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'33 ACT FILE NO.333-40455
'40 ACT FILE NO.811-08495
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933/X/
POST-EFFECTIVE AMENDMENT NO. 7
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/
AMENDMENT NO. 8
(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
MORLEY CAPITAL ACCUMULATION FUND
PRESTIGE LARGE CAP VALUE FUND
PRESTIGE LARGE CAP GROWTH FUND
PRESTIGE SMALL CAP FUND
PRESTIGE BALANCED FUND
PRESTIGE INTERNATIONAL FUND
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (614) 249-7855
SEND COPIES OF COMMUNICATIONS TO:
MS. ELIZABETH A. DAVIN
DRUEN, DIETRICH, REYNOLDS AND KOOGLER
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective:
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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 in indefinite amount of securities and will pay
registration fees on later than 90 days after its fiscal year-end.
Title of Securities being Registered: Shares of Beneficial Interest, without par
value.
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NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX FUND
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
NATIONWIDE MONEY MARKET FUND
MORLEY CAPITAL ACCUMULATION FUND
PRESTIGE LARGE CAP VALUE FUND
PRESTIGE LARGE CAP GROWTH FUND
PRESTIGE SMALL CAP FUND
PRESTIGE BALANCED FUND
PRESTIGE INTERNATIONAL FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
PART A
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary of Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Objectives and Policies;
Investment Techniques, Considerations
and Risk Factors
Item 5. Management of the Fund Management of the Trust
Item 6. Capital Stock and Other Securities Additional Information; Income
Dividends and Capital Gains
Item 7. Purchase of Securities Being Offered Investment in Fund Shares
Item 8. Redemption or Repurchase Share Redemption
Item 9. Pending Legal Proceedings *
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information and History
Item 13. Investment Objectives and Policies Additional Information on Portfolio
Instruments and Investment Policies;
Investment Restrictions
Item 14. Management of Registrant Trustees and Officers of the Trust
Item 15. Control Persons and Principal Holders of Securities Major Shareholders
Item 16. Investment Advisory and Other Services Investment Advisory and Other Services
Item 17. Brokerage Allocation Brokerage Allocation
Item 18. Capital Stock and Other Securities Additional Information
Item 19. Purchase, Redemption and Pricing *
Item 20. Tax Status Additional General Tax Information
Item 21. Underwriters *
</TABLE>
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<TABLE>
<S> <C> <C>
Item 22. Calculation of Performance Data Calculating Money Market Fund Yield;
Calculating Yield and Total Return -
Non-Money Market Funds; Nonstandard
Returns
Item 23. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration statement.
* Not applicable or negative answer.
</TABLE>
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The Prospectus for the Mid Cap Growth Fund, Growth Fund, Fund, Bond Fund,
Tax-Free Income Fund, Long-Term U.S. Government Bond Fund, Intermediate U.S.
Government Bond Fund, and Money Market Fund, and the Prospectuses, as well as
the Statements of Additional Information for the Local Fund Shares and Class R
and Class Y shares of the S&P 500 Index Fund, and Morley Capital Accumulation
Fund, and the Prospectus and Statement of Additional Information for the Large
Cap Value Fund, Large Cap Growth Fund, Small Cap Fund, Balanced Fund and
International Fund are incorporated by reference into this filing of
Post-Effective Amendment No. 6 to the Registration Statement.
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PROSPECTUS
_____________, 1998
CLASS R SHARES
NATIONWIDE MONEY MAREKT FUND
FOR INFORMATION AND ASSISTANCE
CALL TOLL FREE 1 (800) 848-0920
Nationwide Money Market Fund (the "Fund") is a diversified portfolio of
Nationwide Investing Foundation III (the "Trust"). The Trust is an open-end
management investment company organized as a business trust under the laws of
the State of Ohio, by a Declaration of Trust dated as of October 30, 1997. The
Trust currently offers shares in fifteen separate portfolios or series,
including the Fund, each with its own investment objective. The Fund offers two
classes of shares: Class R shares and Prime Shares. This Prospectus relates only
to the Class R shares of the Fund. Class R shares are sold to life insurance
company separate accounts to fund the benefits of variable annuity contracts
("Contracts") issued to employee benefit plans qualified under Section 401(a) of
the Internal Revenue Code ("qualified plans") and to programs offered to
qualified plans, as well as to accounts held by the Nationwide Trust Company for
qualified plans.
The Fund's investment objective is to seek 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 (or deemed to have such a maturity under rules of the Securities and
Exchange Commission).
This Prospectus provides you with the basic information you should know before
investing in Class R shares of the Fund. You should read it and keep it for
future reference. A Statement of Additional Information dated __________, 1998
has been filed with the Securities and Exchange Commission. You may obtain a
copy of the Statement of Additional Information for the Fund and/or a prospectus
for the Prime Shares of the Fund without charge by calling (800) 848-0920, or
writing Nationwide Advisory Services, Three Nationwide Plaza, Columbus, Ohio
43215.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE STATEMENT OF ADDITIONAL INFORMATION FOR THE TRUST DATED ___________, 1998,
IS INCORPORATED HEREIN BY REFERENCE.
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SUMMARY OF EXPENSES
<TABLE>
<S> <C>
Shareholder Transaction Expenses None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.40%
12b-1 Fees (after waiver)(1) 0.00%
Other Expenses(2) 0.35%
-----
Total Operating Expenses 0.75%
=====
</TABLE>
This summary is provided to assist investors in understanding the various costs
and expenses that an investor in the Class R shares will bear directly or
indirectly.
Example:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period.
$ 8 $ 24 $ 42 $ 93
</TABLE>
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
For more information on Class expenses, see "MANAGEMENT OF THE TRUST" below.
- ----------
1 Class R shares are subject to a 0.15% 12b-1 fee which Nationwide Advisory
Services, Inc. ("NAS") (the "Distributor") has agreed with the Trust to
waive until further written notice to shareholders.
2 "Other Expenses" are based upon actual expenses of the Nationwide Money
Market Fund for the fiscal year ending October 31, 1998 restated to reflect
the different expense structure of the Class R shares of the Fund.
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FINANCIAL HIGHLIGHTS
Financial Highlights are not available for the Class R shares since Class R
shares did not commence operations prior to December 31, 1998.
The following Financial Highlights for the Ten Year Period ended October 31,
1997 and the six months ended April 30, 1998 are for the Fund's predecessor, the
Nationwide Investing Foundation-Nationwide Money Market Fund which has a
different expense structure. The Financial Highlights for the Ten Year Period
ended October 31, 1997 have been audited by KPMG Peat Marwick LLP, Independent
Auditors, whose report thereon, insofar as they relate to each of the years in
the five year period ended October 31, 1997, together with the financial
statements for the Fund for the year ended October 31, 1997, appearing in the
Annual Report of the Nationwide Investing Foundation, and the financial
statements for the Fund for the six months ended April 30, 1998 (unaudited) are
incorporated by reference in the Statement of Additional Information.
The Trust's Statement of Additional Information and the Annual Report, which
contain further information about the Fund's performance, may be obtained free
of charge by calling 1-800-848-0920.
(For a share outstanding throughout the period ending)
<TABLE>
<CAPTION>
INCOME & DISTRIBUTIONS RATIOS & SUPPLEMENTAL DATA
Div. From Net
Net Asset Net Net Asset Invest. Net Invest. Net Assets
Value - Net Invest. Value - Exp. Income Exp. to Income at End of
Beginning Invest. Income End of Total to Avg. to Avg. Avg. Net To Avg. Net Period
Year of Period Income (Loss) Period Return Net Assets Net Assets Assets* Assets* (000's)
- ---- --------- ------ ------ ------ ------ ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 $1.00 $ .07 $ (.07) $1.00 6.9% .76% 6.71% .76% 6.71% $421,901
1989 1.00 .09 (.09) 1.00 8.9 .74 8.55 .74 8.55 535,292
1990 1.00 .08 (.08) 1.00 8.0 .73 7.67 .73 7.67 600,324
1991 1.00 .06 (.06) 1.00 6.1 .71 5.97 .71 5.97 594,988
1992 1.00 .03 (.03) 1.00 3.5 .71 3.50 .71 3.50 488,998
1993 1.00 .03 (.03) 1.00 2.6 .70 2.57 .73 2.54 418,615
1994 1.00 .03 (.03) 1.00 3.3 .65 3.33 .70 3.28 491,737
1995 1.00 .05 (.05) 1.00 5.5 .62 5.34 .67 5.29 604,711
1996 1.00 .05 (.05) 1.00 5.1 .60 4.93 .65 4.88 729,500
1997 1.00 .05 (.05) 1.00 5.1 .59 4.96 .64 4.91 820,657
1998** 1.00 .03 (.03) 1.00 2.6 .58 5.09 .63 5.14 895,221
</TABLE>
* Ratios calculated as if no expenses were waived.
** Six months ended April 30, 1998 (unaudited). Total return is not
annualized and ratios are annualized for periods of less than 12 months.
INVESTMENT OBJECTIVE AND POLICIES
The Fund 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.
Emphasis is on a diversified portfolio having a dollar weighted average maturity
of 90 days or less or deemed to have such remaining maturity under rules of the
Securities and Exchange Commission. The portfolio consists of high-quality money
market instruments with a remaining maturity of 397 days or less including, but
not limited to: securities issued by the U.S. Government and its agencies and
instrumentalities ("U. S. Government Securities"); 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 members of the Federal Deposit Insurance
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Corporation, 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 within the two highest rating categories by a nationally
recognized statistical rating organization ("NRSRO"); corporate obligations and
asset-backed securities rated at the time of purchase within the two highest
rating categories assigned by at least two NRSROs; and repurchase agreements
collateralized by any of the above. In addition, the Fund may invest in variable
and floating rate obligations, some of which may have call features. The Fund
may also purchase securities on a when-issued or delayed delivery basis and
securities of other investment companies and may lend portfolio securities.
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.
There can be no guarantee that the Fund's objective will be achieved. The
investment objective of the Fund is fundamental and shareholder approval is
required to change the Fund's investment objective.
INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
The following is a description of the type of securities that the Fund may
invest in and the risks associated with those types of securities.
U.S. GOVERNMENT SECURITIES--Securities issued by the U.S. Government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued by U.S. 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 ("FNMA").
- - the Student Loan Marketing Association, Federal Home Loan Mortgage
Corporation ("FHLMC").
- - the Federal Farm Credit banks.
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.
STRIPPED TREASURY SECURITIES--The Fund may invest in U.S. Treasury securities
that have been stripped of their unmatured interest coupons (which typically
provide for interest payments semi-annually); interest coupons that have been
stripped from such U.S. Treasury securities; receipts and certificates for such
stripped debt obligations and stripped coupons (collectively, "Stripped Treasury
Securities"). Stripped Treasury Securities may include coupons that have been
stripped from U.S. Treasury bonds, which may be held through the Federal Reserve
Bank's book-entry system called "Separate Trading of Registered Interest and
Principal of Securities" ("STRIPS") or through a program entitled "Coupon Under
Book-Entry Safekeeping" ("CUBES").
Stripped Treasury Securities are sold at a deep discount because the buyer of
those securities receives only the right to receive a future fixed payment
(representing principal or interest) on the security and does not receive any
rights to periodic interest payments on the security.
ASSET-BACKED SECURITIES--Asset-backed securities represent direct or indirect
participation in, or are secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans,
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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 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 asset-backed securities,
usually monthly, and that principal may be prepaid at any time because the
underlying 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 the yield, while a prepayment 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 the
expected will reduce the 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.
REPURCHASE AGREEMENTS--The Fund may engage in repurchase agreement transactions
as long as the underlying securities are of the type that the Fund would be
permitted to purchase directly. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying 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 of the Trust, 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 Investment Company Act of 1940, as
amended (the "1940 Act"), the 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. The 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--The Fund may invest without limitation in securities
purchased on a when-issued or delayed delivery basis. Although the payment and
interest terms of these securities are established at the time the 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
the Fund to lock in a fixed price or yield on a security it intends to purchase.
However, when the Fund purchases a when-issued security, it immediately assumes
the risk of ownership, including the risk of price fluctuation until the
settlement date.
The greater the Fund's outstanding commitments for these securities, the greater
the exposure to potential fluctuations in the net asset value of the 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.
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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 rates or indices, such as the prime rate, and at specified intervals.
