as defined in the Investment Company
Act of 1940, as amended, for a period of up to three business days after the
purchase, provided the Fund may not make more than one such investment at a
time.
3. Make loans to others except for the purchase of the debt securities listed
above or the entering into repurchase agreements listed above.
3
<PAGE> 39
4. Act as underwriter except to the extent that, in conjunction with the
disposition of portfolio securities, the Fund may be deemed as underwriter under
certain federal securities laws.
5. Pledge more than 10% of its assets and then only to secure temporary
borrowings from banks.
6. Invest in puts, calls, straddles, spreads or any combination thereof or in
oil, gas or other mineral leases, rights or royalty contracts.
7. Invest more than 5% of its total assets taken at cost in securities whose
issuers or guarantor of principal and interest, including any predecessors, has
been in operation for less than three years.
8. Issue any senior securities.
9. Purchase securities on margin, but a Fund may obtain such credits as may be
necessary for the clearance of purchases and sales of securities.
10. Invest more than 5% of a Fund's assets in companies, including their
predecessors, which have a record of less than three years' continuous operation
or in securities for which market quotations are not readily available.
11. Sell securities short or invest in securities, the disposition of which is
restricted under federal securities laws and which may not be publicly sold
without registration under the Securities Act of 1933, if as a result, more than
5% of the net assets of a Fund would be invested in such securities.
12. Invest 25% or more of each Fund's total assets in the securities of issuers
in the same industry, except each Fund may invest more than 25% of the value of
its assets in municipal notes, bonds and obligations issued, escrowed in or
guaranteed by the U.S. Government, its agencies or instrumentalities.
(a) Electric, natural gas distribution, natural gas pipeline, combined
electric and natural gas and telephone utilities are considered separate
industries for this purpose.
(b) Captive borrowing conduit, equipment finance, premium finance,
leasing finance, consumer sales finance and other finance are considered
separate industries for this purpose.
(c) For the Cash Reserve Fund, more than 25% of its assets, if deemed
advisable, may be invested in obligations of domestic branches of U.S.
commercial banks.
13. Borrow money, except under the following circumstances:
(a) A Fund may borrow an amount not in excess of 33 1/3% of the value
of the Fund's total assets (calculated when the loan is made) from banks for
temporary purposes to facilitate the orderly sale of portfolio securities to
accomodate unusually heavy redemption requests, if they should occur. This
borrowing provision is not intended for investment purposes, nor will the Funds
purchase portfolio securities during periods of borrowings outstanding;
(b) A Fund may borrow an amount equal to no more than 5% of the value
of each of the Funds' total assets (calculated when the loan is made) for
temporary, emergency purposes, or for the clearance of transactions, to provide
the investment manager additional flexibility in the execution of routine daily
transactions, and
4
<PAGE> 40
allow for more efficient cash management. This borrowing provision will not be
used to leverage the funds or to borrow for extended periods of time.
14. Purchase or sell securities of other investment companies, as defined in the
Investment Company Act of 1940, as amended, (except in connection with real
estate, real estate mortgage loans, commodities or futures contracts).
15. For the Government Fund, invest more than 35% of its total assets in
mortgage backed securities.
For purposes of the first restriction set forth in the heading "Investment
Restrictions," in the prospectus, the Municipal Fund will regard the entity
which has the ultimate responsibility for the payment of interest and principal
as the issuer.
MAJOR SHAREHOLDERS
As of January 31, 1997, Nationwide Life Insurance Company of Columbus, Ohio, had
sole voting and investment power over 2,912,261 shares of the Cash Reserve Fund
(67.8%), 161,212 shares of the Municipal Bond Fund (8.9%), and 66,420 shares of
the Growth Fund (13.8%). The Trustees and Officers of the Trust owned less than
1% of the outstanding shares.
5
<PAGE> 41
TRUSTEES AND OFFICERS OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and Officers during the last five
years and their affiliations are:
ROBERT M. DUNCAN, Trustee.
1397 Haddon Road,
Columbus, Ohio 43209.
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. He was formerly U.S. District Court Judge, Southern District of Ohio.
DIMON R. MCFERSON, Trustee*
One Nationwide Plaza,
Columbus, Ohio 43216.
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise. He was formerly President and General Manager of the
Nationwide Insurance Enterprise. He is a Director of Nationwide Advisory
Services, Inc.
DR. JOHN C. BRYANT, Trustee.
44 Faculty Place,
Wilmington, Ohio 45177.
Dr. Bryant is Executive Director of the Cincinnati Youth Collaborative. He was
formerly Professor of Education, Wilmington College.
DR. THOMAS J. KERR, IV, Trustee.
4890 Smoketalk Lane,
Westerville, Ohio 43081.
Dr. Kerr is President Emeritus of Kendall College. He was formerly President of
Grant Hospital Development Foundation.
JAMES F. LAIRD, Jr., Treasurer
Three Nationwide Plaza,
Columbus, Ohio 43216.
Mr. Laird is Vice President-General Manager of Nationwide Advisory Services,
Inc., the Distributor and Investment Manager.
WILLIAM G. GOSLEE., Assistant Treasurer.
Three Nationwide Plaza,
Columbus, Ohio 43216.
Mr. Goslee is Treasurer of Nationwide Advisory Services, Inc., the Distributor
and Investment Manager.
RAE MERCER POLLINA, Secretary.
Three Nationwide Plaza,
Columbus, Ohio 43216.
Mrs. Pollina is Corporate Secretary of Nationwide Advisory Services, Inc.,
Nationwide Investing Foundation, Nationwide Separate Trust and Nationwide
Investing Foundation II.
* A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act of 1940.
Officers and interested Trustees will not be paid by the Trust in their capacity
as officers. All Trustees and Officers of the Trust own less than 1% of the
outstanding shares. The Trustees receive fees and reimbursement for expenses of
attending board
6
<PAGE> 42
meetings for the Trust. The Compensation Table on the next page sets forth the
total compensation to the Trustees from the Trust and from all funds in the
Nationwide Fund Complex during the fiscal year ended October 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
AGGREGATE RETIREMENT BENEFITS ESTIMATED COMPENSATION
COMPENSATION ACCRUED AS PART ANNUAL BENEFITS FROM THE
NAME OF PERSON, POSITION FROM THE TRUST OF FUND EXPENSES UPON RETIREMENT FUND COMPLEX*
<S> <C> <C> <C> <C>
John C. Bryant, Trustee $5,000 -0- -0- $15,500
Robert M. Duncan, Trustee $5,000 -0- -0- $15,500
Thomas J. Kerr, IV, Trustee $5,000 -0- -0- $15,500
Dimon R. McFerson, Trustee -0- -0- -0- -0-
</TABLE>
- ---------------
* The Fund Complex includes Trusts comprised of fifteen investment portfolios.
CALCULATING YIELD--CASH RESERVE FUND
Any current money market fund yield quotation, subject to Rule 482 under the
Securities Act of 1933, shall consist of seven calendar day historical yield,
carried at least to the nearest hundredth of a percent. The yield shall be
calculated by determining the net change, excluding realized and unrealized
gains and losses, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by 365/7.
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 Cash Reserve Fund's effective yield represents an annualization of the
current seven day return with all dividends reinvested. As of October 31, 1996,
the Fund's seven-day current yield was 4.78%.
The effective yield was 4.90%.
The Cash Reserve Fund's yield will fluctuate daily. Actual yields will depend on
factors such as the type of instruments in the Cash Reserve Fund's portfolio,
portfolio quality and average maturity, changes in interest rates, and the Cash
Reserve Fund's expenses. There is no assurance that the yield quoted on any
given occasion will remain in effect for any period of time and there is no
guarantee that the net asset value will remain constant. It should be noted that
a shareholder's investment in the Cash Reserve 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 CASH RESERVE FUNDS
The non Cash Reserve Funds may from time to time advertise historical
performance, subject to Rule 482 under the Securities Act of 1933. An investor
should keep in mind that any return or yield quoted represents past performance
and is not a guarantee of future results. The investment return and principal
value of investments will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
All performance advertisements shall include average annual total return
quotations for the most recent one, five and ten year periods (or life, if a
fund has been in operation less than one of the prescribed periods). Average
annual total return represents the rate required each year for an initial
investment to equal the redeemable value at the end of the quoted period. It is
calculated in a uniform
7
<PAGE> 43
manner by dividing the ending redeemable value of a hypothetical initial payment
of $1,000 for a specified period of time, by the amount of the initial payment,
assuming reinvestment of all dividends and distributions. The one, five and ten
year (or Life) periods are calculated based on periods that end on the last day
of the calendar quarter preceding the date on which an advertisement is
submitted for publication.
The Government and Municipal Funds 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 thirty-day base period by the
maximum offering price per share on the last day of the period, assuming
reinvestment of all dividends and distributions. This yield formula uses the
average number of shares entitled to receive dividends, provides for semi-annual
compounding of interest and includes a modified market value method for
determining amortization. The yield will fluctuate and there is no assurance
that the yield quoted on any given occasion will remain in effect for any period
of time.
The Government and Municipal Bond Funds' yields for the 30-day period ended
October 31, 1996 were 6.44% and 4.49%, respectively.
The Government Bond, Municipal Bond and Growth Funds average annual total
returns reflecting maximum sales charges for the one year, five year and Life of
the funds ended October 31, 1996, are listed below:
<TABLE>
<CAPTION>
1 YEAR 5 YEAR LIFE*
------ ------ -----
<S> <C> <C> <C>
Government Bond .1% 7.2% 9.2%
Municipal Bond (.3) 5.8 7.0
Growth 14.4 13.2 12.1
</TABLE>
- --------------
* Period from 12/19/88 (commencement of operations) through 10/31/96.
INVESTMENT ADVISER AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENT
Under the terms of the Investment Management Agreement, Nationwide Advisory
Services, Inc. ("NAS") manages the investment of the assets of the Trust in
accordance with the policies and procedures established by the Trustees,
administers and manages the affairs of the Trust and furnishes office
facilities, equipment and personnel to the Trust. The Agreement also provides
that NAS shall reimburse the Trust for the compensation of the Trustees who are
"interested persons" of NAS.
During the fiscal years ended October 31, 1996, 1995, and 1994, the Investment
Manager earned fees of $16,666, $16,571, and $15,926, respectively for the Cash
Reserve Fund; $414,415, $447,894, and $507,403, respectively for the Government
Bond Fund; $150,996, $171,005, and $182,759, respectively for the Municipal Bond
Fund; and $54,053, $46,886, and $38,858, respectively for the Growth Fund.
NAS is wholly owned by Nationwide Life Insurance Company, which is wholly owned
by Nationwide Financial Services, Inc., an insurance company holding company.
Nationwide Financial Services, Inc. is wholly-owned by Nationwide Corporation.
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%).
DISTRIBUTION AGREEMENT
NAS also acts as Distributor of the Trust's shares pursuant to the Distribution
Agreement with the Trust. The Distributor pays commissions to salespersons, the
cost of printing and mailing prospectuses to potential investors and any sales
promotional expenses incurred by them in connection with their distribution of
Trust shares.
The Distribution Agreement provides that it shall terminate automatically if
assigned and that it may be terminated without penalty by either party upon not
more than sixty days' nor less than thirty days' written notice.
To compensate the Distributor for the services it provides and for the expenses
it bears under the Distribution Agreement, the Trust has adopted a Plan of
Distribution (the "Plan") under Rule 12b-1 under the Investment Company Act.
Under the Plan, the Trust pays the Distributor compensation accrued daily and
paid monthly at the annual rate of .75% of the average daily net assets of the
Growth Fund, Municipal Bond Fund
8
<PAGE> 44
and Government Bond Fund. Prior to February 29, 1994, the distribution fee was
also charged on the Cash Reserve Fund. The Distributor also receives the
proceeds of contingent deferred sales charges imposed on certain redemptions of
shares.
During the fiscal years ended October 31, 1996, 1995, and 1994, the Distributor
waived fees of $0, $0, and $7,279 for the Cash Reserve Fund; $476,865, $476,865,
and $236,601 for the Government Bond Fund; $58,074, $65,771, and $84,082 for the
Municipal Bond Fund; and $20,790, $18,033, and $17,616 for the Growth Fund. The
Distributor also receives the proceeds of contingent deferred sales charges
imposed on certain redemptions of shares (see "How to Redeem Shares" in the
Prospectus). In the fiscal year ended October 31, 1996, 1995, and 1994, such
charges were $1,593, $10,596, and $6,697 for the Cash Reserve Fund; $36,566,
$75,240, and $271,592 for the Government Bond Fund; $118,289, $97,848, and
$79,727 for the Municipal Bond Fund; and $12,788, $28,961, and $12,759 for the
Growth Fund.
Pursuant to the Plan, at least quarterly, the Distributor shall provide the
Trust a written report for review by the Trustees of the amounts expended under
the Plan and the purpose for which such expenditures were made.
The Plan shall remain in effect until the earlier of one year after the
respective date of execution or the first meeting of shareholders after the
effective date of the Trust's Prospectus. If approved at such meeting by a vote
of a majority of the outstanding voting securities of the Trust, the Plan shall
continue in effect thereafter, provided such continuance is approved annually by
a vote of the Trustees of the Trust, including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan, cast in person at a meeting
called for the purpose of voting on such Plan. The Plan may not be amended to
increase materially the amount to be spent for the services described therein
without approval of the shareholders and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time without payment of any penalty by vote of a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operations of the Plan or
by a vote of a majority of the outstanding voting securities of the Trust (as
defined in the Investment Company Act) on not more than thirty days' written
notice to any other party to the Plan. The Plan will automatically terminate in
the event of its assignment (as defined in the Investment Company Act). So long
as the Plan is in effect, the election and nomination of Trustees who are not
interested persons of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons. The Trustees have determined that,
in their judgment, there is a reasonable likelihood that the Plan will benefit
the Trust and its shareholders. In the Trustees' review of the Plan, they will
consider the continued appropriateness and the level of compensation provided
therein.
PURCHASES, REDEMPTIONS AND PRICING OF SHARES
All investments of the Trust are credited to the shareholders' accounts in the
form of full and fractional shares of the designated Fund (rounded to the
nearest 1/1,000 of a share). The Trust does not issue share certificates.
For orders placed after 4:00 p.m. Eastern Time or on a day on which the Exchange
is not open for trading, the offering price is based upon net asset value
adjusted by applicable sales charges at 4:00 p.m. Eastern Time on the next day
thereafter on which the Exchange is open for trading. The net asset value of a
share of a Fund on which offering and redemption prices are based is the net
asset value of a Fund, divided by the number of shares outstanding, the result
being adjusted to the nearest cent.
The net asset value per share of each Fund of the Trust is determined by NAS, as
agent appointed by the Trustees, once daily as of the close of the New York
Stock Exchange (usually 4:00 p.m. Eastern Time) on days when the New York Stock
Exchange ("Exchange") is open or on any other day during which there is a
sufficient degree of trading in a Fund's portfolio securities that the net asset
value of the Fund is materially affected by changes in the value of portfolio
securities. The Trust will not compute net asset value on customary national
business holidays, including the following: Christmas, New Year's Day,
Presidents' Day, Good Friday, Memorial Day,
9
<PAGE> 45
Independence Day, Labor Day and Thanksgiving. The net asset value per share of
each Fund is calculated by adding the value of all securities and other assets
of a Fund, deducting its liabilities and dividing by the number of shares
outstanding.
The value of portfolio securities of the Cash Reserve Fund is determined on the
basis of the amortized cost valuation in accordance with Rule 2a-7 of the
Investment Company Act of 1940. 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 Cash Reserve Fund would receive if it sold
the instrument. During periods of declining interest rates, the daily yield on
shares of the Cash Reserve Fund computed by dividing the annualized daily income
of the Cash Reserve Fund by the net asset value computed as described above, may
tend to be higher than a like computation by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio securities.
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 Cash Reserve Funds 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 Cash
Reserve Funds' amortized cost price per share exceeds 1/2 of 1 percent, the
Trustees will consider appropriate action which might include a reevaluation of
all or an appropriate portion of the Cash Reserve Fund's assets based upon
current market factors.
The Trustees, in supervising the Cash Reserve Fund's operations and delegating
special responsibilities involving portfolio management to the Cash Reserve
Fund's Investment Manager, have undertaken, as a particular responsibility
within their overall duty of care owed to the Cash Reserve Fund's shareholders,
to assure, to the extent reasonably practicable, taking into account current
market conditions affecting the Cash Reserve Fund's investment objectives, that
the Cash Reserve Fund's net asset value per share, rounded to the nearest 1
cent, will not deviate from $1.00. Pursuant to its objective of maintaining a
stable net asset value per above, the Cash Reserve Fund will not purchase
instruments with a remaining maturity of greater than 397 days and will maintain
a dollar weighted average portfolio maturity of 90 days or less.
The net income of the Cash Reserve Fund is determined once daily as of the time
and on the days referenced above. All the net income of the Cash Reserve Fund,
so determined, is declared in shares as a dividend to shareholders of record at
the time of such determination. (Shares purchased become entitled to dividends
declared as of the first day following the date of investment.) Dividends are
distributed in the form of additional shares of the Cash Reserve Fund on the
last business day of each month at the rate of one share (and fraction thereof)
of the Cash Reserve Fund for each $1 (and fraction thereof) of dividend income.
An investment in the Cash Reserve Fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share.
10
<PAGE> 46
For this purpose, the net income of the Cash Reserve Fund (from the time of the
immediately preceding determination thereof) shall consist of: (a) all interest
income accrued on the portfolio assets of the Cash Reserve Fund, (b) less all
actual and accrued expenses determined in accordance with generally accepted
accounting principles and (c) plus or minus net realized gains and losses on the
assets of the Cash Reserve Fund. Interest income shall include discount earned
(including both original issue and market discount) on discount paper accrued
ratably to the date of maturity. Securities are valued at amortized cost which
the Trustees have determined in good faith constitutes fair value for the
purposes of complying with the Investment Company Act of 1940.
Because the net income of the Cash Reserve Fund is declared as a dividend each
time the net income is determined, the net asset value per share (i.e., the
value of the net assets of the Cash Reserve Fund divided by the number of shares
outstanding) remains at $1 per share immediately after each such determination
and dividend declaration. Any increase in the value of a shareholder's
investment in the Cash Reserve Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Cash Reserve
Fund in its account.
The Trust may suspend the right of redemption only under the following unusual
circumstances: (a) when the New York Stock Exchange is closed (other than
weekends and holidays) or trading is restricted, (b) when an emergency exists,
making disposal of portfolio securities or the valuation of net assets not
reasonably practicable or (c) during any period when the Securities and Exchange
Commission has by order permitted a suspension of redemption for the protection
of shareholders.