Interest rates on floating rate obligations vary with changes in an underlying
index while interest rates on variable rate obligations change at preset fixed
times. Certain of the floating or variable rate obligations that may be
purchased by the Fund may be callable by the issuer at certain dates during the
term of the obligations. The dates on which they may be called are set at the
time of issuance. The obligations have credit risks like other debt instruments
of the issuer, but because the issuer may call the obligations, the Fund is also
subject to the risk that the rates at which the Fund will be able to reinvest
such assets may be less than the rate paid on the floating or variable rate
obligation. Certain of the floating or variable rate obligations that may be
purchased by the Fund may also 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 permits the indebtedness thereunder to vary and provides for periodic
adjustments in the interest rate. The Fund will limit its purchase of floating
and variable rate obligations to those of the same quality as obligations it is
otherwise 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 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 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 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 proves to 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. Under such circumstances, the
obligations will be deemed to be inappropriate for, and will be eliminated from,
the Fund's portfolio.
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, investments will not exceed such Fund's
limitations on investments in illiquid securities.
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.
CANADIAN AND PROVINCIAL OBLIGATIONS--Generally, these obligations are unsecured,
discounted bills and notes issued in U.S. currency. These 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 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, the Fund may lend its portfolio
securities to brokers, dealers and other financial institutions who need to
borrow securities to complete certain transactions. In connection with such
loans, the Fund will receive collateral consisting of cash, U.S. Government
Securities or irrevocable letters of credit. Such collateral will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. The Fund can increase its income through the investment
of such collateral 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.
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MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The Board of Trustees sets and reviews policies regarding the
operation of the Trust, whereas the officers perform the daily functions of the
Trust.
INVESTMENT MANAGEMENT OF THE FUND
Under the terms of the Investment Advisory Agreement, NAS, Three Nationwide
Plaza, Columbus, Ohio 43215, manages the investment of the assets and supervises
the daily business affairs of the Trust. NAS and its predecessors have managed
investments since 1965, and as of September 30, 1998 had approximately $10
billion in assets under management. 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 to control NFS. Nationwide Corporation is also a holding company in
the Nationwide Insurance 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 Fund pays NAS a fee based on average daily net assets of the Fund at the
annual rate of .40% on average net assets up to $1 billion, .38% on average net
assets of $1 billion and more up to $2 billion, .36% of average net assets of $2
billion and more up to $5 billion, and .34% on average net assets of $5 billion
and more.
PORTFOLIO MANAGER: Patricia A. Mynster, Director--Securities Investments is the
portfolio manager of the Nationwide Money Market Fund. In July 1997, Ms. Mynster
began managing the Nationwide Investing Foundation ("NIF") Money Market Fund,
the predecessor of the Nationwide Money Market Fund, before the NIF Money Market
Fund was reorganized into the Fund in May 1998, 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--Securities Investments for the Nationwide Enterprise since
1991.
FUND ADMINISTRATION
Under the terms of the Fund Administration Agreement, the Adviser also provides
various administrative and accounting services, including daily valuation of the
Fund's shares, preparation of financial statements, tax returns and regulatory
reports. For these services, the Fund pays NAS an annual fee based on the Fund's
average daily net assets in the amount of .07% up to $250 million in assets,
0.05% on the next $750 million of assets, and 0.04% on assets of $1 billion and
more.
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan (the "Plan") under Rule 12b-1 of the
Investment Company Act of 1940 which permits the Fund to compensate the
Distributor, for expenses associated with distribution of Class R shares. Under
the Plan, the Fund would pay NAS compensation accrued daily and paid monthly at
a maximum rate of .15% of the Class R shares' average daily net assets. However,
distribution expenses paid by NAS may include the costs of printing and mailing
prospectuses and sales literature to prospective investors, advertising, and
compensation to sales personnel and broker-dealers. NAS has agreed to waive all
of the 12b-1 fee until further written notice.
ADMINISTRATION SERVICES PLAN
Under the terms of an Administrative Services Plan, the Fund may enter into
Servicing Agreements with entities who agree to provide certain administrative
support services in connection with the Class R shares of the Fund. Such
administrative support services include but are not limited to the following:
establishing and maintaining contractholder
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accounts, processing purchase and redemption transactions, arranging for bank
wires, performing contract sub-accounting, answering inquiries regarding the
contracts and the Fund, providing periodic statements showing the account
balance for beneficial owners or for plan participants or insurance company
separate accounts, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders as necessary and, with
respect to meetings of shareholders, collecting tabulating and forwarding to the
Trust executed proxies and obtaining such other information and performing such
other services as may reasonably be required.
As authorized by the Administrative Services Plan, the Trust has entered into a
Servicing Agreement, pursuant to which Nationwide Financial Services, Inc. has
agreed to provide certain administrative support services in connection with
Class R shares held beneficially by its customers. In consideration for
providing administrative support services, Nationwide Financial Services, Inc.
and other entities with which the Trust may enter into Servicing Agreements,
including NAS, will receive a fee, computed at the annual rate of up to 0.25% of
the average daily net assets of the Class R shares held by customers of
Nationwide Life Insurance Company or such other entity.
OTHER SERVICES
The Distributor, NAS is located at Three Nationwide Plaza, Columbus, Ohio 43215.
The Transfer and Dividend Disbursing Agent, Nationwide Investor Services, Inc.
("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215, serves as transfer agent
and dividend disbursing agent for the Trust. The Fund pays NISI a fee for such
services at the annual rate of 0.01% of the Fund's average daily net assets
attributable to the Class R shares. NISI is a wholly owned subsidiary of NAS.
INVESTMENT IN FUND SHARES
Insurance company accounts may purchase Class R shares using purchase payments
received on Contracts issued to qualified plans. These Accounts are funded by
Class R shares of the Fund. Programs offered to qualified plans through
broker-dealers or the Nationwide Trust Company may also purchase Class R shares
of the Fund. There is no sales charge, and all shares are sold at net asset
value. Qualified plan - or Contract-directed purchases, exchanges and
redemptions are handled in accordance with terms of the qualified plans or
Contracts, subject to Fund restrictions contained herein. Since the qualified
plans or Contracts may have different provisions with respect to the timing and
method of purchases, exchanges and redemptions, beneficial owners of the Class R
shares should contact their designated financial intermediary directly for
details concerning transactions.
Class R shares are currently sold only to Qualified Plan Variable Account of
Nationwide Life Insurance Company. The address for this entity is One Nationwide
Plaza, Columbus, Ohio 43215.
All investments in the Fund are credited to the shareholder's account in the
form of full and fractional shares of the Fund (rounded to the nearest 1/1000 of
a share). The Trust does not issue share certificates.
SHARE REDEMPTION
Redemptions are processed on any day on which the Trust is open for business and
are effected at net asset value next determined after the redemption orders are
received by the Trust's transfer agent, NISI. The net asset value per share for
the 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 of the Fund to materially
affect the net asset value of the Fund. The Trust will not compute net asset
value on customary national business holidays, including the following:
Christmas Day, New Year's Day, Martin Luther King Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, and Thanksgiving Day. The net
asset value per share of a class is calculated by adding the value of all
securities and other assets in the Fund's portfolio allocable to such class,
Fund, deducting any liabilities, allocable to such class and any other
liabilities charged directly to that class and dividing by the number of shares
outstanding in the class.
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In determining net asset value, portfolio securities are valued at amortized
cost, which approximates market value, in accordance with Rule 2a-7 of the 1940
Act. Expenses and fees are accrued daily.
INCOME DIVIDENDS AND CAPITAL GAINS
Substantially all of the net investment income, if any, of the Fund will be
declared daily and paid as dividends monthly in the form of additional shares of
the Fund. In those years in which sales of the Fund's portfolio securities
result in net realized capital gains, these gains will be declared and caused to
be paid to shareholders in December.
TAX STATUS
The Fund 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 the 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 the 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. The Fund intends to make
distributions in sufficient amounts to avoid the imposition of this excise tax.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES - The Trust presently offers fifteen series of shares of
beneficial interest, without par value, one of which is the Fund. The Fund is
offered in two separate classes: Class R shares and Prime Shares, and you have
an interest only in the assets of the Fund which you own. Shares of a particular
class are equal in all respects to the other shares of that class. In the event
of liquidation of the Fund, shares of the same class will share pro rata in the
distribution of the net assets of the Fund with all other shares of that class.
All shares are without par value, and when issued and paid for, are fully paid
and nonassessable by the Trust. Shares may be exchanged or converted as
described above but will have no preference, conversion, exchange or preemptive
rights.
VOTING RIGHTS - Shareholders of each class of shares have one vote for each
share held and a proportionate fractional vote for any proportional share held.
An annual or special meeting of shareholders to conduct necessary business is
not required in the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to amend the Declaration of Trust, the
Investment Advisory Agreement, fundamental investment objectives, investment
policies, investment restrictions, to elect and remove Trustees, to reorganize
the Trust or any series or class thereof and to act upon certain other business
matters. With regard to termination, sale of assets, or change of investment
objectives, policies and restrictions or the approval of an Investment Advisory
Agreement, the right to vote is limited to the holders of shares of the
particular fund affected by the proposal. In addition, holders of Class R shares
will vote as a class and not with holders of any other class with respect to any
action regarding the Distribution Plans. To the extent that such a meeting is
not required, the Trust does not intend to have an annual or special meeting of
shareholders.
The Trust has represented to the commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefore from shareholders holding not
less than 10% of outstanding votes of the Trust and the Trust will assist in
communicating with other shareholders as required by Section 16(c) of the 1940
Act. At such meeting, a quorum of shareholders (constituting a majority of votes
attributable to all outstanding shares of the Trust), by majority vote, has the
power to remove one or more Trustees.
SHAREHOLDER INQUIRIES - All inquiries regarding the Fund should be directed to
the Trust at the telephone number or address shown on the cover page of this
Prospectus.
PERFORMANCE ADVERTISING FOR THE FUND
The Fund may use historical performance in advertisements, sales literature,
semi-annual and annual reports and the
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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 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 the 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. Standardized yield and total
return quotations will be computed separately for Class R shares and Prime
Shares. Because of differences in the fees and/or expenses borne by Class R
shares and Prime Shares, the net yields and total returns on each class can be
expected, at any given time, to differ from class to class for the same period.
The Fund 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, 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 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 then multiplying the base
period return by (365/7). For proposes of this calculation, the net change in
the account value reflects the value of additional shares purchased with
dividends from the original share, and dividends declared on both the original
share and any such additional shares. The Fund's effective yield represents a
compounding on an annualized basis of the current yield quotations.
RANKINGS AND RATINGS IN FINANCIAL PUBLICATIONS
The Fund may report its 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 Fund 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.
YEAR 2000
NAS has developed a plan to address issues related to Year 2000. The problem
relates to many existing computer programs using only two digits to identify a
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. NAS has been evaluating its exposure to the Year 2000 issue through a
review of all its operating systems as well as dependencies on the systems of
others since 1996. NAS expects all system changes and replacements needed to
achieve Year 2000 compliance to be completed by the end of 1998. Compliance
testing will be completed in the first quarter of 1999.
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CONTENTS
Summary of Expenses 2
Financial Highlights 3
Investment Objective and Policies 3
Investment Techniques, Considerations and Risk Factors 4
Management of the Trust 7
Investment in Fund Shares 8
Share Redemption 8
Income Dividends and Capital Gains 9
Tax Status 9
Additional Information 9
Performance Advertising for the Fund 9
Ranking and Ratings in Financial Publications 10
Year 2000 10
INVESTMENT ADVISER AND UNDERWRITER
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Nationwide Investors Services, Inc.
Box 1492
Three Nationwide Plaza
Columbus, Ohio 43216
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Druen, Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
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PART B:
STATEMENT OF ADDITIONAL INFORMATION __________, 1998
NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE 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 May 11, 1998 for the Nationwide Family of Funds and the
Prospectus dated _________, 1998 for Class R shares of the Nationwide Money
Market Fund. The prospectuses may be obtained from Nationwide Advisory Services,
Inc. ("NAS"), P.O. Box 1492, Three Nationwide Plaza, Columbus, Ohio 43216.
Terms not defined in this Statement of Additional Information have the
meanings assigned to them in the Prospectus.
TABLE OF CONTENTS
General Information and History 1
Investment Objectives and Policies 1
Investment Restrictions 20
Trustees and Officers of the Trust 21
Investment Advisory and Other Services 23
Brokerage Allocation 28
Calculation of Net Asset Value of the Money Market Fund 29
Calculating Money Market Fund Yield 30
Calculating Yield and Total Return--
Non-Money Market Funds 30
Nonstandard Returns 31
Additional Information 32
Additional General Tax Information 32
Major Shareholders 38
Financial Statements 38
Appendix 39
GENERAL INFORMATION AND HISTORY
Nationwide Investing Foundation III ("NIF III") is an open-end management
investment company, created under the laws of Ohio by a Declaration of Trust
dated as of 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 policies and types of permitted investments described
here may be changed
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without approval by the shareholders. There is no guarantee that any of the
Funds' investment objectives will be realized.
DEBT OBLIGATIONS. Each of the Funds 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-grade 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 the 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.
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 Fund's, 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;
-- adjustable and variable rate instruments including callable notes;
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-- short-term (maturing 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 Nationwide Bond Fund and the
Nationwide Money Market 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 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. The market for privately issued
mortgage and asset-backed securities is smaller and less liquid than the market
for government sponsored mortgage-backed securities.
Asset-backed securities have structural characteristics similar to
mortgage-back 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 the 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
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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.
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 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. Each of the Bond Funds (other than
the Tax-Free Income Fund) may invest in 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 an underlying 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. 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.
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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 a 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 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 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 or
prices of such securities may be higher or lower than the yields or prices
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 Fund's 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 (except the Tax-Free Income Fund) may
lend its portfolio securities to brokers, dealers and other financial
institutions,
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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 100% 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, the Trust'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. The Money Market Fund and the Bond Fund may invest in
Canadian and Provincial obligations. 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
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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 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 indirectly by purchasing depository
receipts, including American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs") or 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.
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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 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 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.
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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 on or after August 8, 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 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 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 AMT bonds when the supply of municipal bonds is
tight.
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.
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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.
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 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
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<PAGE> 26
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. At this time
none of the Funds intends to invest more than 5% of its net assets in illiquid
securities. 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.
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.
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The SEC has adopted Rule 144A under the Securities Act 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,
NAS has determined such securities to be liquid because such securities are
eligible for resale pursuant to Rule 144A and are readily saleable. To the
extent that qualified institutional buyers may become uninterested in purchasing
Rule 144A securities, a Fund's level of illiquidity may increase.
A Stock 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). In addition, a Fund may borrow up to an additional 5% of its
total assets from banks for temporary or emergency purposes. Each 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 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
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<PAGE> 28
index. At this time none of the Funds intends to invest more than 5% of its net
assets in derivative instruments.
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 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".
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<PAGE> 29
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 or
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 or
purchase, as the case may be, 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.
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
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<PAGE> 30
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.
Transactions using OTC options expose a Fund to certain risks. 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 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.
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. Index options (or options on securities indices) are similar
in many respects to options on securities except that an index option gives the
holder the right to receive, upon exercise, cash instead of securities, if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call , or less than, in the case of a put, the exercise
price of the option. Price movements in securities in which a Fund owns or
intends to purchase probably will not correlate perfectly with movements in the
level of an index and, therefore, a Fund bears the risk of a loss on an index
option that is not completely offset by movements in the price of such
securities. Because index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific securities, cannot provide in advance for, or cover, its
potential settlement obligations acquiring and holding the underlying
securities. A Fund will be required to segregate assets and/or provide an
initial margin to cover index options that would require it to pay cash upon
exercise.
The writing and purchasing of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with
15
<PAGE> 31
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of attempted
hedging.
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.
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
16
<PAGE> 32
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, 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.
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<PAGE> 33
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.
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
18
<PAGE> 34
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.
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 their 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.
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<PAGE> 35
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.
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 not borrow money or issue senior securities, except that each 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.
- 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, except that each 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).
- 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, except that each Fund
may purchase or hold debt securities and lend portfolio securities in
accordance with its investment objective and policies, make time
deposits with financial institutions and enter into repurchase
agreements.
- May not purchase the securities of any issuer if, as a result, 25% or
more than (taken at current value) of the Fund's total assets would be
invested in the securities of issuers, the principal activities of
which are in the same industry. This limitation does not apply to
securities issued by the U.S. Government or its agencies or
instrumentalities and obligations issued by
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<PAGE> 36
state, county or municipal governments. The following industries are
considered separate industries for purposes of this investment
restriction: electric, natural gas distribution, natural gas pipeline,
combined electric and natural gas, and telephone utilities, captive
borrowing conduit, equipment finance, premium finance, leasing finance,
consumer finance and other finance.
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 (a) in
connection with a merger, consolidation, acquisition, reorganization or
offer of exchange, or (b) to the extent permitted by the 1940 Act or
any rules or regulations thereunder or pursuant to any exemptions
therefrom.
- - 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, their ages and their affiliations are:
JOHN C. BRYANT, Trustee*, Age 62
411 Oak St., Suite 306, Cincinnati, Ohio 45219
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 58
North Walnut and West College Avenue, Westerville, Ohio
Dr. DeVore is President of Otterbein College.
SUE A. DOODY, Trustee, Age 64
169 East Beck Street, Columbus, Ohio
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<PAGE> 37
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 71
1397 Haddon Road, Columbus, Ohio
Mr. Duncan is a member of the Ohio Elections Commission. He was formerly
Secretary to the Board of Trustees of The Ohio State University. Prior to that,
he was Vice President and General Counsel of The Ohio State University.
CHARLES L. FUELLGRAF, JR., Trustee*+, Age 67
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 65
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 43
55 E. State Street, Columbus, Ohio
Mr. Kridler is President of the Columbus Association of Performing Arts.
DIMON R. MCFERSON, Trustee*+, Age 61
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise.
NANCY C. THOMAS, Trustee+, Age 64
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 66
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 50
11495 Sunset Hills Rd - Suite #210, Reston, Virginia
Mr. Wetmore is the Managing Director of The Updata Capital, a venture capital
firm.
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.
ELIZABETH A. DAVIN, Secretary
Three Nationwide Plaza, Columbus, Ohio
Ms. Davin is Counsel of Druen, Dietrich, Reynolds & Koogler, the Trust's legal
counsel.
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<PAGE> 38
+ 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 Bylaws.
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. NAS reimburses the Trust for fees and expenses paid to
Trustees who are interested persons of the Trust. The Compensation Table below
sets forth the total compensation to be paid to the Trustees of the Trust,
before reimbursement, for the fiscal period ended October 31, 1998. In addition,
the table sets forth the 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 ended October 31, 1998. Trust
officers receive no compensation from the Trust in their capacity as officers.
<TABLE>
<CAPTION>
COMPENSATION TABLE
PENSION
RETIREMENT
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 $ 10,000 --0-- --0-- $21,000
C. Brent DeVore, Trustee 10,000 --0-- --0-- 12,250
Sue A. Doody, Trustee 10,000 --0-- --0-- 21,000
Robert M Duncan, Trustee 10,000 --0-- --0-- 21,000
Charles L. Fuellgraf, Jr, Trustee 10,000 --0-- --0-- 10,000
Thomas J. Kerr, IV, Trustee 10,000 --0-- --0-- 21,000
Douglas F. Kridler, Trustee 10,000 --0-- --0-- 21,000
Dimon R. McFerson, Trustee --0-- --0-- --0-- --0--
Nancy C. Thomas, Trustee 10,000 --0-- --0-- 10,000
Harold W. Weihl, Trustee 10,000 --0-- --0-- 10,000
David C. Wetmore, Trustee 10,000 --0-- --0-- 12,250
</TABLE>
**The Fund Complex includes trusts comprised of thirty five investment company
funds or series.
INVESTMENT ADVISORY AND OTHER SERVICES
Under the terms of the Investment Advisory Agreement dated May 9, 1998,
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
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<PAGE> 39
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 as to a Fund without penalty by vote of a
majority of the outstanding voting securities of that Fund, or by either party,
on not less than 60 days written notice. The Agreement further provides that the
Adviser may render similar 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 under the Trust's Fund
Administration Agreement; 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.
For services provided under the Investment Management Agreement, NAS receives an
annual fee paid monthly based on average daily net assets of each 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%
Bond, and Nationwide Long-Term U.S. $1 billion up to $2 billion .45%
Government Bond Funds $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>
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<PAGE> 40
During the six months ended April 30, 1998 and the fiscal years ended October
31, 1997 and 1996, NAS received the following fees for investment advisory
services:
<TABLE>
<CAPTION>
Acquired April 30, Years Ended October 31,
Funds Funds* 1998 1997 1996
----- ------ ---- ---- ----
<S> <C> <C> <C> <C>
Mid Cap Growth Growth of FHIT $ 31,864 $ 63,883 $ 54,053
Growth Growth of NIF 2,180,824 3,750,599 3,212,196
Nationwide Fund Nationwide Fund of NIF 4,144,558 5,938,011 4,425,921
Bond Bond of NIF 316,306 629,068 663,545
Tax-Free Tax-Free of NIF II 880,426 1,810,070 1,855,962
and Municipal Bond of FHIT
LT U.S. Govt. Government of FHIT 148,760 343,259 414,415
Intermediate U.S. Govt. U.S. Govt. of NIF II 143,259 256,016 255,149
Money Market** Money Market of NIF 2,122,317 3,519,727 2,969,392
and Cash Reserve of FHIT
* As of May 9, 1998, the Funds acquired all of the assets of one or more series
of Nationwide Investing Foundation ("NIF"), Nationwide Investing Foundation II
("NIF II") and Financial Horizons Investment Trust ("FHIT") (collectively, the
"Acquired Funds"), as described above, in exchange for the assumption of the
stated liabilities of the Acquired Funds and a number of full and fractional
Class D shares of the applicable Fund (the Money Market Fund issued shares
without class designation) having an aggregate net asset value equal to the net
assets of the Acquired Funds as applicable (the "Reorganization").
** Net of waivers of $221,174, $389,150 and $328,076 for the six months ended
April 30, 1998, and the fiscal year ended October 31, 1997, and 1996,
respectively.
</TABLE>
DISTRIBUTOR
NAS serves as agent for each of the Funds in the distribution of its Shares
pursuant to an Underwriting Agreement dated as of May 9, 1998 (the "Underwriting
Agreement"). Unless otherwise terminated, the Underwriting Agreement will
continue in effect until May 9, 2000, and year to year thereafter for successive
annual periods, if, as to each Fund, such continuance is approved at least
annually by (i) the Trust's Board of Trustees or by the vote of a majority of
the outstanding shares of that Fund, and (ii) the vote of a majority of the
Trustees of the Trust who are not parties to the Underwriting Agreement or
interested persons (as defined in the 1940 Act) of any party to the Underwriting
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Underwriting Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
In its capacity as Distributor, NAS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. NAS receives no compensation under the
Underwriting Agreement with the Trust, but may retain all or a portion of the
sales charge imposed upon sales of Shares of each of the Funds.
During the six months ended April 30, 1998 and the fiscal years ended October
31, 1997 and 1996, NAS received the following commissions from the sale of
shares of the Funds:
<TABLE>
<CAPTION>
Acquired April 30, Years Ended October 31,
Funds Funds* 1998 1997 1996
----- ----- ---- ---- ----
<S> <S> <C> <C> <C>
Growth Growth of NIF $ 680,300 $ 873,750 $1,029,727
Nationwide Fund Nationwide Fund of NIF 1,944,378 2,037,896 1,089,371
Bond Bond of NIF 77,167 123,036 202,206
</TABLE>
* As of May 9, 1998, the Funds acquired all of the assets of one or more series
of Nationwide Investing Foundation ("NIF"), Nationwide Investing Foundation II
("NIF II") and Financial Horizons Investment Trust ("FHIT") (collectively, the
"Acquired Funds"), as described above, in exchange for the assumption of the
stated liabilities of the Acquired Funds and a number of full and fractional
Class D shares of the applicable Fund (the Money Market Fund issued shares
without class designation) having an aggregate net asset value equal to the net
assets of the Acquired Funds as applicable (the "Reorganization").
25
<PAGE> 41
From such fees, NAS paid to its own representatives $1,625,171, $1,699,148, and
$1,273,701.
DISTRIBUTION PLAN
The Funds have adopted a Distribution Plan (the "Plan") under Rule 12b-1 of the
1940 Act which permits the Funds to compensate NAS as such Funds' Distributor,
for expenses associated with distribution of shares. Although actual
distribution expenses may be more or less, under the Plan the Funds shall pay an
annual fee in amounts not exceeding a maximum amount of .25% of the average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B shares of the Stock Funds, and .85% of the average daily net assets of
Class B shares of the Bond Funds and .15% of the average net assets of Class R
shares of the Money Market Fund to NAS. NAS has agreed with the Trust to waive
the .15% 12b-1 fee for Class R shares of the Money Market Fund until further
notice to shareholders. 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.