SHAREHOLDERS' RIGHTS
No shareholder 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. 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,
save only 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. If any shareholder of the Trust is
made a party to any suit or proceeding to enforce any such liability, he shall
not, on account thereof, be held to any personal liability. The Trust shall
indemnify and hold each shareholder harmless from and against all claims and
liabilities to which such shareholder may become subject by reason of his being
or having been a shareholder and shall reimburse such shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability. Such rights accruing to a shareholder shall not exclude any other
right to which such shareholder may be lawfully entitled nor shall anything
herein contained restrict the right of the Trust to indemnify or reimburse a
shareholder in any appropriate situation even though not specifically provided
herein.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, is the
custodian for the Financial Horizons Investment Trust Funds.
TRANSFER AGENT AND
DIVIDEND DISBURSEMENT
Nationwide Investors Services, Inc. (NIS) is the Transfer and Dividend
Disbursing Agent for the Funds. NIS, a wholly-owned subsidiary of NAS received
fees for transfer agent services during the year ended October 31, 1996 of
$11,898 from the Growth Fund, $14,136 from the Municipal Bond Fund, $57,100 from
the Government Bond Fund and $966 from the Cash Reserve Fund. Management
believes the charges for the services performed are comparable to fees charged
by other companies performing similar services.
BROKERAGE ALLOCATION
During the years ended October 31, 1996, 1995, and 1994, brokerage commissions
paid by the Growth Fund totaled $1,928, $5,943, and $2,757 respectively. During
the years ended October 31, 1996, 1995, and 1994, the Cash Reserve Fund,
Government Bond Fund, and Municipal Bond Fund paid no brokerage commissions.
There is no commitment to
11
<PAGE> 47
place orders with any particular broker/dealer or group of broker/dealers.
Orders for the purchases and sales of portfolio securities of each Fund are
placed where, in the judgment of the Investment Adviser, the best executions can
be obtained. 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 to be provided by brokerage firms
may include handling of orders, analyses of corporations, industries and the
economy, statistical reports and other related services for which no charge is
made by the broker over and above negotiated brokerage commissions. The Trust
and the Investment Adviser believe that these services and information, which in
many cases would be otherwise unavailable to the Investment Adviser, will be of
significant value to the Investment Adviser. The Investment Adviser does not
believe that the receipt of such services and information will materially reduce
the Investment Adviser's expense.
No formula, method or criteria other than as stated above is planned to be used
in the allocation of orders among any firms. In the case of securities traded in
the over-the-counter market, the Trust plans to deal with the marketmakers for
such securities unless better prices can be obtained through brokers.
In its capacity as investment manager for various portfolios, NAS regularly
evaluates all research service received and available to determine whether
services should be continued or eliminated. In the management of the Funds, NAS
does not intend to specifically search out or employ any new or additional
research services.
12
<PAGE> 48
Financial Horizons Investment Trust
Growth Fund
For the year ended October 31, 1996, the Financial Horizons Growth Fund had a
total return of 19.41%, compared with 24.10% for the S&P 500 over the same
period.
Performance during the first half of the Fund's fiscal year was favorably
influenced by substantial appreciation in many of its small-cap holdings.
Subsequently, the markets pulled back in June and July in response to earnings
reports coming in below expectations. Although it appeared that this could have
signaled the end of the bull market or a larger 10% pullback, stocks rebounded
as other companies reported continued earnings gains at or above expectations.
Technology stocks have recovered as we have seen more evidence that demand for
personal computers will continue to drive growth for semiconductor, software and
computer companies. Intel, the fund's largest holding, benefited from this
trend, and the stock has risen dramatically. A few other small-cap computer
software and equipment companies the fund has held also outperformed the market.
Conversely, Motorola, another large technology holding, has disappointed
investors as demand for cellular phones has decreased.
Financial stocks have, as in the past year, had strong gains, and benefited the
Fund's performance. We have added to holdings in this sector through two
credit-card companies: Capital One Financial and First USA. The Growth Fund has
also benefited from its holdings in the medical products and energy sectors.
Unfortunately, the Fund was underweighted in the energy sector during this
period of strong performance. Additions to this sector may occur in the future
since prospects for these companies remain favorable and valuations reasonable.
The Fund was also negatively impacted by its holdings in long distance
telecommunications stocks. AT&T and MCI Communications have been negatively
impacted by competitive pressures and their continued investments in new
technology and markets.
The Fund invests in companies with good growth prospects at reasonable
valuations. During this year it initiated holdings in Capital One Financial,
First USA, International Imaging Materials, Boston Scientific, Meridian
Diagnostics and FileNet when valuations were attractive. Conversely, positions
were liquidated in CFI Proservices and Medtronic when these companies appeared
overvalued. The emphasis in selecting securities continues to be potential
capital appreciation rather than dividend income. Therefore, the Fund usually
generates realized capital gains while net income is relatively low. Although
small-cap stocks are not a priority, the Fund will continue to take advantage of
the ability its size affords to hold these securities without sacrificing
liquidity.
Laura Klebe, MBA - Portfolio Manager
Fund Value $9,095,304
TOP FIVE EQUITY HOLDINGS
<TABLE>
<CAPTION>
Value %
- -----------------------------------------------------------
<S> <C> <C>
Intel Corp. $439,500 4.8%
Merrill Lynch & Co. 351,250 3.9%
SPSS, Inc. 311,250 3.4%
Archer Daniels Midland Co. 305,718 3.4%
Zebra Technologies Corp. 259,875 2.9%
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth $24,594
S&P 500 $32,248
</TABLE>
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Growth Fund since inception (12/19/88) and the S&P 500* over the period
since inception ended 10/31/96.
* The S&P 500 is a broad, unmanaged index of equity securities, and unlike the
Growth Fund returns, does not reflect any fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
<TABLE>
<CAPTION>
1 Year 5 Year Life
<S> <C> <C> <C>
Without sales charge..........19.41%.....13.39%.....12.11%
With sales charge.............14.41%.....13.15%.....12.11%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 7.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
3
<PAGE> 49
Financial Horizons Investment Trust - Statement of Investments October 31, 1996
Growth Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.9%)
---------------------
Airlines (1.0%)
---------------
6,000 Skywest, Inc. $ 90,000
----------
Business Equipment & Services (5.3%)
------------------------------------
7,500 American Business Information* 144,375
3,000 Healthcare Services Group* 28,875
6,600 Olsten Corp. (The) 132,000
10,000 TRO Learning, Inc.* 177,500
----------
482,750
----------
Chemicals (1.9%)
----------------
2,000 Sigma-Aldrich Corp. 117,500
1,000 Loctite Corp. 58,625
----------
176,125
----------
Communication-Equip (2.0%)
--------------------------
3,000 HBO & Co. 180,375
----------
Computer Equipment (1.7%)
-------------------------
7,000 American Power Corp.* 149,625
----------
Computers-Services & Software (4.8%)
------------------------------------
4,500 Filenet Corp.* 127,687
10,000 SPSS, Inc.* 311,250
----------
438,937
----------
Consumer Products (3.3%)
------------------------
16,000 National Picture & Frame* 184,000
4,000 Newell Co. 113,500
----------
297,500
----------
Contract Manufacturing (1.3%)
-----------------------------
5,500 DII Group, Inc.* 121,000
----------
Dental (0.9%)
-------------
2,000 Dentsply International, Inc. 84,250
----------
Distribution (1.6%)
-------------------
4,725 Bergen Brunswig Corp., Class A 148,247
----------
Drugs (4.2%)
------------
4,000 Allergan, Inc. 122,000
4,000 Schering-Plough Corp. 256,000
----------
378,000
----------
Electronics (7.5%)
------------------
4,000 Intel Corp. 439,500
2,000 Motorola, Inc. 92,000
11,100 Woodhead Industries, Inc. 152,625
----------
684,125
----------
Engineering and Construction (1.4%)
-----------------------------------
2,000 Fluor Corp. 131,000
----------
Financial (13.8%)
-----------------
3,645 Bear Stearns Companies, Inc. 86,113
4,500 Capital One Financial 140,062
1,600 First USA, Inc. 92,000
18,231 Gainsco, Inc. 175,473
5,000 Merrill Lynch & Co., Inc. 351,250
2,000 Morgan Stanley Group, Inc. 100,500
8,400 Silicon Valley Bancshares* 219,450
5,000 Standard Financial 89,062
----------
1,253,910
----------
Food & Beverage (1.0%)
----------------------
1,500 Grand Metropolitan PLC ADR 45,938
5,800 Grand Metropolitan PLC 43,776
----------
89,714
----------
<FN>
- ----------
The abbreviations in the above statement stand for the following:
PLC Public Limited Company
ADR American Depository Receipt
* Denotes a non-income producing security.
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percent of net assets.
See accompanying notes to financial statements.