During the six months ended April 30, 1998 and fiscal years ended October 31,
1997 and 1996, NAS received the following distribution fees:
<TABLE>
<CAPTION>
Acquired April 30, Years Ended October 31,
Funds Funds* 1998 1997 1996
----- ------ ---- ---- ----
<S> <C> <C> <C>
Mid Cap Growth Growth of FHIT $ -- $ 1,012 $ 41,580
Tax-Free Tax-Free of NIF II 254,952 523,299 642,632
and Municipal Bond of FHIT
Bond Bond of NIF -- -- --
LT U.S. Govt. Govt. Bond of FHIT -- -- --
Intermediate U.S. Govt. U.S. Govt. of NIF II 44,076 78,778 78,507
</TABLE>
NAS also receives the proceeds of contingent deferred sales charges imposed on
certain redemptions of shares. During the six months ended April 30, 1998 and
fiscal years ended October 31, 1997 and 1996, NAS received the following
amounts.
<TABLE>
<CAPTION>
Acquired April 30, Years Ended October 31,
Funds Funds* 1998 1997 1996
----- ------ ---- ---- ----
<S> <C> <C> <C> <C>
Mid Cap Growth Growth of FHIT $ 1,837 $ 10,832 $ 12,788
Tax-Free Tax-Free of NIF II 63,003 202,973 287,599
and Municipal Bond of FHIT
Bond Bond of NIF -- -- --
LT U.S. Govt. Govt. Bond of FHIT 8,668 23,417 36,566
Intermediate U.S. Govt. U.S. Govt. of NIF II 12,794 31,232 58,918
</TABLE>
* As of May 9, 1998, the Funds acquired all of the assets of one or more series
of Nationwide Investing Foundation ("NIF"), Nationwide Investing Foundation II
("NIF II") and Financial Horizons Investment Trust ("FHIT") (collectively, the
"Acquired Funds"), as described above, in exchange for the assumption of the
stated liabilities of the Acquired Funds and a number of full and fractional
Class D shares of the applicable Fund (the Money Market Fund issued shares
without class designation) having an aggregate net asset value equal to the net
assets of the Acquired Funds as applicable (the "Reorganization").
As required by Rule 12b-1, the Plan was approved by the Board of Trustees,
including a majority of the Trustees who are not interested persons of a 12b-1
Fund and who have no direct or indirect financial interest in the operation of
the Plan (the "Independent Trustees"). The Plan was approved by the Board of
Trustees on March 5, 1998 and amended as of _______, 1998. The Plan may be
terminated as to the Funds by vote of a majority of the Independent Trustees, or
by vote of majority of the outstanding Shares of that Fund. Any change in the
Plan that would materially increase the distribution cost to the Funds requires
Shareholder approval. The Trustees review quarterly a written report of such
costs and the purposes for which such costs have been incurred. The Plan may be
amended by the vote of the Trustees including a majority of Independent
Trustees, cast in person at a meeting called for that purpose. For so long as
the Plan is in effect, selection and nomination of those Trustees who are not
interested persons of the Trust shall be committed to the discretion of such
disinterested persons. All agreements with any person relating to the
implementation of the Plan may be terminated at any time on 60 days' written
26
<PAGE> 42
notice without payment of any penalty, by vote of a majority of the Independent
Trustees or by a vote of the majority of the outstanding Shares of the Fund. The
Plan will continue in effect for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees, and (ii) by a vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose. The Board of
Trustees has a duty to request and evaluate such information as may be
reasonably necessary for them to make an informed determination of whether the
Plan should be implemented or continued. In addition the Trustees in approving
the Plan must determine that there is a reasonable likelihood that the Plan will
benefit the Fund and its Shareholders.
The Board of Trustees of the Trust believes the Plan is in the best
interests of the Funds since it encourages Fund growth and maintenance of Fund
assets. As the Funds grow in size, certain expenses, and therefore total
expenses per Share, may be reduced and overall performance per Share may be
improved.
NAS may enter into, from time to time, Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of the Fund's Shares including, but not limited
to, those discussed above.
OTHER SERVICES FOR ALL THE FUNDS
Under a separate Fund Administration Agreement dated May 9, 1998, 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 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.
Under the terms of an Administrative Services Plan, the Money Market Fund may
enter into Servicing Agreements with entities who agree to provide certain
administrative support services in connection with the Class R shares of the
Fund. Such administrative support services include but are not limited to the
following: establishing and maintaining contractholder accounts, processing
purchase and redemption transactions, arranging for bank wires, performing
contract sub-accounting, answering inquiries regarding the contracts and the
Fund, providing periodic statements showing the account balance for beneficial
owners or for plan participants or insurance company separate accounts,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders as necessary and, with respect to meetings of
shareholders, collecting tabulating and forwarding to the Trust executed proxies
and obtaining such other information and performing such other services as may
reasonably be required.
As authorized by the Administrative Services Plan, the Trust has entered into a
Servicing Agreement, pursuant to which Nationwide Financial Services Inc. has
agreed to provide certain administrative support services in connection with
Class R shares held beneficially by its customers. In consideration for
providing administrative support services, Nationwide Financial Services, Inc.
and other entities with which the Trust may enter into Servicing Agreements,
including NAS, will receive a fee, computed at the annual rate of up to 0.25% of
the average daily net assets of the Class R shares held by customers of
Nationwide Life Insurance Company or such other entity.
Nationwide Investors Services, Inc. ("NISI") is the Transfer and Dividend
Disbursing Agent for all Nationwide Funds. NISI, a wholly-owned subsidiary of
NAS will receive fees for transfer agent services in the following amounts: $16
per Stock Fund account per annum; $18 per Bond Fund account per annum; $27 per
Money Market Fund Prime class
27
<PAGE> 43
account per annum; and a fee at the annual rate of .01% of the average daily net
assets attributable to Class R shares of the Money Market 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 Custody Agreement. Fifth Third performs no managerial or policy making
functions for the Funds.
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, OH 43215, serves as the
independent auditors for the Trust.
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 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 NAS, are of significant
value to NAS, but it is not possible to place an exact dollar value thereon. NAS
does not believe that the receipt of such services and information tends to
reduce materially NAS'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.
During the six months ended April 30, 1998 and fiscal years ended October 31,
1997 and 1996, the following brokerage commissions were paid by the Funds, all
to firms rendering statistical services as described above:
<TABLE>
<CAPTION>
Acquired April 30, Years Ended October 31,
Funds Funds* 1998 1997 1996
----- ------ ---- ---- ----
<S> <C> <C> <C> <C>
Mid Cap Growth Growth of FHIT $ 5,110 $ 8,480 $ 1,928
Growth Growth of NIF 304,449 742,579 376,916
Nationwide Fund Nationwide Fund of NIF 325,645 664,395 436,679
</TABLE>
* As of May 9, 1998, the Funds acquired all of the assets of one or more series
of Nationwide Investing Foundation ("NIF"), Nationwide Investing Foundation II
("NIF II") and Financial Horizons Investment Trust ("FHIT") (collectively, the
"Acquired Funds"), as described above, in exchange for the assumption of the
stated liabilities of the Acquired Funds and a number of full and fractional
Class D shares of the applicable Fund (the Money Market Fund issued shares
without class designation) having an aggregate net asset value equal to the net
assets of the Acquired Funds as applicable (the "Reorganization").
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
28
<PAGE> 44
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 Money Market Fund yield quotations, subject to Rule 482 under the
Securities Act, shall consist of a seven calendar day historical yield for each
class, 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 hypothetical pre-existing account in each class
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 yields for each class will
differ due to different fees and expenses charged on the class. As of April 30,
1998, the seven day current and effective yields for the Money Market Fund were
5.04% and 5.16%, respectively.
The Money Market Fund's yields 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 for each class 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.
29
<PAGE> 45
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. 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. In calculating the standard total returns for Class A and D
shares, the current maximum applicable sales charge is deducted from the initial
investment. For Class B shares, the payment of the applicable CDSC is applied to
the investment result for the period shown. 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.
Standardized yield and total return quotations will be compared separately for
Class A, B, and D shares. Because of differences in fees and/or expenses borne
by Class A, B, and D shares the net yields and total returns on Class A, B and D
shares can be expected, at any given time, to differ from class to class for the
same period.
The uniformly calculated average annual (compound) total returns for Class D
shares for the periods ended April 30, 1998 were as follows:
<TABLE>
<CAPTION>
Funds 1 Year 5 Year 10 Year or Life
- ----- ------ ------ ---------------
<S> <C> <C> <C>
Mid Cap Growth 44.08% 19.71% 14.68%
Growth 43.19 19.92 15.35
Nationwide Fund 48.86 23.69 18.81
Bond 11.14 6.25 8.54
Tax-Free 8.85 5.39 7.60
LT U.S. Govt. 10.93 6.46 9.01*
Intermediate U.S. Govt. 10.19 6.54 7.06**
* The life of the funds is 9.3 years.
** The life of the fund is 6.2 years.
</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 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 years in the period, and unlike average annual
(compound) total return, does not reflect compounding.
30
<PAGE> 46
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.
The following are the yields for the 30-day period ended April 30, 1998:
<TABLE>
<CAPTION>
Funds Yield
- ----- -----
<S> <C>
Bond 5.53%
Tax-Free 4.20
LT U.S. Govt. 5.81
Intermediate U.S. Govt. 5.53
</TABLE>
The Tax-Free Income Fund may also advertise a tax equivalent yield computed by
dividing that portion of the uniformly calculated yield which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the yield that is not tax-exempt. Assuming a tax rate of 28%, the tax
equivalent yield for Class D shares of the Tax-Free Income Fund for the 30-day
period ended April 30, 1998 was 5.83%.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES--The Trust presently offers fifteen series of shares of
beneficial interest, without par value; eight of these series are the Funds. The
shares of each of the Funds, other than the Money Market Fund, are offered in
three separate classes: Class A, Class B and Class D shares, and in two separate
classes, Prime and Class R in the Money Market Fund and you have an interest
only in the assets of the shares of the Fund which you own. Shares of a
particular class are equal in all respects to the other shares of that class. In
the event of liquidation of a Fund, shares of the same class will share pro rata
in the distribution of the net assets of such fund with all other shares of that
class. All shares are without par value and when issued and paid for, are fully
paid and nonassessable by the Trust. Shares may be exchanged or converted as
described in the Prospectus but will have no other preference, conversion,
exchange or preemptive rights.
VOTING RIGHTS--Shareholders of each class of shares have one vote for each share
held and a proportionate fractional vote for any fractional share held. An
annual or special meeting of shareholders to conduct necessary business is not
required by the Declaration of Trust, the 1940 Act or other authority except,
under certain circumstances, to amend the Declaration of Trust, the Investment
Advisory Agreement, fundamental investment objectives, investment policies,
investment restrictions, to elect and remove Trustees, to reorganize the Trust
or any series or class thereof and to act upon certain other business matters.
In regard to termination, sale of assets, the change of investment objectives,
policies and restrictions or the approval of an Investment Advisory Agreement,
the right to vote is limited to the holders of shares of the particular class
fund affected by the proposal. In addition, holders of Class A shares, Class B
shares, or Class R shares will vote as a class and not with holders of any other
class with respect to the approval of the Distribution Plan.
To the extent that such a meeting is not required, the Trust does not intend to
have an annual or special meeting of shareholders. The Trust has represented to
the
31
<PAGE> 47
Commission that the Trustees will call a special meeting of shareholders for
purposes of considering the removal of one or more Trustees upon written request
therefor from shareholders holding not less than 10% of the outstanding votes of
the Trust and the Trust will assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act. At such meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Trust), by majority vote, has the power to remove one or more
Trustees.
ADDITIONAL GENERAL TAX INFORMATION
Each of the fifteen 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 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; and 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. 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
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 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 long-term capital gain over
net short-term capital loss, if any, is taxable to shareholders as long-term
capital gain 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.
32
<PAGE> 48
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).
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 long-term capital gains is more than one year.
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.
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
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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 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
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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 or her 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 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 long-term capital gains,
the Tax-Free Income Fund intends to distribute any realized 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). Any net short-term capital gains are
taxed at ordinary income tax rates. If a
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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.
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 its 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%
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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.
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.
MAJOR SHAREHOLDERS
As of October 30, 1998, Nationwide Life Insurance Company and its affiliates
directly or indirectly owned, controlled or held power to vote 28.1% of the
outstanding shares of the Growth Fund, 34.4% of the Nationwide Fund, 20.4% of
the Bond Fund, 22.4% of the Intermediate Term U.S. Government Bond Fund and
47.4% of the Money Market Fund.
FINANCIAL STATEMENTS
The Unaudited Financial Statements of the Fund for the period ended April 30,
1998 are incorporated by reference to the Semi-Annual Report.