<CAPTION>
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Food-Grain & Agriculture (4.5%)
-------------------------------
14,056 Archer Daniels Midland Co. $ 305,718
5,500 Northland Cranberrys, Class A 105,875
----------
411,593
----------
Healthcare Services (3.6%)
--------------------------
3,200 Apria Healthcare Group* 61,200
6,000 Columbia/HCA Healthcare Corp. 214,500
7,500 United American HealthCare* 46,875
----------
322,575
----------
Machinery & Capital Goods (4.7%)
--------------------------------
3,000 Duriron, Inc. 80,250
1,000 Emerson Electric Co. 89,000
9,000 Zebra Technologies Corp.* 259,875
----------
429,125
----------
Medical Products (4.4%)
-----------------------
5,000 Biomet, Inc. 80,625
4,000 Boston Scientific* 217,500
10,000 Meridian Diagnostics 105,000
----------
403,125
----------
Oil & Gas (2.9%)
----------------
1,300 Amoco Corp. 98,475
500 Royal Dutch Petroleum Co. 82,688
800 Texaco, Inc. 81,300
----------
262,463
----------
Pollution Control (0.9%)
------------------------
2,500 WMX Technologies, Inc. 85,938
----------
Printing & Publishing (4.2%)
----------------------------
6,400 International Imaging Materials* 152,000
6,000 Merrill Corp. 133,500
2,800 Reader's Digest Assoc., Inc., Class B 96,950
----------
382,450
----------
Restaurants (2.7%)
------------------
5,000 Bob Evans Farms, Inc. 62,500
8,800 Wendy's International, Inc. 181,500
----------
244,000
----------
Retail (5.6%)
-------------
9,999 CUC International* 244,976
3,000 Franklin Quest Co.* 60,750
5,000 Smart & Final, Inc. 117,500
4,000 Tractor Supply Co.* 83,000
----------
506,226
----------
Telecommunications (6.0%)
-------------------------
1,333 360 Communications Co.* 30,159
2,200 AT & T Corp. 76,725
712 Lucent Technologies, Inc. 33,464
9,800 MCI Communications Corp. 246,225
4,000 Sprint Corp. 157,000
----------
543,573
----------
Tire & Rubber (0.7%)
--------------------
3,000 Cooper Tire & Rubber Co. 58,875
Total common stocks (cost $5,667,901) 8,355,501
----------
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (7.9%)
----------------------------------
U.S. Treasury Bills
-------------------
$740,000 5.06% through 5.36%, due 02/13/97 through
07/24/97 (cost $720,332) 720,926
----------
Total investments (cost $6,388,233) $9,076,427
==========
</TABLE>
4
<PAGE> 50
Financial Horizons Investment Trust
Municipal Bond Fund
The municipal market has produced modest returns over the past 12 months, but
the road along the way was anything but smooth. Over the year, the Bond Buyer 11
Index moved from a yield of 5.62% to 5.60%. After rallying to 5.23% by February,
the market retraced all of its gains back to a peak of 6.02% by mid-June.
Inflationary fears that were prevalent in the spring months never materialized
into the economic numbers that followed. The Federal Reserve was content to
leave rates alone, allowing municipals to rally back to the current readings.
For the fiscal year, the Lehman Municipal Bond Index returned 5.70%, while the
Fund gained 4.72%.
Over the past year, we have continued to emphasize high credit quality but
switched to lower average coupons and slightly shorter average maturities. As a
result, our credit quality was maintained above a "Aa," our average coupon
declined from 6.16% to 5.83%, and our position in discount bonds (those bonds
priced below $98 per $100 of par value) increased from approximately 20% to 40%
of the portfolio. Average par-weighted maturity was shortened from 19.6 years to
19.0 years. By lowering the average coupon and increasing our position in
discount bonds, we have shifted the Fund into a more aggressive,
performance-oriented position. If rates continue to fall, we should be in a good
position to continue to capitalize on this opportunity. The current year's sales
have generated net capital gains, however there is a loss carry-forward that
will offset these gains and nullify their effects for tax-reporting purposes.
A moderation in the growth of the economy, coupled with confidence that the
Federal Reserve has effectively tamed inflation and will not have to raise rates
in the near term, is the foundation for this market's summer rally. Election
anxieties perhaps tempered the rally somewhat. With the election now in the
rearview mirror, the market can again focus on the solid fundamentals of
moderate growth and low inflation.
We have a well-balanced portfolio that is positioned to benefit from an
extension in the current market rally. We are constantly searching for value
through a disciplined swap program. Overall, we continue to take a long-term
perspective and look for positive performance in the future.
J. Randall Baney, MBA - Portfolio Manager
Fund Value $20,499,850
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
Value %
- -------------------------------------------------------------------------------
<S> <C> <C>
New Jersey Turnpike $1,092,500 5.3%
Nashville and Davidson County, Tennessee 1,068,625 5.2%
New York Local Government Asst 1,067,500 5.2%
Harris County, Texas 1,047,500 5.1%
Birmingham, Alabama 1,043,750 5.1%
</TABLE>
<TABLE>
<CAPTION>
FUND PERFORMANCE
1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Muni Bond $17,078
Leh. Muni Bond $18,873
</TABLE>
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Municipal Bond Fund since inception (12/19/88) and the Lehman Brothers
Municipal Bond Index* over the period since inception ended 10/31/96.
* The Lehman Brothers Municipal Bond Index represents an unmanaged group of
bonds that are not adjusted for expenses and includes bonds of lower quality
than those purchased by the Municipal Bond Fund. The investment return and
principal value will fluctuate. When redeemed, shares may be worth more or
less than the original investment.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
1 Year 5 Year Life
<S> <C> <C> <C>
Without sales charge...........4.72%......6.12%......7.04%
With sales charge ............-0.28%......5.80%......7.04%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 7.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
5
<PAGE> 51
Financial Horizons Investment Trust - Statement of Investments October 31, 1996
Municipal Bond Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (98.3%)
Alabama (5.1%)
--------------
$1,000,000 Birmingham, Alabama General Obligation
Refunding Bonds, Series 1992-B,
6.25%, 04/01/16 $ 1,043,750
------------
Florida (4.7%)
--------------
1,000,000 Orlando, Florida Utilities Commission
Water and Electric Subordinated
Revenue Refunding Bonds,
Series 1993-A, 5.25%, 10/01/14 957,500
------------
Illinois (9.7%)
---------------
1,000,000 Illinois Housing Development Authority
Homeowner Mortgage Revenue
Bonds, Series 1994-A-1, 6.45%, 08/01/17 1,027,500
1,000,000 Illinois Regional Transportation Authority,
General Obligation Refunding Bonds,
Series 1996, 5.40%, 06/01/15 961,250
------------
1,988,750
------------
Massachusetts (4.7%)
--------------------
1,000,000 Commonwealth of Massachusetts
General Obligation Refunding Bonds,
Series 1995-A, 5.00%, 07/01/10 957,500
------------
Nevada (4.8%)
-------------
1,000,000 Nevada State General Obligation, Nevada
Municipal Bond Bank Project,
Numbers 49 & 50, 5.50%, 11/01/16 980,000
------------
New Jersey (5.3%)
-----------------
1,000,000 New Jersey Turnpike Authority Turnpike
Revenue Bonds, Series 1991-C,
6.50%, 01/01/16 1,092,500
------------
New York (5.2%)
---------------
1,000,000 New York Local Government Assistance
Corporation, Series 1993-E, Refunding
Bonds, 6.00%, 04/01/14 1,067,500
------------
North Carolina (5.0%)
---------------------
1,000,000 Charlotte-Mecklenburg Hospital Authority,
North Carolina Health Care System
Revenue Bonds, Series 1992,
6.25%, 01/01/20 1,030,000
------------
South Carolina (5.0%)
---------------------
1,000,000 South Carolina State Housing Finance &
Development Authority Homeownership
Mortgage Purchase Bonds,
Series 1994-A, 6.375%, 07/01/16 1,015,000
------------
Tennessee (5.2%)
----------------
1,030,000 Nashville & Davidson County, Tennessee
General Obligation Multi-Purpose
Improvement Bonds, Series 1994,
6.125%, 05/15/14 1,068,625
------------
<FN>
- ----------
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Texas (19.2%)
-------------
$1,000,000 Carrollton -- Farmers Branch
Independent School District, Texas
General Obligation School Building
Unlimited Tax Bonds, Series 1995,
5.00%, 02/15/16 $ 930,000
1,000,000 Grand Prairie Independent School
District, Texas General Obligation
Unlimited Tax School Building and
Refunding Bonds, Series 1996,
5.20%, 02/15/17 946,250
1,000,000 Harris County, Texas Tax and Revenue
Certificates of Obligation, Series 1994,
6.10%, 10/01/13 1,047,500
1,000,000 Texas State Public Finance Authority
Building Revenue Refunding,
Series 1992-B, 5.75%, 02/01/12 1,011,250
------------
3,935,000
------------
Utah (4.9%)
-----------
1,000,000 Utah Housing Finance Agency, Multi-
Family Housing Revenue Refunding
Bonds, (Cottonwood Apartments
Project), Issue 1995, 6.30%, 07/01/15 1,011,250
------------
Virginia (14.9%)
----------------
1,000,000 Chesapeake, Virginia General Obligation
Water & Sewer Bonds, Series 1995-A,
5.375%, 12/01/20 956,250
1,000,000 Richmond, Virginia General Obligation
Public Improvement Refunding Bonds,
Series 1991-B, 6.25%, 01/15/18 1,035,000
900,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1992-C, Subseries C-7,
6.30%, 01/01/15 915,750
140,000 Virginia Housing Development Authority
Multi-Family Housing Bonds,
Series 1991-F, 7.10%, 05/01/13 148,050
------------
3,055,050
------------
Washington (4.6%)
-----------------
1,000,000 Seattle, Washington Limited Tax, General
Obligation Bonds, Series 1995, 5.125%, 942,500
07/01/15 ------------
Total long-term municipal securities
(cost $19,986,232) $20,144,925
============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 52
Financial Horizons Investment Trust
Government Bond Fund
Total return for the Financial Horizons Government Bond Fund for the year ended
October 31, 1996, was 5.01% compared to a total return of 5.05% for its
benchmark index, the Merrill Lynch Government Master Index.
Early in the year, fears of higher inflation led to an increase in interest
rates. As favorable inflation results have been released over the past two
months, inflationary concerns have eased and rates have declined from their
highs at midyear. The net change in interest rates over the past 12 months was
an increase of approximately .30 percent in intermediate and long rates. The
current stable inflation environment is favorable for the bond market.
The Government Bond Fund continues to be invested in spread product including
sectors of the government agency and mortgage-backed markets perceived to be
undervalued. Approximately one-third of portfolio assets are invested in the
collateralized mortgage obligation (CMO) market. The yield on these
conservatively structured investments continues to make them attractive
portfolio holdings.
Wayne T. Frisbee, CFA - Portfolio Manager
Fund Value $58,736,729
<TABLE>
<CAPTION>
TOP FIVE BOND HOLDINGS
Value %
- -------------------------------------------------------------------------------
<S> <C> <C>
Resolution Funding $14,577,892 24.8%
FNMA REMICS 13,130,822 22.4%
Federal National Mortgage Association 9,270,147 15.8%
FHLMC REMICS 6,882,563 11.7%
Federal Home Loan Banks 4,012,716 6.8%
</TABLE>
<TABLE>
<CAPTION>
FUND PERFORMANCE
1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gov't Bond $19,926
M. Lynch $19,905
</TABLE>
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Government Bond Fund since inception (12/19/88) and the Merrill Lynch
Government Master Index* over the period since inception ended 10/31/96.
* The Merrill Lynch Government Master Index is an index of unmanaged bonds
which unlike the Government Bond Fund returns, do not reflect any fees or
expenses. The investment return and principal value will fluctuate. When
redeemed, shares may be worth more or less than the original investment.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
1 Year 5 Year Life
<S> <C> <C> <C>
Without sales charge...........5.01%......7.47%......9.16%
With sales charge..............0.08%......7.17%......9.16%
</TABLE>
The without sales charge returns do not reflect the effects of sales charges.
The with sales charge assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 7.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
7
<PAGE> 53
Financial Horizons Investment Trust - Statement of Investments October 31, 1996
Government Bond Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE BACKED SECURITIES (34.1%)
----------------------------------
$ 707,185 FHLMC (REMIC) Series 190-D,
9.20%, 10/15/21 $ 738,929
3,000,000 FHLMC (REMIC) Series 1344-D,
6.00%, 08/15/07 2,801,368
1,289,219 FHLMC (REMIC) Series 31-E,
7.55%, 05/15/20 1,306,068
2,000,000 FHLMC (REMIC) Series 1313-G,
7.25%, 06/15/07 2,036,198
1,000,000 FNMA (REMIC) Series 93-203 PJ,
6.50%, 10/25/23 981,009
422,198 FNMA (REMIC) Series 1989-86,
8.75%, 11/25/19 443,459
4,000,000 FNMA (REMIC) Series 1990-16D,
9.00%, 03/25/20 4,202,476
589,820 FNMA (REMIC) Series 1991-68E,
8.35%, 10/25/03 593,287
923,312 FNMA (REMIC) Series 1991-73A,
8.00%, 07/25/21 952,063
1,743,142 FNMA (REMIC) Series 90-7-B,
8.50%, 01/25/20 1,815,132
4,000,000 FNMA (REMIC) Series 92-126,
8.00%, 07/25/02 4,143,396
-----------
Total mortgage backed securities
(cost $19,643,084) 20,013,385
-----------
<FN>
- ----------
The abbreviations in the above statement stand for the following:
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
See accompanying notes to financial statements.
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY LONG-TERM
OBLIGATIONS (52.6%)
------------------------------------
$ 4,000,000 Federal Home Loan Banks, 6.36%, 03/21/01 $ 4,012,716
3,000,000 Federal Home Loan Mortgage Corp.,
7.445%, 04/14/04 3,047,901
4,030,000 Federal National Mortgage Assoc.,
8.25%, 10/12/04 4,209,134
4,000,000 Federal National Mortgage Assoc.,
8.55%, 12/10/04 4,064,048
1,000,000 Federal National Mortgage Assoc.,
7.26%, 10/05/05 996,965
15,000,000 Resolution Funding STRIPS, 0.00%, 04/15/06 8,099,235
3,000,000 Resolution Funding STRIPS, 0.00%, 04/15/08 1,401,477
10,000,000 Resolution Funding STRIPS, 0.00%, 07/15/13 3,165,290
10,000,000 Resolution Funding STRIPS, 0.00%, 07/15/20 1,911,890
-----------
Total U.S. government and agency
long-term obligations
(cost $30,020,695) 30,908,656
-----------
REPURCHASE AGREEMENT (13.4%)
----------------------------
7,894,000 Prudential Securities, 5.55%, due 11/01/96,
Collateralized by $8,035,000, Sallie Mae
Floating Rate Note, due 04/10/97, market
value $8,055,088 (cost $7,894,000) 7,894,000
-----------
Total investments (cost $57,557,779) $58,816,041
===========
</TABLE>
8
<PAGE> 54
Financial Horizons Investment Trust
Cash Reserve Fund
The Financial Horizons Cash Reserve Fund had total assets of $4.2 million for
the year ended October 31, 1996. The average maturity totaled 37 days.
Commercial paper accounted for 89% of the Fund, followed by Canadian Government
obligations (7%) and U.S. Government & Agency securities (4%). Commercial paper
continues to have a yield advantage over other money market instruments.
Total return on the Cash Reserve Fund was 4.97% for the year ended October 31,
1996, compared to the Consumer Price Index total return of 2.99%. The 30-day
current yield in the same period was 4.77% with an effective yield of 4.88%.
The Federal Open Market Committee left interest rates unchanged for most of
1996. The last time they adjusted rates was in January 1996. At that time the
Federal Funds rate was lowered to 5.00% from 5.25%. Future rate changes will
depend on the Committee's perception on both economic growth and inflation.
The Financial Horizons Cash Reserve Fund continues to invest in only
high-quality, first-tier money market instruments. An internal credit review is
completed on all issuers prior to investment.
Karen G. Mader, MA - Portfolio Manager
Fund Value $4,242,751
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
Value %
- -------------------------------------------------------------------------------
<S> <C> <C>
Sonoco Products Co. $164,567 3.9%
Clorox Co. 161,544 3.8%
Merrill Lynch & Co. 159,903 3.8%
Caterpillar Financial Services 159,694 3.8%
Canadian Wheat Board 159,667 3.8%
</TABLE>
<TABLE>
<CAPTION>
FUND PERFORMANCE
1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserve $14,384
CPI $13,126
</TABLE>
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Cash Reserve Fund since inception (12/19/88) and the Consumer Price Index*
over the period since inception ended 10/31/96.
* The Consumer Price Index is a broad index reflecting price changes in a
market basket of consumer goods and, unlike the Cash Reserve Fund, does not
reflect any fees or expenses.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED 10/31/96
1 Year 5 Year Life
<S> <C> <C> <C>
Without sales charge...........4.97%......3.70%......4.73%
</TABLE>
These results include reinvestment of all dividends and capital gains
distributions. The life of the fund is 7.8 years.
An investment in the Cash Reserve Fund is neither insured nor guaranteed by the
U.S. Government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 a share. Past performance is no guarantee of
future results.
9
<PAGE> 55
Financial Horizons Investment Trust - Statement of Investments October 31, 1996
Cash Reserve Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CANADIAN GOVERNMENT OBLIGATIONS (7.3%)
---------------------------------------
$152,000 British Columbia Province, 5.28%,
due 02/03/97 $ 149,905
160,000 Canadian Wheat Board, 5.35%, due 11/15/96 159,667
----------
Total Canadian government obligations
(cost $309,572) 309,572
----------
COMMERCIAL PAPER (89.1%)
------------------------
Agriculture/Finance (3.8%)
--------------------------
160,000 Deere, John Capital, 5.24%, due 11/26/96 159,418
----------
Auto/Finance (3.8%)
-------------------
160,000 Ford Motor Credit, 5.26%, due 11/25/96 159,439
Banks (2.3%)
------------
100,000 National City Credit, 5.35%, due 11/15/96 99,792
----------
Broker/Dealers (14.5%)
----------------------
140,000 Dean Witter Discover, 5.25%, due 11/25/96 139,510
156,000 Goldman Sachs Group, 5.26%,
due 11/27/96 155,407
160,000 Merrill Lynch & Co. 5.44%, due 11/05/96 159,903
160,000 Smith Barney, Inc., 5.27%, due 12/05/96 159,204
----------
614,024
----------
Captive Borrow Conduit (3.2%)
-----------------------------
138,000 Prudential Funding, 5.23%, due 12/09/96 137,238
----------
Chemicals (6.1%)
----------------
116,000 Monsanto Co., 5.45%, due 11/19/96 115,684
145,000 PPG Industries, 5.24%, due 12/10/96 144,177
----------
259,861
----------
Consumer Products (3.8%)
------------------------
162,000 Clorox Co. 5.33%, due 11/20/96 161,544
----------
Consumer Sales Finance (12.5%)
------------------------------
105,000 Amer. Exp. Credit Corp., 5.29%, due 11/08/96 104,893
146,000 Avco Financial Serv., 5.26%, due 12/10/96 145,168
143,000 Beneficial Corp., 5.26%, due 11/13/96 142,749
140,000 Norwest Financial, 5.31%, due 01/27/97 138,203
----------
531,013
----------
<FN>
- ----------
Cost also represents cost for Federal income tax purposes.