The Report of Independent Auditors and Financial Statements of the Funds for the
period ended October 31, 1997 are incorporated by reference to the Annual
Report.
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Copies of the Semi-Annual and Annual Reports are available without charge upon
request by writing the Trust or by calling 1-800-848-0920.
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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 such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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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.
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.
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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.
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.
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FITCH/IBCA, 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/IBCA'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/IBCA 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/IBCA ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch/IBCA believes to
be reliable. Fitch/IBCA does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds rated in
the 'AAA' and 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of the issuers is
generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
Fitch/IBCA 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/IBCA'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.
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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 capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
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
DD & extremely speculative, and should be valued on the basis of their
D ultimate recovery value in liquidation or reorganization of 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, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.
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The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of 'BBB-' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.
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
BBB considered sufficient for prudent investment.
BBB- Considerable variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according to
industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent Changes in the
rating within this category or into a higher or lower
rating grade.
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal,
interest or preferred dividends. Protection factors are
narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company
developments.
DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
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.
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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.
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.
45
<PAGE> 61
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.
FITCH/IBCA, INC. SHORT-TERM RATINGS
Fitch/IBCA 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.
F1+ Exceptionally strong credit quality. Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 Very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less
in degree than issues rated 'F1+'.
F2 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 'F1+' and
'F1' ratings.
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<PAGE> 62
F3 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.
B Speculative. 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.
C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely reliant upon
a sustained, favorable business and economic environment.
D Default. Issues assigned this rating are in actual or
imminent payment default.
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.
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.
47
<PAGE> 63
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 bas is.
TBW-2 the second highest category, while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
TBW-3 the lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 the lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
BOND RATINGS
Bonds rated AA or AAA by Duff & Phelps 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 atttributes and are considered "upper medium"
grade obligations.
Standard & Poor'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.
48
<PAGE> 64
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.
49
<PAGE> 65
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
(a) Financial Statements:
(1) Financial statements and schedules included in the Prospectus
for the Funds (except the S&P 500 Index Fund, the Morley
Capital Accumulation Fund, the Prestige Large Cap Value Fund,
the Prestige Large Cap Growth Fund, the Prestige Small Cap
Fund, the Prestige International Fund and the Prestige
Balanced Fund) (Part A):
Financial Highlights
(2) Financial statements and schedules included in Part B:
Those schedules required by Item 23 to be included in
Part B have been incorporated therein by reference to
the Prospectus (Part A).
(i) Audited Financials: (except the S&P 500 Index Fund,
the Morley Capital Accumulation Fund, the Prestige
Large Cap Value Fund, the Prestige Large Cap Growth
Fund, the Prestige Small Cap Fund, the Prestige
International Fund and the Prestige Balanced Fund):
Audited financial statements for the Growth Fund of
FHIT, Growth Fund of NIF, Nationwide Fund of NIF,
Bond Fund of NIF, Tax-Free Fund of NIF II, Government
Bond Fund of FHIT, U.S. Government Fund of NIF II,
and Money Market Fund of NIF are hereby incorporated
by reference to Forms N-30D filed by Financial
Horizons Investment Trust, Nationwide Investing
Foundation and Nationwide Investing Foundation II on
January 6, 1998.
(ii) Audited Financials for the Local Fund Shares of S&P
500 Index Fund previously filed with Trust's
Registration Statement dated January 2, 1998 and
hereby incorporated by reference.
(iii) Unaudited Financials (except the S&P 500 Index Fund,
the Morley Capital Accumulation Fund, the Prestige
Large Cap Value Fund, the Prestige Large Cap Growth
Fund, the Prestige Small Cap Fund, the Prestige
International Fund and the Prestige Balanced Fund)
are hereby incorporated by reference to Forms N-30D
filed by Financial Horizons Investment Trust,
Nationwide Investing Foundation and Nationwide
Investing Foundation II on July 9, 1998.
(b) Exhibits
(1) Amended Declaration of Trust previously filed with Trust's
Registration Statement on September 3, 1998, and hereby
incorporated by reference.
(2) Amended Bylaws previously filed with the Trust's Registration
Statement on August 7, 1998, and is hereby incorporated by
reference.
(3) Not Applicable.
(4) 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.
(5) (a) Investment Advisory Agreement (except for the Morley
Capital Accumulation Fund) previously filed with the
Trust's Registration Statement on August 7, 1998, and
is hereby incorporated by reference.
(b) Proposed Investment Advisory Agreement for the Morley
Capital Accumulation previously filed with the
Trust's Registration Statement on August 7, 1998, and
is hereby incorporated by reference.
(c) Subadvisory Agreements.
(1) Subadvisory Agreement with the Dreyfus
Corporation for S & P 500 Index fund
previously file in the Trust's original
Registration Statement on November 18, 1997,
and is hereby incorporated by reference.
(2) Proposed Subadvisory Agreement for the
Prestige Large Cap Value Fund, the Prestige
Large Cap Growth Fund, the Prestige Small
Cap Fund, the Prestige International Fund,
and the Prestige Balanced Fund previously
filed with the Trust's Registration
Statement on August 7, 1998, and is hereby
incorporated by reference.
(6) (a) Underwriting Agreement (except for the Morley Capital
Accumulation Fund) previously filed with the Trust's
Registration Statement on August 7, 1998, and is
hereby incorporated by reference.
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<PAGE> 66
(b) Proposed Underwriting Agreement for the Morley
Capital Accumulation previously filed with the
Trust's Registration Statement on August 7, 1998, and
is hereby incorporated by reference.
(c) Proposed Selected Dealer Agreement for the Morley
Capital Accumulation Fund previously filed with the
Trust's Registration Statement on August 7, 1998, and
is hereby incorporated by reference.
(7) Not applicable.
(8) (a) Custody Agreement previously filed with the Trust's
original Registration Statement on November 18, 1997,
and is hereby incorporated by reference.
(9) (a) Fund Administration Agreement previously filed with
the Trust's Registration Statement on August 7, 1998,
and is hereby incorporated by reference.
(b) Transfer and Dividend Disbursing Agent previously
filed with the Trust's Registration Statement on
August 7, 1998, and is hereby incorporated by
reference.
(c) Agreement and Plan of Reorganization between
Nationwide Investing Foundation and the Trust
previously filed with the Trust's Registration
Statement on form N-14 ('33 Act File No. 333-41175)
on November 24, 1997, and is hereby incorporated by
reference.
(d) Agreement and Plan of Reorganization between
Nationwide Investing Foundation II and the Trust
Previously filed with the Trust's Registration
Statement on Form N-14 ('33 Act File No. 333-41175)
on November 24, 1997, and is hereby incorporated by
reference.
(e) Agreement and Plan of Reorganization between
Financial Horizons Investment Trust and the Trust
previously filed with the Trust's Registration
Statement on Form N-14 ('33 Act File No. 333-41175)
on November 24,1997 and is hereby incorporated by
reference.
(f) Proposed Administrative Services Plan and Services
Agreement previously filed with Trust's Registration
Statement on September 3, 1998, and hereby
incorporated by reference.
(10) Opinion of Counsel.
(11) Consent of KPMG Peat Marwick, Independent Auditors.
(12) Not applicable.
(13) Purchase Agreement previously filed with Trust's Registration
Statement on January 2, 1998, and hereby incorporated by
reference.
(14) Not applicable.
(15) (a) Proposed Amended Distribution Plan previously filed
with Trust's Registration Statement on September 3,
1998, and hereby incorporated by reference.
(b) Proposed Dealer Agreement for Morley Capital
Accumulation Fund (see Exhibit 6(c)) filed with the
Trust's Registration Statement on August 7, 1998, and
is hereby incorporated by reference.
(c) Proposed Rule 12b-1 Agreement (except Morley Capital
Accumulation Fund) previously filed with Trust's
Registration Statement on September 3, 1998, and
hereby incorporated by reference.
(16) Schedule for Computation of Performance Quotations previously
filed with Post-Effective Amendment to Registration Statement
and herein incorporated by reference.
(17) Financial Data Schedules.
(18) Proposed Amended 18f-3 Plan previously filed with Trust's
Registration Statement on September 3, 1998, and hereby
incorporated by reference.
(19) Power of Attorney dated November 7, 1997 previously filed in
the Trust's Pre-Effective Amendment and is hereby incorporated
by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH REGISTRANT
No person is presently controlled by or under common control with
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Number of Record Holders as of September 30, 1998
Series Class A Class B Class D No Class Local Fund Shares
------ ------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Mid Cap Growth Fund 122 119 780 -- --
Growth Fund 751 602 48,128 -- --
Nationwide Fund 3,447 3,358 65,099 -- --
Bond Fund 139 110 7,505 -- --
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Tax-Free Income Fund 38 44 7,751 -- --
Intermediate U.S. Government Bond 35 27 2,004 -- --
Long-Term U.S. Government Bond 27 37 1,752 -- --
Money Market Fund -- -- -- 25,813 --
S&P 500 Index Fund -- -- -- -- 8
Morley Capital Accumulation Fund -- -- -- -- --
Large Cap Value Fund -- -- -- -- --
Large Cap Growth Fund -- -- -- -- --
Balanced Fund -- -- -- -- --
Small Cap Fund -- -- -- -- --
International Fund -- -- -- -- --
</TABLE>
ITEM 27. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of
Registrant are set forth in Article V, Section 5.2 of the Declaration
of Trust. In addition, Section 1743.13 of the Ohio Revised Code
provides that no liability to third persons for any act, omission or
obligation shall attach to the trustees, officers, employees or agents
of a business trust organized under Ohio statutes. The trustees are
also covered by an errors and omissions policy provided by the Trust
covering actions taken by the trustees in their capacity as trustee.
See Item 24(b)1 above.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Nationwide Advisory Services, Inc. (NAS), the investment
adviser of the Trust, also serves as investment adviser to the
Nationwide Separate Account Trust, and Nationwide Asset
Allocation Trust and serves as general distributor to the
Nationwide Multi-Flex Variable Account, Nationwide Variable
Account, Nationwide Variable Account-II, Nationwide Variable
Account-5, Nationwide Variable Account-6, Nationwide Variable
Account-8, Nationwide Variable Account-9, Nationwide DC
Variable Account, Nationwide DCVA II, Nationwide VA Separate
Account-A, Nationwide VA Separate Account-B, Nationwide VA
Separate Account-C, NACo Variable Account, Nationwide VLI
Separate Account-2, Nationwide VLI Separate Account-3,
Nationwide VL Separate Account-A, Nationwide VL Separate
Account-B, Nationwide VL Separate Account-C, and Nationwide VL
Separate Account-D, separate accounts of Nationwide Life
Insurance Company, or its subsidiary Nationwide Life and
Annuity Insurance Company, registered as unit investment
trusts under the Investment Company Act of 1940.
<TABLE>
<S> <C> <C>
Joseph J. Gasper Director and President and Chief Operating Officer
---------------------------------------------------
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Financial Services, Inc.
Director and Chairman of the Board
----------------------------------
Nationwide Investment Services Corporation
Director and Vice Chairman
--------------------------
Nationwide Financial Institution Distributors Agency, Inc.
Nationwide Global Holdings, Inc.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
Public Employees Benefit Services Corporation
Director and President
----------------------
Nationwide Advisory Services, Inc.
Nationwide Investor Services, Inc.
Director
--------
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Alabama, Inc.
</TABLE>
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<TABLE>
<S> <C> <C>
Financial Horizons Distributors Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma, Inc.
Financial Horizons Securities Corporation
Landmark Financial Services of New York, Inc.
Nationwide Indemnity Company
Trustee and Chairman
--------------------
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
Trustee and President
---------------------
Nationwide Insurance Golf Charities, Inc.
Dennis W. Click Vice President and Secretary
----------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Life Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Financial Services, Inc.
Nationwide Insurance Enterprise Services, Ltd.
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Colonial County Mutual Insurance Company
California Cash Management Company
Colonial Insurance Company of Wisconsin
Gates McDonald & Company
GatesMcDonald Health Plus Inc.
Nationwide Global Holdings, Inc.
Nationwide Cash Management Company
Nationwide Indemnity Company
Nationwide Community Urban Redevelopment Corporation
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York, Inc.
Farmland Mutual Insurance Company
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance Company
Employers Insurance of Wausau A Mutual Company
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Nationwide Corporation
Nationwide Insurance Enterprise Foundation
Nationwide Investment Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Underwriters Insurance Company
Wausau Service Corporation
Wausau Business Insurance Company
Wausau General Insurance Company
Affiliate Agency, Inc.