Portfolio holding percentages represent value as a percentage of net assets.
See accompanying notes to financial statements.
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Diversified Finance (3.6%)
--------------------------
$154,000 GE Capital Corp., 5.29%, due 11/18/96 $ 153,615
----------
Entertainment (2.3%)
--------------------
100,000 Walt Disney Co., 5.42%,
due 11/20/96 99,714
----------
Heavy Equipment/Finance (3.8%)
------------------------------
160,000 Caterpillar Financial Ser., 5.25%,
due 11/13/96 159,694
----------
Insurance (9.4%)
----------------
130,000 AIG Funding, Inc., 5.24%, due 12/17/96 129,130
130,000 MetLife Funding Inc., 5.24%, due 12/16/96 129,148
140,000 Principal Mutual, 5.24%, due 11/13/96 139,755
----------
398,033
----------
Lease Financing (3.2%)
----------------------
137,000 PHH Corp., 5.23%, due 11/04/96 136,940
----------
Manufacturing/Diversified (3.3%)
--------------------------------
140,000 Raytheon Co., 5.23%, due 11/05/96 139,919
----------
Packaging/Containers (2.6%)
---------------------------
110,000 Bemis Co., Inc., 5.26%, due 12/03/96 109,486
----------
Paper and Forest Products (3.9%)
--------------------------------
165,000 Sonoco Products Co., 5.25%, due 11/19/96 164,567
----------
Pharmaceuticals/Health Care (7.0%)
----------------------------------
150,000 Abbott Laboratories, 5.25%, due 01/16/97 148,337
150,000 Schering Corp., 5.40%, due 02/18/97 147,548
----------
295,885
----------
Total commercial paper (cost $3,780,182) 3,780,182
----------
U.S. GOVERNMENT OBLIGATIONS (1.4%)
----------------------------------
60,000 U.S. Treasury Bills, 5.14%, due 06/26/97
(cost $57,970) 57,970
----------
U.S. AGENCY-FULL FAITH & CREDIT (2.3%)
--------------------------------------
100,000 Federal National Mortgage Association
5.47%, due 02/10/97 (cost $98,465) 98,465
----------
Total investments (cost $4,246,189) $4,246,189
===========
</TABLE>
10
<PAGE> 56
Financial Horizons Investment Trust October 31, 1996
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
MUNICIPAL GOVERNMENT CASH
GROWTH BOND BOND RESERVE
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost $6,388,233,
$19,986,232, $49,663,779 and $4,246,189, respectively) $9,076,427 $20,144,925 $50,922,041 $4,246,189
Repurchase agreements (cost $7,894,000) -- -- 7,894,000 --
--------------------------------------------------------
Total investments 9,076,427 20,144,925 58,816,041 4,246,189
Cash 29,069 223,314 30,032 519
Receivable for Fund shares sold 127 -- -- --
Receivable for investment securities sold -- -- 13,209 --
Accrued interest and dividends receivable 5,924 333,877 322,626 --
--------------------------------------------------------
TOTAL ASSETS 9,111,547 20,702,116 59,181,908 4,246,708
LIABILITIES
Payable for Fund shares redeemed 3,953 134,945 229,214 267
Accrued management fees 4,998 11,366 32,203 1,427
Accrued transfer agent fees 1,000 1,168 3,956 77
Accrued distribution fees 3,846 8,743 -- --
Dividends payable -- 34,553 152,402 1,243
Other accrued expenses 2,446 11,491 27,404 943
--------------------------------------------------------
TOTAL LIABILITIES 16,243 202,266 445,179 3,957
--------------------------------------------------------
NET ASSETS $9,095,304 $20,499,850 $58,736,729 $4,242,751
========================================================
NET ASSETS REPRESENTED BY:
Capital Shares, $1 par value, outstanding $ 467,236 $1,903,494 $55,376,700 $4,242,870
Capital paid in excess of par value 5,486,141 19,388,899 53,402,393 (105)
Net unrealized appreciation 2,688,194 158,693 1,258,262 --
Accumulated undistributed net realized gain (loss) 458,096 (950,935) (1,301,670) (6)
Accumulated undistributed (distributions in excess of) net
investment income (4,363) (301) 1,044 (8)
--------------------------------------------------------
NET ASSETS $9,095,304 $20,499,850 $58,736,729 $4,242,751
========================================================
Shares outstanding (unlimited number of shares authorized) 467,236 1,903,494 5,376,700 4,242,870
========================================================
NET ASSET VALUE AND OFFERING PRICE PER SHARE* $ 19.47 $ 10.77 $ 10.92 $ 1.00
========================================================
<FN>
* For the Growth Fund, the Municipal Bond Fund, and the Government Bond Fund, the redemption price per share varies by the
length of time shares are held.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 57
Financial Horizons Investment Trust For the year ended October 31, 1996
Statements of Operations
<TABLE>
<CAPTION>
MUNICIPAL GOVERNMENT CASH
GROWTH BOND BOND RESERVE
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 81,409 -- -- --
Interest 40,820 $1,366,936 $ 4,351,716 $229,490
Other -- -- 171,119 --
----------------------------------------------------
Total income 122,229 1,366,936 4,522,835 229,490
EXPENSES:
Distribution fees 62,370 174,226 476,865 --
Investment management fees 54,053 150,996 414,415 16,666
Transfer agent fees 11,898 14,136 57,100 966
Professional services 1,934 5,474 15,020 1,052
Registration fees 2,235 1,783 4,963 2,452
Shareholders' reports 3,500 4,490 11,200 275
Custodian fees 2,100 16,600 11,500 4,503
Trustee fees and expenses 1,136 3,555 9,655 625
Other 1,508 2,553 9,724 468
----------------------------------------------------
Total expenses before waived expenses 140,734 373,813 1,010,442 27,007
Total waived expenses 20,790 58,074 476,865 --
----------------------------------------------------
Net expenses 119,944 315,739 533,577 27,007
----------------------------------------------------
NET INVESTMENT INCOME $ 2,285 $1,051,197 $ 3,989,258 $202,483
====================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments $1,456,661 $ 249,540 $ 746,770 $ (3)
Net change in unrealized appreciation (depreciation) of investments 995,019 (275,812) (1,785,043) --
----------------------------------------------------
Net realized and unrealized gain (loss) on investments 1,451,680 (26,272) (1,038,273) (3)
----------------------------------------------------
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $1,453,965 $1,024,925 $ 2,950,985 $202,480
====================================================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 58
Financial Horizons Investment Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
GROWTH FUND MUNICIPAL BOND FUND
Year ended Year ended Year ended Year ended
October 31, October 31, October 31, October 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 2,285 (3,646) $ 1,051,197 $ 1,267,905
Net realized gain (loss) on investments 456,661 821,167 249,540 (809,772)
Net change in unrealized appreciation (depreciation) of
investments 995,019 607,704 (275,812) 3,105,091
--------------------------------------------------------
Net increase in net assets resulting from operations 1,453,965 1,425,225 1,024,925 3,563,224
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (1,051,197) (1,266,974)
In excess of net investment income -- (5,505) (301) --
Net realized gain from investment transactions (819,732) (65,310) -- --
--------------------------------------------------------
Decrease in net assets from distributions to shareholders (819,732) (70,815) (1,051,498) (1,266,974)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 896,371 520,132 83,672 437,772
Net asset value of shares issued to shareholders from reinvestment
of dividends 806,112 69,603 617,827 827,461
Cost of shares redeemed (835,073) (1,137,884) (5,980,992) (4,168,004)
--------------------------------------------------------
Increase (decrease) in net assets derived from capital share
transactions 867,410 (548,149) (5,279,493) (2,902,771)
--------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 1,501,643 806,261 (5,306,066) (606,521)
NET ASSETS-- BEGINNING OF PERIOD 7,593,661 6,787,400 25,805,916 26,412,437
--------------------------------------------------------
NET ASSETS-- END OF PERIOD $9,095,304 $ 7,593,661 $20,499,850 $25,805,916
========================================================
Undistributed net realized gain (loss) on investments included
in net assets at end of period $ 458,096 $ 821,167 $ (950,935) $(1,200,475)
========================================================
Undistributed (distributions in excess of) net investment income
included in net assets at end of period $ (4,363) $ (6,648) $ (301) $ (5,752)
========================================================
SHARE ACTIVITY:
Shares sold 48,331 32,495 7,850 42,427
Reinvestment of dividends 46,328 4,761 57,620 80,208
Shares redeemed (45,321) (68,472) (559,944) (403,632)
--------------------------------------------------------
Net increase (decrease) in number of shares 49,338 (31,216) (494,474) (280,997)
========================================================
See accompanying notes to financial statements.
13
</TABLE>
<PAGE> 59
Financial Horizons Investment Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND CASH RESERVE FUND
Year ended Year ended Year ended Year ended
October 31, October 31, October 31, October 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 3,989,258 $ 4,424,602 $ 202,483 $ 218,960
Net realized gain (loss) on investments 746,770 500,983 (3) (3)
Net change in unrealized appreciation (depreciation) of investments (1,785,043) 5,712,175 -- --
-------------------------------------------------------
Net increase in net assets resulting from operations 2,950,985 10,637,760 202,480 218,957
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,988,214) (4,454,858) (202,483) (218,917)
In excess of net investment income -- -- (8) --
Net realized gain from investment transactions -- -- -- (35)
Paid in capital -- (14,227) (105) --
-------------------------------------------------------
Decrease in net assets from distributions to shareholders (3,988,214) (4,469,085) (202,596) (218,952)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 452,449 1,055,320 280,277 890,988
Net asset value of shares issued to shareholders from reinvestment
of dividends 2,053,433 2,526,566 186,091 213,199
Cost of shares redeemed (11,921,797) (10,778,823) (373,733) (903,863)
-------------------------------------------------------
Increase (decrease) in net assets derived from capital share transactions (9,415,915) (7,196,937) 92,635 200,324
-------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (10,453,144) (1,028,262) 92,519 200,329
NET ASSETS-- BEGINNING OF PERIOD 69,189,873 70,218,135 4,150,232 3,949,903
-------------------------------------------------------
NET ASSETS-- END OF PERIOD $ 58,736,729 $ 69,189,873 $ 4,242,751 $ 4,150,232
=======================================================
Undistributed net realized gain (loss) on investments included in net
assets at end of period $ (1,301,670) $ (2,048,440) $ (6) $ (3)
=======================================================
Undistributed (distributions in excess of) net investment income
included in net assets at end of period $ 1,044 $ -- $ (8) $ --
=======================================================
SHARE ACTIVITY:
Shares sold 40,874 100,153 280,277 890,988
Reinvestment of dividends 188,895 239,877 186,091 213,199
Shares redeemed (1,101,948) (1,029,256) (373,733) (903,863)
-------------------------------------------------------
Net increase (decrease) in number of shares (872,179) (689,226) 92,635 200,324
=======================================================
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 60
Financial Horizons Investment Trust Selected data for each share
of capital stock outstanding
Financial Highlights
<TABLE>
<CAPTION>
GROWTH FUND MUNICIPAL BOND FUND
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $18.17 $15.11 $14.17 $12.46 $11.99 $ 10.76 $ 9.86 $ 11.75 $ 10.64 $ 10.61
Net investment income (loss) .01 (0.01) 0.03 0.08 0.22 0.48 0.50 0.49 0.56 0.61
Net realized gain (loss) and
unrealized appreciation
(depreciation) 3.28 3.23 0.95 1.73 0.43 0.01 0.90 (1.62) 1.22 0.07
---------------------------------------------- -----------------------------------------------
Total from investment operations 3.29 3.22 0.98 1.81 0.65 0.49 1.40 (1.13) 1.78 0.68
Dividends from net investment
income -- -- (0.04) (0.10) (0.18) (0.48) (0.50) (0.49) (0.56) (0.61)
Distributions in excess of net
investment income -- (0.01) -- -- -- -- -- -- -- --
Distributions from net realized
gain from investment
transactions (1.99) (0.15) -- -- -- -- -- (0.27) (0.11) (0.04)
---------------------------------------------- -----------------------------------------------
Total distributions (1.99) (0.16) (0.04) (0.10) (0.18) (0.48) (0.50) (0.76) (0.67) (0.65)
---------------------------------------------- -----------------------------------------------
Net increase (decrease) in net
asset value 1.30 3.06 0.94 1.71 0.47 0.01 0.90 (1.89) 1.11 0.03
---------------------------------------------- -----------------------------------------------
NET ASSET VALUE --
END OF PERIOD $19.47 $18.17 $15.11 $14.17 $12.46 $ 10.77 $ 10.76 $ 9.86 $ 11.75 $ 10.64
============================================== ===============================================
Total Return 19.41% 21.57% 6.92% 14.59% 5.42% 4.72% 14.50% (10.11%) 17.18% 6.56%
Net Assets, End of Period (000) $9,095 $7,594 $6,787 $5,165 $3,095 $20,500 $25,806 $26,412 $25,828 $14,641
Ratio of expenses to average
net assets 1.44% 1.47% 1.59% 1.44% 1.27% 1.36% 1.35% 1.27% 1.01% 0.65%
Ratio of expenses to average
net assets* 1.69% 1.72% 1.90% 2.03% 2.02% 1.61% 1.60% 1.57% 1.61% 1.62%
Ratio of net investment income
(loss) to average net assets 0.03% (0.05%) 0.21% 0.63% 1.45% 4.53% 4.82% 4.58% 4.81% 5.65%
Ratio of net investment income
(loss) to average net assets* (0.22%) (0.30%) (0.82%) 0.05% 0.70% 4.28% 4.57% 4.28% 4.11% 4.68%
Portfolio turnover 17.19% 29.19% 14.14% 12.98% 12.14% 38.80% 60.79% 69.67% 46.95% 57.98%
Average commission rate paid** 5.9080(cent) -- -- -- -- -- -- -- -- --
<FN>
- ----------
*Ratios calculated as if no expenses were waived.
**Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 61
Financial Horizons Investment Trust Selected data for each share
of capital stock outstanding
Financial Highlights
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND CASH RESERVE FUND
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE --
BEGINNING OF PERIOD $ 11.07 $ 10.12 $ 11.31 $ 11.00 $ 10.81 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.68 0.68 0.58 0.63 0.89 0.05 0.05 0.03 0.02 0.03
Net realized gain (loss) and
unrealized appreciation
(depreciation) (0.15) 0.95 (1.10) 0.50 0.25 -- -- -- -- --
----------------------------------------------- ------------------------------------------
Total from investment operations 0.53 1.63 (0.52) 1.13 1.14 0.05 0.05 0.03 0.02 0.03
Dividends from net investment
income (0.68) (0.68) (0.58) (0.66) (0.89) (0.05) (0.05) (0.03) (0.02) (0.03)
Distributions from net realized
gain from investment
transactions -- -- (0.09) (0.16) (0.06) -- -- -- -- --
----------------------------------------------- ------------------------------------------
Total distributions (0.68) (0.68) (0.67) (0.82) (0.95) (0.05) (0.05) (0.03) (0.02) (0.03)
----------------------------------------------- ------------------------------------------
Net increase (decrease) in net
asset value (0.15) 0.95 (1.19) 0.31 0.19 -- -- -- -- --
----------------------------------------------- ------------------------------------------
NET ASSET VALUE --
END OF PERIOD $ 10.92 $ 11.07 $ 10.12 $ 11.31 $ 11.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=============================================== ==========================================
Total Return 5.01% 16.68% (4.75%) 10.76% 10.93% 4.97% 5.41% 3.08% 2.05% 3.07%
Net Assets, End of Period (000) $58,737 $69,190 $70,218 $84,602 $64,249 $4,243 $4,150 $3,950 $2,788 $2,538
Ratio of expenses to average
net assets 0.84% 0.89% 1.28% 1.00% 0.65% 0.65% 0.65% 0.84% 1.17% 1.06%
Ratio of expenses to average
net assets* 1.59% 1.58% 1.58% 1.61% 1.66% 0.65% 0.65% 1.06% 2.20% 1.82%
Ratio of net investment income
to average net assets 6.26% 6.42% 5.42% 5.55% 8.18% 4.86% 5.29% 3.14% 2.04% 3.02%
Ratio of net investment income
to average net assets* 5.51% 5.73% 5.12% 4.93% 7.17% 4.86% 5.29% 2.92% 0.79% 2.28%
Portfolio turnover 21.04% 140.55% 174.40% 143.63% 87.67% -- -- -- -- --
<FN>
- ----------
* Ratios calculated as if no expenses were waived.
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 62
Financial Horizons Investment Trust October 31, 1996
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Horizons Investment Trust (Trust), is a diversified, open-end
investment company organized under the laws of Massachusetts by a Declaration of
Trust dated May 9, 1988. The Trust offers shares in four separate mutual funds
which are registered under the Investment Company Act of 1940.
(a) Security Valuation
----------------------
(1) Growth Fund, Municipal Bond Fund and Government Bond Fund: Securities
traded on a national securities exchange are valued at closing prices.
Listed securities for which no sale was reported on the valuation date
are valued at quoted bid prices.
(2) Cash Reserve Fund: Securities are valued at amortized cost, which
approximates market value, in accordance with Rule 2a-7 of the
Investment Company Act of 1940, as amended.
(b) Security Transactions and Investment Income
----------------------------------------------
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date; interest income, including the pro rata
amortization of premium and discount where applicable, is recorded on an
accrual basis.
(c) Federal Income Taxes
------------------------
The Trust's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all its taxable income to shareholders.
As of October 31, 1996, the Municipal and Government Bond Funds had net
capital loss carry forwards of $950,935, and $1,301,670, respectively,
available to offset future capital gains, which will expire in 6 to 7
years.
(d) Dividends to Shareholders
-------------------------------
(1) Growth Fund:
Dividends are paid semi-annually and are recorded on the ex-dividend
date.
(2) Municipal Bond Fund, Government Bond Fund, and Cash Reserve Fund:
Dividends are declared daily and paid monthly from net investment
income.
Distributable net realized capital gains are declared and distributed at
least annually for all funds.
Dividends and distributions to shareholders are determined in accordance
with federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax" differences are
considered either permanent or temporary in nature. In accordance with
AICPA Statement of Position 93-2, permanent differences are reclassified
within the capital accounts based on their nature for federal income tax
purposes; temporary differences do not require reclassification. Dividends
and distributions that exceed net investment income and net realized gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income and net realized gains. To
the extent distributions exceed current and accumulated earnings and
profits, they are reported as distributions of paid-in-capital. These
reclassifications have no effect upon the net asset value of the
respective funds.