</TABLE>
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<TABLE>
<S> <C> <C>
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Alabama, Inc.
Financial Horizons Distributors Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma, Inc.
Financial Horizons Securities Corporation
Landmark Financial Services of New York, Inc.
NEA Valuebuilder Investor Services of Alabama, Inc.
NEA Valuebuilder Investor Services of Montana, Inc.
NEA Valuebuilder Investor Services of Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma, Inc.
NEA Valuebuilder Investor Services of Wyoming, Inc.
Nationwide Agency, Inc.
Nationwide Health Plans, Inc.
Nationwide Management Systems, Inc.
MRM Investments, Inc.
NWE, Inc.
TIG Countrywide Insurance Company
Morley Financial Services, Inc.
Assistant Secretary
-------------------
Pension Associates of Wausau, Inc.
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency Insurance Services of California
Companies Agency of Georgia, Inc.
Companies Agency of Idaho, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Key Health Plan, Inc.
Wausau (Bermuda) Ltd.
Wausau International Underwriters
Vice President and Assistant Secretary
--------------------------------------
National Casualty Company
Secretary
---------
The Beak and Wire Company
Clerk
-----
NEA Valuebuilder Services Insurance Agency, Inc.
Assistant Clerk
---------------
Companies Agency of Massachusetts, Inc.
Dimon R. McFerson Chairman and Chief Executive Officer-Nationwide Insurance
---------------------------------------------------------
Enterprise and Director
-----------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
</TABLE>
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<TABLE>
<S> <C> <C>
Nationwide Life and Annuity Insurance Company
Colonial Insurance Company of Wisconsin
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
National Casualty Company
Nationwide Financial Services, Inc.
Nationwide Global Holdings, Inc.
Nationwide Indemnity Company
Nationwide Investment Services Corporation
California Cash Management Company
Nationwide Cash Management Company
Employers Insurance of Wausau A Mutual Company
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Service Corporation
Wausau General Insurance Company
Wausau Business Insurance Company
Wausau Underwriters Insurance Company
Chairman and Chief Executive Officer - Nationwide Insurance
-----------------------------------------------------------
Enterprise, President and Director
----------------------------------
Nationwide Corporation
Chairman of the Board, Chairman and Chief Executive
---------------------------------------------------
Officer-Nationwide Insurance Enterprise and Director
----------------------------------------------------
American Marine Underwriters, Inc.
Gates, McDonald and Company
Gates McDonald Health Plus, Inc.
Nationwide Investor Services, Inc.
Public Employees Benefit Services Corporation
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency Insurance Services of California
Companies Agency of Georgia, Inc.
Companies Agency of Idaho, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Employers Life Insurance Company of Wausau
Nationwide Advisory Services, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Nationwide Insurance Enterprise Services, Ltd.
TIG Countrywide Insurance Company
Wausau International Underwriters
Wausau Preferred Health Insurance Company
Trustee and Chairman
--------------------
Financial Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Investing Foundation III
Chairman of the Board
---------------------
</TABLE>
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<PAGE> 71
<TABLE>
<S> <C> <C>
Nationwide Insurance Golf Charities, Inc.
Chairman of the Board and Director
----------------------------------
Lone Star General Agency, Inc.
Nationwide Community Urban Redevelopment Corporation
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc
Colonial County Mutual Insurance Company
Director
--------
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York
Chairman of the Board, Chairman and Chief Executive
Officer-Nationwide Insurance Enterprise and Trustee
Nationwide Insurance Enterprise Foundation
Member-Board of Managers, Chairman of the Board,
------------------------------------------------
Chairman and Chief Executive Officer-Nationwide Insurance
---------------------------------------------------------
Enterprise
----------
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Robert A. Oakley Executive Vice President-Chief Financial Officer
------------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
American Marine Underwriters, Inc.
Companies Agency, Inc.
Companies Agency of Alabama, Inc.
Companies Agency of Idaho, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Employers Life Insurance Company of Wausau
National Casualty Company
National Premium and Benefit Administration Company
The Beak and Wire Corporation
Employers Insurance of Wausau A Mutual Company
Farmland Mutual Insurance Company
Nationwide Financial Institution Distributors Agency, Inc.
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Corporation
Nationwide Financial Services, Inc.
Nationwide Investment Services Corporation
Nationwide Investor Services, Inc.
Nationwide Insurance Enterprise Foundation
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
</TABLE>
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<TABLE>
<S> <C> <C>
Colonial County Mutual Insurance Company
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
</TABLE>
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<TABLE>
<S> <C> <C>
Director, Chairman of the Board
-------------------------------
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
Executive Vice President-Chief Financial Officer and
----------------------------------------------------
Director
--------
California Cash Management Company
Colonial Insurance Company of Wisconsin
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment Corporation
Nationwide Global Holdings, Inc.
Nationwide Insurance Enterprise Services, Ltd.
MRM Investments, Inc.
Nationwide Advisory Services, Inc.
Nationwide Indemnity Company
TIG Countrywide Insurance Company
Executive Vice President
------------------------
Companies Agency Insurance Services of California
Wausau International Underwriters
Director and Vice Chairman
--------------------------
Leben Direkt Insurance Company
Neckura General Insurance Company
Auto Direkt Insurance Company
Director
--------
NWE, Inc.
Gates, McDonald & Company
GatesMcDonald Health Plus Inc.
Susan A. Wolken Senior Vice President - Life Company Operations
-----------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Director
--------
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Alabama, Inc.
Financial Horizons Distributors Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma, Inc.
Financial Horizons Securities Corporation
Landmark Financial Services of New York, Inc.
Nationwide Advisory Services, Inc.
----------------------------------
Nationwide Investment Services Corporation
NEA Valuebuilder Investor Services of Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
NEA Valuebuilder Investor Services of Montana, Inc.
NEA Valuebuilder Investor Services of Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma, Inc.
</TABLE>
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<PAGE> 74
<TABLE>
<S> <C> <C>
NEA Valuebuilder Investor Services of Wyoming, Inc.
NEA Valuebuilder Services Insurance Agency, Inc.
PEBSCO of Massachusetts Insurance Agency, Inc.
Public Employees Benefit Services Corporation of Alabama
Public Employees Benefit Services Corporation of Arkansas
Public Employees Benefit Services Corporation of Montana
Public Employees Benefit Services Corporation of New Mexico
Robert J. Woodward, Jr. Executive Vice President-Chief Investment Officer
-------------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Colonial County Mutual Insurance Company
Colonial Insurance Company of Wisconsin
Employers Insurance of Wausau A Mutual Company
Employers Life Insurance Company of Wausau
Farmland Mutual Insurance Company
Gates, McDonald & Company
GatesMcDonald Health Plus, Inc.
Lone Star General Agency, Inc.
National Casualty Company
Nationwide Financial Services, Inc.
Nationwide Agribusiness Insurance Company
Nationwide Corporation
Nationwide Insurance Enterprise Foundation
Nationwide Insurance Enterprise Services, Ltd.
Nationwide Investment Services Corporation
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
Director
--------
Nationwide Global Holdings, Inc.
Nationwide Investors Services, Inc.
Member-Board of Managers and Vice Chairman
-------------------------------------------
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Director and President
----------------------
California Cash Management Company
MRM Investments, Inc.
Nationwide Cash Management Company
Nationwide Community Urban Redevelopment Corporation
NWE, Inc.
</TABLE>
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<PAGE> 75
<TABLE>
<S> <C> <C>
Director, Executive Vice President-Chief Investment Officer
-----------------------------------------------------------
Nationwide Indemnity Company
Nationwide Advisory Services, Inc.
TIG Countrywide Insurance Company
Trustee and Vice Chairman
-------------------------
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
James F. Laird, Jr. Vice President and General Manager and Acting Treasurer
-------------------------------------------------------
Nationwide Advisory Services, Inc.
Vice President and General Manager and Acting Treasurer
-------------------------------------------------------
and Director
------------
Nationwide Investors Services, Inc.
Treasurer
---------
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
Nationwide Investing Foundation III
Christopher A. Cray Treasurer
---------
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Assistant Treasurer
-------------------
Nationwide Investing Foundation
Nationwide Separate Account Trust
Nationwide Investing Foundation II
Nationwide Investing Foundation III
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
David E. Simaitis Secretary
---------
Nationwide Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Investing Foundation III
Assistant Secretary
-------------------
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Nationwide Separate Account Trust
Elizabeth A. Davin Secretary
---------
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
</TABLE>
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<PAGE> 76
<TABLE>
<S> <C> <C>
Assistant Secretary
-------------------
Nationwide Advisory Services, Inc.
Nationwide Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation III
Nationwide Investors Services, Inc.
W. Sidney Druen Senior Vice President and General Counsel and
---------------------------------------------
Assistant Secretary
-------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Advisory Services, Inc.
Nationwide Global Holdings, Inc.
Nationwide Investors Services, Inc.
Employers Insurance of Wausau A Mutual Company
Employers Life Insurance Company of Wausau
Wausau Business Insurance Company
Wausau General Insurance Company
Wausau Underwriters Insurance Company
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Senior Vice President and General Counsel
-----------------------------------------
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
American Marine Underwriters, Inc.
The Beak and Wire Corporation
California Cash Management Company
Colonial County Mutual Insurance Company
Colonial Insurance Company of California
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
Nationwide Financial Services, Inc.
Nationwide Financial Institution Distributors Agency, Inc.
Financial Horizons Distributors Agency of Alabama, Inc.
Financial Horizons Distributors Agency of Ohio, Inc.
Financial Horizons Distributors Agency of Oklahoma, Inc.
Financial Horizons Securities Corporation
Gates, McDonald & Company
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York, Inc.
GatesMcDonald Health Plus, Inc.
Landmark Financial Services of New York, Inc.
National Casualty Company
Nationwide Cash Management Company
Nationwide Corporation
Nationwide Insurance Enterprise Services, Ltd.
Nationwide Investment Services Corporation
Companies Agency, Inc.
Companies Agency Insurance Services of California
Companies Agency of Alabama, Inc.
Companies Agency of Georgia, Inc.
</TABLE>
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<PAGE> 77
<TABLE>
<S> <C> <C>
Companies Agency of Idaho, Inc.
Companies Agency of Kentucky, Inc.
Companies Agency of Massachusetts, Inc.
Companies Agency of New York, Inc.
Companies Agency of Pennsylvania, Inc.
Companies Agency of Phoenix, Inc.
Countrywide Services Corporation
Lone Star General Agency Inc.
Nationwide Insurance Enterprise Foundation
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
NEA Valuebuilder Investor Services, Inc.
NEA Valuebuilder Investor Services of Alabama, Inc.
NEA Valuebuilder Investor Services of Arizona, Inc.
NEA Valuebuilder Investor Services of Montana, Inc.
NEA Valuebuilder Investor Services of Nevada, Inc.
NEA Valuebuilder Investor Services of Ohio, Inc.
NEA Valuebuilder Investor Services of Oklahoma, Inc.
NEA Valuebuilder Investor Services of Wyoming, Inc.
NEA Valuebuilder Services Insurance Agency, Inc.
PEBSCO of Massachusetts Insurance Agency, Inc.
Pension Associates of Wausau, Inc.
Public Employees Benefit Services Corporation
Public Employees Benefit Services Corporation of Alabama
Public Employees Benefit Services Corporation of Arkansas
Public Employees Benefit Services Corporation of Montana
Public Employees Benefit Services Corporation of New Mexico
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
Wausau International Underwriters
Morley Financial Services, Inc.
Senior Vice President and General Counsel and Director
------------------------------------------------------
Nationwide Community Urban Redevelopment Corporation
Nationwide Indemnity Company
MRM Investments, Inc.
NWE, Inc.
TIG Countrywide Insurance Company
Assistant Secretary
-------------------
Key Health Plan, Inc.
General Counsel
---------------
Nationwide Insurance Golf Charities, Inc.
Patricia J. Smith Assistant Secretary
-------------------
Nationwide Advisory Services, Inc.
Nationwide Horizons Investment Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Investing Foundation III
Nationwide Investors Services, Inc.
Nationwide Separate Account Trust
</TABLE>
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<PAGE> 78
<TABLE>
<S> <C> <C>
Peter J. Neckermann Vice President - Economic and Investment Services
-------------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Indemnity Company
Vice President
--------------
Nationwide Advisory Services, Inc.
Director
--------
Leben Direkt Insurance Company
Nationwide Investors Services, Inc.