Accordingly, as of October 31, 1996, undistributed net investment income
and paid-in-capital have been adjusted by the following amount:
<TABLE>
<CAPTION>
UNDISTRIBUTED NET
INVESTMENT INCOME PAID-IN-CAPITAL
<S> <C> <C>
Municipal Bond Fund ($5,752) $5,752
</TABLE>
(e) Expenses
--------------
Direct expenses of a fund are allocated to that fund. General expenses of
the Trust are allocated to the funds based upon each fund's relative
average net assets.
17
<PAGE> 63
Financial Horizons Investment Trust October 31, 1996
Notes to Financial Statements (continued)
(f) Use of Estimates
----------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
As investment manager for the funds, Nationwide Advisory Services, Inc. (NAS),
(formerly Nationwide Financial Services, Inc.), an affiliated company, earns an
annual fee of .65% based on the average daily net assets of the Growth Fund,
Municipal Bond Fund and Government Bond Fund and .40% of the average daily net
asset of the Cash Reserve Fund.
NAS also receives fees for distribution pursuant to a Rule 12b-1 Distribution
Plan approved by the Board of Trustees. These fees are based on average daily
net assets of the Growth Fund, the Municipal Bond Fund, and the Government Bond
Fund at an annual rate of .75%. During the year ended October 31, 1996, NAS
waived distribution fees for the Growth, Municipal Bond, and Government Bond
Funds totaling $20,790, $58,074, and $476,865, respectively, representing .25%,
.25%, and .75% or $.046, $.027, and $.081 per average share outstanding.
NAS also receives fees as principal underwriter from contingent deferred sales
charges (CDSC) ranging from 5% to 1%, imposed on redemptions which cause the
current value of an account to fall below the total purchase payments made
during the past six years. During the year ended October 31, 1996, NAS received
fees of $12,788, $118,289, $36,566, and $1,593 on the Growth, Municipal Bond,
Government Bond, and Cash Reserve Funds, respectively. Additionally, the
Government Bond Fund retained fees (CDSC) of $171,119 pursuant to NASD
guidelines which limit sales charges payable to underwriters. These fees are
reported as "other income."
A subsidiary of NAS (Nationwide Investors Services, Inc.) acts as transfer and
dividend disbursing agent for the funds.
3. BANK LOANS
The Trust has an unsecured bank line of credit of $6,000,000. Borrowings under
this arrangement bear interest at the Federal Funds rate plus .50%. No
compensating balances are required, and there were no outstanding balances at
October 31, 1996.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding U.S. Government and
short-term securities) and purchases and sales of U.S. Government Obligations
for the year ended October 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
SECURITIES U.S. GOVT. OBLIGATIONS
PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C>
Growth Fund $1,314,505 $ 1,398,557 $ 2,199,583 $ 2,067,484
Municipal Bond Fund 8,809,010 14,273,766 -- --
Government Bond Fund 204,679 4,044,039 12,570,795 24,928,887
Cash Reserve Fund -- -- 702,640 690,000
</TABLE>
Realized gains and losses have been computed on the first-in, first-out basis.
Included in net unrealized appreciation at October 31, 1996, are the following
components:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES APPRECIATION
<S> <C> <C> <C>
Growth Fund $2,861,926 $(173,732) $2,688,194
Municipal Bond Fund 354,539 (195,846) 158,693
Government Bond Fund 1,470,150 (211,888) 1,258,262
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For corporate shareholders, 42.9% of the income dividends and short-term capital
gain distributions paid by the Growth Fund in the fiscal year ended October 31,
1996 qualifies for the corporate dividend received deduction.
All of the distributions paid by the Municipal Bond Fund during the fiscal year
are exempt from federal income taxes.
18
<PAGE> 64
Financial Horizons Investment Trust
Independent Auditors' Report
The Shareholders and Board of Trustees of
The Financial Horizons Investment Trust:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of The Financial Horizons Investment Trust --
Growth Fund, Municipal Bond Fund, Government Bond Fund, and Cash Reserve Fund,
as of October 31, 1996, and the related statements of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and the financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
October 31, 1996, by confirmation with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Financial Horizons Investment Trust
as of October 31, 1996, the results of their operations, the changes in their
net assets and the financial highlights for each of the periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
December 13, 1996
Columbus, Ohio
19
<PAGE> 65
APPENDIX
DESCRIPTION OF NRSRO RATINGS
SHORT-TERM RATINGS (including commercial paper, senior short-term obligations
and deposit obligations). Issues rated Duff 2 by Duff & Phelps, Inc. (D&P) have
good certainty of timely payments, Liquidity factors and company fundamentals
are sound. Although ongoing internal funds needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are very small.
Relative strengths or weaknesses of the above factors determines whether the
issuer's commercial paper is rated Duff 1+, Duff 1, or Duff 1-.
Issues assigned F-2 by Fitch Investors Services, Inc. (Fitch) have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ or F-1 ratings. Issues assigned the
rating of F-1+ are regarded as having the strongest degree of assurance for
timely payment and issues assigned F-1 reflect an assurance of timely payments
only slightly less in degree than issues rated F-1+.
Among the factors considered by Moody's Investors Service, Inc. (Moody's) in
assigning ratings are the following: (1) quality of management; (2) industry
strengths and risks; (3) vulnerability to business cycles; (4) competitive
position; (5) liquidity measurements; (6) debt structure; (7) operating trends;
and (8) access to capital markets. Relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated P-1 or P-1.
Issues rated by Standard & Poor's (S&P) as A-1, the highest category, indicates
that the degree of safety regarding timely payment is strong. Liquidity ratios
are adequate to meet cash requirements. Long-term senior debt is rated AA or
better. The issuer has access to at least two additional channels of borrowing.
Basic earning and cash flow have an upward trend with allowance made for unusual
circumstances. Typically the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. Relative strength or weakness of the above factors
determine whether the issuer's commercial paper is rated A-1+, A-1 or A-2.
Issues rated TBW-2 by Thomson Bank Watch (Thomson) have a strong degree of
safety regarding timely repayment of principal and interest. The relative degree
of safety is not quite as high as an issues with a TBW-1 rating.
IBCA Limited and its affiliate, IBCA, Inc. (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 balanced sheet, a favorable credit profile, and a consistent record of
well above average performance. A "B" rating indicates a 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.
Thomson issues ratings on bank holding companies, U.S. banks, international
banks, investment banks, and savings and loan associations. Issues rated TBW1
are obligations that indicate a very high degree of likelihood that principal
and interest will be paid on a timely basis. A TBW2 rating indicates that the
relative
26
<PAGE> 66
degree of safety is not quite as high as an issue with a TBW1 rating.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
S&P'S RATINGS
A note rating by S&P reflects the liquidity concerns and market access risks
unique to notes. Notes due 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 or bond. The following criteria will be used in making that
assessment.
- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
S&P note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S RATINGS
MIG 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 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 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.
DESCRIPTION OF BOND RATINGS
The ratings of S&P and Moody's represent their opinions as to the quality of
various debt instruments. It should be emphasized, however, that ratings are not
absolute standards of quality. Consequently, debt instruments with the same
maturity, coupon and rating may have different yields while debt instruments of
the same maturity and coupon with different ratings may have the same yield.
S&P'S RATINGS
AAA Debt rated "AAA" has the highest rating assigned by S&P. 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.
27
<PAGE> 67
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.
Note: The ratings from AA to BBB may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the major rating
categories.
MOODY'S 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
edge." 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 fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A Bonds which are rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime 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.
Note: Moody's applies numerical modifiers 1,2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating catagory; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic catagory.
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.
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.
28
<PAGE> 68
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.
29
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000069369
<NAME> NIF
<SERIES>
<NUMBER> 4
<NAME> NIF MNYMKT
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 729,727,060
<INVESTMENTS-AT-VALUE> 729,727,060
<RECEIVABLES> 116,465
<ASSETS-OTHER> 283,618
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 730,127,143
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 627,381
<TOTAL-LIABILITIES> 627,381
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 729,501,084
<SHARES-COMMON-STOCK> 729,501,084
<SHARES-COMMON-PRIOR> 604,713,369
<ACCUMULATED-NII-CURRENT> (1,322)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 729,499,762
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,273,232
<OTHER-INCOME> 0
<EXPENSES-NET> 3,908,760
<NET-INVESTMENT-INCOME> 32,364,472
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 32,364,472
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 35,359,207
<DISTRIBUTIONS-OF-GAINS> 4,106
<DISTRIBUTIONS-OTHER> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> NIF
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<NUMBER> 3
<NAME> NIF BOND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000069369
<NAME> NIF
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000069369
<NAME> NIF
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<NUMBER> 2
<NAME> NIF-GROW
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000779239
<NAME> NIFII
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<NAME> NIFII-TAXFREE
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000779239
<NAME> NIFII
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<NAME> NIFII US GOVT
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832800
<NAME> FHIT - CASHRES
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832800
<NAME> FHIT - GOVT BOND
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<CURRENCY> U.S. DOLLARS
<S> <C>
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832800
<NAME> FHIT - MUNI
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<CURRENCY> U.S. DOLLARS
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000832800
<NAME> FHIT - GROW
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<S> <C>
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</TABLE>