Neckura Holding Company
Assistant Treasurer
-------------------
Financial Horizons Investment Trust
National Casualty Company
National Premium and Benefit Administration Company
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Investing Foundation III
Nationwide Separate Account Trust
Nationwide Asset Allocation Trust
Edwin P. McCausland, Jr. Sr. Vice President - Fixed Income Securities
--------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Advisory Services, Inc. California
Cash Management Company
Colonial Insurance Company of Wisconsin
Nationwide Cash Management Company
Nationwide Indemnity Company
Nationwide Insurance Enterprise
Foundation Morley Financial Services, Inc.
Vice President - Fixed Income Securities
-----------------------------------------
Employers Insurance of Wausau A Mutual Company
Employers Life Insurance Company of Wausau
Farmland Mutual Insurance Company
Gates, McDonald & Company
GatesMcDonald Health Plus, Inc.
National Casualty Company
Nationwide Agribusiness Insurance Company
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance Company
TIG Countrywide Insurance Company
Wausau Business Insurance Company
Wausau General Insurance Company
</TABLE>
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<PAGE> 79
<TABLE>
<S> <C> <C>
Wausau Preferred Health Insurance Company
Wausau Service Corporation
Wausau Underwriters Insurance Company
Assistant Treasurer
-------------------
Financial Horizons Investment Trust
Nationwide Asset Allocation Trust
Nationwide Investing Foundation
Nationwide Investing Foundation II
Nationwide Investing Foundation III
Nationwide Separate Account Trust
Joseph P. Rath Vice President - Product and Market Compliance
----------------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Property and Casualty Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Vice President-Compliance
-------------------------
Nationwide Advisory Services, Inc.
Nationwide Investment Services Corporation
Vice President-Chief Compliance Officer
---------------------------------------
Nationwide Financial Services, Inc.
William G. Goslee Vice President
--------------
Nationwide Advisory Services, Inc.
</TABLE>
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<PAGE> 80
Except as otherwise noted, the principal business address of any company with
which any person specified above is connected in the capacity of director,
officer, employee, partner or trustee is One Nationwide Plaza, Columbus, Ohio
43215, except for the following companies:
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
1963 Bell Avenue
Des Moines, Iowa 50315-1000
Colonial Insurance Company of Wisconsin
5525 Park Center Circle
Dublin, Ohio 43017
Employers Insurance of Wausau A Mutual Company
2000 Westwood Drive
Wausau, Wisconsin 54401-7881
Scottsdale Insurance Company
8877 North Gainey Center Drive
P.O. Box 4110
Scottsdale, Arizona 85261-4110
National Casualty Company
P.O. Box 4110
Scottsdale, Arizona 85261-4110
Lone Star General Agency, Inc.
P.O. Box 14700
Austin, Texas 78761
Auto Direkt Insurance Company
Columbus Insurance Brokerage and Service, GMBH
Leben Direkt Insurance Company
Neckura General Insurance Company
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
John E. Fisher Str. 1
61440 Oberursel/Ts.
Germany
Public Employees Benefit Services Corporation
Two Nationwide Plaza
Columbus, Ohio 43215
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Three Nationwide Plaza,
Columbus, Ohio 43215
Morley Financial Services, Inc.
5665 S. W. Meadows Rd. , Suite 400
Lake Oswego, Oregon 97035
(b) UBT serves as investment adviser to the Morley Capital
Accumulation Fund. UBT, a trust company organized under the laws
of the State of Oregon, is a wholly owned subsidiary of
Nationwide Life Insurance Company. UBT conducts a variety of
trust activities.
C-16
<PAGE> 81
To the knowledge of the Trust, none of the directors or officers
of UBT, except as set forth below, is or has been at any time
during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature,
except that certain directors and officers also hold various
positions with and engage in business for Morley Financial
Services, Inc. The directors except as noted below may be
contacted C/O UBT, 5665 SW Meadows Rd., Suite 400, Lake Oswego,
Oregon 97035.
Donald C. Burdick, 434 Ridgeway Road, Lake Oswego, OR 97034 Mr.
Burdick has been an independent consultant and investor for the
past 10 years. Prior to that he was President of Investcorp
Financial Services.
Harold H. Morley, President, CEO and Director of UBT. Mr. Morley
is Chairman and Chief Executive Officer of Morley Financial
Services, Inc.
Joan K. Hall, Senior Vice President, Corporate Secretary,
Financial Officer and Director of UBT. Ms. Hall is Senior Vice
President and Financial Officer of Morley Financial Services.
David Fallow, Executive Vice President of UBT. Mr. Fallow is
President and Chief Investment Officer of Morley Financial
Services, Inc.
(c) Information for the Subadviser of the S&P 500 Index Fund
(1) The Dreyfus Corporation
The Dreyfus Corporation ("Dreyfus") acts as subadviser
to the S&P 500 Index Fund and as adviser or subadviser
to a number of other registered investment companies.
The list required by this Item 28 of officers and
directors of Dreyfus, together with information as to
their other business, profession, vocation or employment
of a substantial nature during the past two fiscal
years, is incorporated by reference to Schedule A and D
of Form ADV filed by Dreyfus (SEC file No. 801-8147).
(d) Information for the Subadviser of the Prestige Large Cap Value
Fund
(1) Brinson Partners, Inc.
Brinson Partners, Inc. ("Brinson") acts as a subadviser
to the Prestige Large Cap Value Fund and as adviser or
subadviser to a number of other registered investment
companies. The list required by this Item 28 of officers
and directors of Brinson, together with information as
to their other business, profession, vocation or
employment of a substantial nature during the past two
fiscal years, is incorporated by reference to Schedule A
and D of Form ADV filed by Brinson (SEC file No.
801-34910.)
(e) Information for the Subadviser of the Prestige Large Cap Growth
Fund
(1) Goldman Sachs Asset Management
Goldman Sachs Asset Management ("Goldman") acts as a
subadviser to the Large Cap Growth Fund and as adviser
or subadviser to a number of other registered investment
companies. The list required by this Item 28 of officers
and directors of Goldman, together with information as
to their other business, profession, vocation or
employment of a substantial nature during the past two
fiscal years, is incorporated by reference to Schedule A
and D of Form ADV filed by Goldman (SEC file No.
801-16048.)
(f) Information for the Subadviser of the Prestige Balanced Fund
(1) J. P. Morgan Investment Management
J. P. Morgan Investment Management, Inc. ("JPMIM"), a
registered investment adviser, is a wholly owned
subsidiary of J. P. Morgan & Co. Incorporated. JPMIM
manages employee
C-17
<PAGE> 82
benefit plans for corporations and unions. JPMIM also
provides investment management services for a broad
spectrum of other institutional investors, including
foundations, endowments, sovereign governments, and
insurance companies.
To the knowledge of the Registrant, none of the
directors or executive officers of JPMIM is or has been
in the past two fiscal years engaged in any other
business or profession, vocation or employment of a
substantial nature, except that certain officers and
directors of JPMIM also hold various positions with, and
engage in business for, J.P. Morgan & Co. Incorporated
or Morgan Guaranty Trust Company of New York, a New York
trust company which is also a wholly owned subsidiary of
J. P. Morgan & Co. Incorporated.
(g) Information for the Subadviser of the Prestige Small Cap Fund
(1) Institutional Trust Company
Institutional Trust Company ("ITC") acts as a subadviser
to the Small Cap Fund and as adviser or subadviser to a
number of other registered investment companies. The
list required by this Item 28 of officers and directors
of ITC, together with information as to their other
business, profession, vocation or employment of a
substantial nature during the past two fiscal years, is
incorporated by reference to Schedule A and D of Form
ADV filed by ITC (SEC file No. 801-12389.)
(2) Invesco Management & Research, Inc.
Invesco Management & Research, Inc. ("Invesco") acts as
a subadviser to the Small Cap Fund and as adviser or
subadviser to a number of other registered investment
companies. The list required by this Item 28 of officers
and directors of INVESCO, together with information as
to their other business, profession, vocation or
employment of a substantial nature during the past two
fiscal years, is incorporated by reference to Schedule A
and D of Form ADV filed by INVESCO (SEC file No.
801-01596.)
(h) Information for the Subadviser of the Prestige International
Fund
(1) Lazard Asset Management
Lazard Asset Management ("Lazard") acts as subadviser to
the International Fund and as adviser or subadviser to a
number of other registered investment companies as well
as to separate institutional investors.
<TABLE>
<CAPTION>
Name and Address of Company with
which General Member is Connected
Name of General Member other than with Lazard and its affiliates. Capacity
- ---------------------- ------------------------------------------ --------
<S> <C> <C>
Eileen D. Alexanderson None
William Araskog None
F. Harlan Batrus Mutual of America Capital Management Corp. Director
666 Fifth Ave.
New York, New York 10103
Ryan Labs, Inc. Director
350 Albany Street
New York, New York 10280
</TABLE>
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<PAGE> 83
<TABLE>
<S> <C> <C>
David G. Braunschvig None
Patrick J. Callahan, Jr. Berry Metal Co. Director
Route 68
Harmony, Pennsylvania 16307
BT Capital Corp. Director
280 Park Avenue
New York, New York 10017
Lee Brass Co. (Prior to 3/1/95) Director
P.O. Box 1229
Anniston, Alabama 36202
Michigan Wheel Corp. Director
1501 Buchanan Avenue
Southwest Grand Rapids, Michigan 49507
Rotation Dynamics Corp. Director
15 Salt Creek Lane
Suite 316
Hinsdale, Illinois 60521
Somerset Technologies, Inc. Director
P.O. Box 791
New Brunswick, New Jersey 08903
GAR Holding Co. (Prior to 4/1/96) Director
600 Union Street
Ashland, Ohio 44905
Michael David-Weill BSN Gervias Danone (Prior to 8/1/96) Director
1260130 Rue Jules Grueade
Levallois-Perret (Hauts de Seinc)
France 92303
Credit Mobilier Industrial Chairman of the Board
(Prior to 8/1/96)
(SOVAC)
19-21 rue de la Bienfaisance
75008 Paris, France
The Dannon Company, Inc. Director
22-11 38th Avenue
Long Island City, New York 11101
Eurafrance President and Chairman of the Board
12 Avenue Percier
75008 Paris, France
Exor Group Director
19 Avenue Montaigne
75008 Paris, France
Euralux Director
8 Rue Ste-Zithe
</TABLE>
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<PAGE> 84
<TABLE>
<S> <C> <C>
2763 Luxembourg
Pist S.P.A. (Prior to 8/1/96) Director
Corso Marconi 10
10125 Torino
Italy
Group Danone Director
7 Rue de Teheran
75008 Paris, France
ITT Industries, Inc. Director
320 Park Avenue
New York, New York 10022
La France S.A. Director
7 & 9 Boulevard Hauggmann
75009 Paris, France
La France-Iard Director
7 & 9 Boulevard Hauggmann
75009 Paris, France
La France-Vic Director
7 & 9 Boulevard Hauggmann
75009 Paris, France
Lazard Brothers & Co., Limited Director
21 Moorfields
London EC2P-2HT
Pearson plc Director
Millbank Tower
London SWI P4Q2
Publicis S.A. Director
133 Champs-Ezlysees
75008 Paris, France
S.A. de la Rue Imperiale de Lyon Director
49, Rue de la Republique
Lyon (Rhone) 69002 France
John V. Doyle None
Charles R. Dreifus None
Thomas F. Dunn Goldman, Sach & Co. Senior Portfolio Manager
(Prior to 1/1/96)
65 Broadway Street
New York, New York 10004
Norman Eig The Lazard Funds, Inc. Director, Chairman
30 Rockefeller Plaza
New York, New York 10020
The Emerging World Trust Fund Limited Director
</TABLE>
C-20
<PAGE> 85
<TABLE>
<S> <C> <C>
30 Rockefeller Plaza
New York, New York 10020
Lazard Pension Management, Inc. Director
30 Rockefeller Plaza
New York, New York 10020
Richard P. Emerson None
Peter R. Ezersky None
Jonathan F. Foster None
Albert H. Garner None
James S. Gold Smart & Final, Inc. Director
4700 South Boyle Avenue
Los Angeles, California 90058
Jeffrey A. Golman None
Steven J. Golub Mineral Technologies, Inc. Director
405 Lexington Avenue
New York, New York 10174-1901
Herbert W. Gullquist The Lazard Funds, Inc. Director, President
30 Rockefeller Plaza
New York, New York 10020
The Emerging World Trust Fund Limited Director
30 Rockefeller Plaza
New York, New York 10020
Lazard Freres Asset Director, President
Management (Canada(, Inc.
30 Rockefeller Plaza
New York, New York 10020
Lazard Pension Management, Inc. Director, President
30 Rockefeller Plaza
New York, New York 10020
Thomas R. Haack None
J. Ira Harris Manpower, Inc. Director
5301 North Ironwood Road
Milwaukee, Wisconsin 53201
Caremark International, Inc. Director
(Prior to 9/20/96)
2215 Sanders Road
Northbrook, Illinois 60062
Brinker International, Inc. Director
6820 LBJ Freeway
Dallas, Texas 75240
</TABLE>
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<PAGE> 86
<TABLE>
<S> <C> <C>
Melvin Heineman Lazard Freres & Co., Ltd. Director
21 Moorsfields
London EC2P 2HT
England
Lazard Pension Management, Inc. Director
(Prior to 1/1/97)
30 Rockefeller Plaza
New York, New York 100200
Kenneth M. Jacobs None
Jonathan H. Kagan Continental Cablevision, Inc. Director
Pilot House
54 Lewis Wharf
Boston, Massachusetts 02110
Firearms Training Systems, Inc. Director
7340 McGinnis Ferry Road
Suwanee, Georgia 301274
La SalleRe Ltd. Director
Cumberland House
One Victoria Street
P.O. HM 1502
Hamilton Hm FX
Bermuda
Patient Education Media, Inc. Director
1271 Avenue of the Americas
New York, New York 10020
Phar-Mor, Inc. (Prior to 1/1/96) Director
20 Federal Plaza West
Youngstown, Ohio 44501
Tyco Toys, Inc. Director
6000 Midlantic Drive
Mount Laurel, New Jersey 09054
James L. Kempner Lazard Freres & Co. Capital Markets
30 Rockefeller Plaza
New York, New York 10020
William J. Kreisel Morgan Stanley & Co., Inc. Managing Director
(Prior to 12/95)
1221 Avenue of the Americas
New York, New York 10020
Larry A. Kohn Goldman Sachs & Co. Vice President
(Prior to 1/97)
85 Broad Street
New York, New York 10004
Sandra A. Lamb None
</TABLE>
C-22
<PAGE> 87
<TABLE>
<S> <C> <C>
Edgar D. Legaspi None
Michael S. Liss Bear Stearns & Co. Senior Portfolio Manager
(Prior to 10/1/95)
245 Park Avenue
New York, New York 10004
William R. Loomis, Jr. Englehard Hanovia, Inc. Director
290 Park Avenue
3rd Floor - West Wing
New York, New York 10017
Minorco S.A. Director
Boite Postal 185
L-2011 Luxembourg
Minorco U.S.A., Inc. Director
30 Rockefeller Plaza
Suite 4212
New York, New York 10112
Terra Industries, Inc. Director
600 4th Street
Sioux City, Iowa 51101
J. Robert Lovejoy Lazard Freres & Co. Capital Markets
30 Rockefeller Plaza
New York, New York 10020
Matthew J. Lustig None
Philippe L. Magistretti None
Damon Mezzacappa Corporate Property Investors Director
30 Rockefeller Plaza
New York, New York 10020
Christina A. Mohr Loehmann's Holdings, Inc. Director
2500 Halsey Street
Bronx, New York 10461
United Retail Group, Inc. Director
365 West Passaic Street
Rochelle Park, New Jersey 07662
Robert P. Morgenthau Lazard Freres Asset Management Director, Vice President
(Canada, Inc.
30 Rockefeller Plaza
New York, New York 10020
Steven J. Niemczyk None
Hamish W. M. Norton None
</TABLE>
C-23
<PAGE> 88
<TABLE>
<S> <C> <C>
Jonathan O'Herron Trigon Energy Corporation Director
1 Water Street
White Plains, New York 10601
James A. Paduano Donovan Data Systems, Inc. Director
666 Fifth Avenue
New York, New York 10019
Pilgrim Electronics, Inc. Director
(Prior to 4/1/95)
60 Beaver Brook Road
Danbury, Connecticut 06810
Secure Products, Inc. Director
17 Maple Street
Summit, New Jersey 07901
Louis Perlmutter None
Robert E. Poll, Jr. None
Lester Pollack Continental Cablevision, Inc. Director
Pilot House
54 Louis Wharf
Boston, Massachusetts 02210
CNA Financial Corp (Prior to 3/1/95) Director
CNA Plaza
Chicago, Illinois 60685
Firearms Training Systems, Inc. Director
7340 McGinnis Ferry Road
Suwannee, Georgia 30174
Kaufman & Broad Home Corp. Director
11601 Wilshire Boulevard
Los Angeles, California 90025-1748
</TABLE>
C-24
<PAGE> 89
<TABLE>
<S> <C> <C>
LaSalle Re Ltd. Director
Cumberland House
One Victoria Street
P.O. HM FX
Bermuda
LaSalle Re Holdings Ltd. Director
Cumberland House
One Victoria Street
P.O. HM FX
Bermuda
Loews Corporation (Prior to 1/1/96) Director
666 Fifth Avenue
New York, New York 10103
Paramount Communications, Inc. Director
(Prior to 3/1/95)
15 Columbus Circle
New York, New York 10023
Parlex Corp. Director
145 Milk Street
Metuen, Massachusetts 01844
Polaroid Corp. Director
549 Technology Square
Cambridge, Massachusetts 02139
SD Holding (Bermuda) Ltd. Director
Hurst Holme
Trott Road
Hamilton HMII
Bermuda
Sphere Drake Acquisitions (U.K.) Ltd. Director
52-54 Leadenhall Street
London EC3A 2BJ
England
Sphere Drake Holding Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England
Sun America Inc. Director
11601 Wilshire Boulevard
Los Angeles, California 90025
Tidewater, Inc. Director
1440 Canal Street
Suite 2100
New Orleans, Louisiana 70112
Michael J. Price Avidia Systems, Inc. Director
10 Fairfield Blvd.
Wallingford, Connecticut 06492
</TABLE>
C-25
<PAGE> 90
<TABLE>
<S> <C> <C>
Steven L. Rattner Falcon Holding Group L.P. Director
10900 Wilshire Boulevard
Los Angeles, California 90024
John R. Reese Owosso Corp. Director
312 West Main Street
Owosso, Michigan 48867
Owosso Gan, Inc. Director
312 West Main Street
Owosso, Michigan 48867
John R. Reinsberg None
Louis G. Rice None
Luis E. Rinaldini Cedar Fair Management Co. Director
(Prior to 3/1/95)
CN 5006 Causeway Drive
Sandusky, Ohio 44870
Bruno M. Roger CAP Gemini Sogeti Director
6, Bid Jean Pain a Grenoble (38005)
France
Carnaud Metal Box Packaging Director
(Prior to 8/1/96)
152, Rue de Courcelles aq Paris 17cme
France
Compagnie De Credit Director
121, Boulevard Haussmann a Paris Seme
France
Compagnie De Saint-Gobain Director
Les Miroirs
18 Avenue d'Alsace
Paris la Defense (92096)
France
Eurafrance Director
12, Avenue Percier a Paris Seme
France
Financiere Et Industrielle Gaz Director
Et. Eaux
3, Rue Jacques Bingen a Paris 17cmc
France
Fonde Partonaires Gestion (F.P.G.) Director
121, Boulevard Hausemann a Paris Seme
France
</TABLE>
C-26
<PAGE> 91
<TABLE>
<S> <C> <C>
Lazard, Burlkin, Euna & Co. Director
(Prior to 1/1/96)
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
Lazard & Co., GmbH Director
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
LVMH-Moet Hennesy Louis Vuitton Director
30, Avenue Roche a Paris Seme
France
Marine-Wendel Director
189, Rue Taitbout a Paris 9cmc
France
Midial (Prior to 11/96) Director
192, Avenue Charles de Gaulle
Neuille S/Sein (92200)
France
Pinault-Printemps-Redoute Director
61, Rue Caumartin
75009 Paris
PSA Finance Holding (Prior to 1/1/96) Director
75, av. de la Grande Armee a Paris 16eme
France
Sidel Director
66, Rue de Miromeanil
75008 Paris
Societe Centrale Puour O'Industrie Director
9, Avenue Roche a Paris 8emc
France
Sociote Financiere Generale Director
Immobilierc (S.F.G.I.)
23, rue de I'Arcaede a Paris 9eme
France
Sofina (Belgique) Director
Rue de Naples, 38-B-1050 Bruzelles
Sogeti S.A. (Prior to 8/1/96) Director
6, bld Jean Pain a Grenoble (38005)
France
Sovac (Prior to 8/1/96) Director
19-21, rue de la Bienfaisance a Paris 8eme
France
</TABLE>
C-27
<PAGE> 92
<TABLE>
<S> <C> <C>
Sovaclux S.A. Director
14 rue Aldrigen - Luxembourg
Thomson S.A.
51 esplanade du General de Gaulle
La Defense 10-92800 Puteaux
France
Thomson CSF Director
51 Eslanade du General de Gaulle
La Defense 10-92800 Puteaux
France
U.A.P. Director
9 place Vendome
75001 Paris
Felix G. Rohatyn Crown Cork & Seal Co., Inc. Director
9300 Ashton Road
Philadelphia, Pennsylvania 19136
General Instrument Corp. Director
161 West Madison St.
Chicago, Illinois 60602
Howmet Turbine Components Corp. Director
(Prior to 1/1/96)
221 West Webster Avenue
Muskegon, Michigan 49440
Pechiney S.A. (Prior to 3/1/95) Director
23 Rue Balzac
75008 Paris, France
Pfizer, Inc. Director
235 East 42nd Street
New York, New York 10017-5755
Michael S. Rome None
Gerald Rosenfeld Case Corporation Director
700 State Street
Racine, Wisconsin 53404
Steven H. Sands None
Peter L. Smith Dixie Yarns, Inc. Director
1100 Watkins Street
Chattanooga, Tennessee 37401
Arthur P. Solomon None
Michael B. Solomon Charming Shoppes, Inc. Director
450 Winks Lane
Bensalem, Pennsylvania 19020
</TABLE>
C-28
<PAGE> 93
<TABLE>
<S> <C> <C>
Edouard M. Stern Mainz Holdings Limited Director
P.O. Boxes 3161
Roadtown Tortola BVI
Penthievre Holdings B.V. Director
Jupiter Straat 158
2130 Ah Hoofdorp Netherlands
John S. Tamagni Western Holdings, Inc. Director
(Prior to 9/20/96)
1491 Tyrell Lane
Boise, Idaho 82706
David L. Tashjian None
J. Mikceoll Thomas First National Bank of Chicago Executive Vice President
(Prior to 1/1/95)
One First National Plaza
Chiago, Illinois 60603
Donald A. Wagner None
Ali E. Wambold The Albert Fisher Group plc Director
Fisher House
61 Thames St.
Windsor, Berkshire S04 IQW
England
Lazard Brothers & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard Burklin, Kuna & Co. Director
(Prior to 3/1/95)
Ulmeastrasse 37039
60325 Frankfurt and Main
Federal Republic of Germany
Lazard Freres & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard S.P.A. Director
Plazza Meda, 3
Milano, Italy 20121
Tomkins PLC Director
East Putney House
84 Upper Richmond Road
London SW15 25T
England UK
John B. Ward None
</TABLE>
C-29
<PAGE> 94
<TABLE>
<S> <C> <C>
Michael A. Wildish None
Kendrick P. Wilson III American Buildings Company Director
State Docks Road
Eufaula, Alabama 36027
Bank United Director
3200 Southwest Freeway
Houston, Texas 77027
ITT Corp. Director
1330 Avenue of the Americas
New York, New York 10019
Meigher Communications, Inc. Director
100 Avenue of the Americas
New York, New York 10013
Alexander E. Zagoreoa Drayton Korea Investment Trust Director
11 Devenshire Square
London EC2M 4YR
The Egypt Trust Director
One Rockefeller Plaza
New York, New York 10020
The Emerging World Trust Fund Limited Director
One Rockefeller Plaza
New York, New York 10020
Fleming Continental European Director
One Rockefeller Plaza
New York, New York 10020
Fleming Continental European Director
Investment Trust
25 Copthall Avenue
London EC2R 7DR
Gartmore Emerging Pacific Director
Investment Trust
Gartmore House
16-18 Monument Street
London EC3R 8AJ
Greek Progress Fund Director
Ergobank
S. Evripidou
40-44, Praxit, Elous
105-61 Athens
Greece
Latin American Investment Trust Director
Exchange House
Primrose Street
London EC2A 2NY
</TABLE>
C-30
<PAGE> 95
<TABLE>
<S> <C> <C>
Merlin Green International Director
Investment Trust
Knightsbridge House
197 Knightsbridge
London SW7 1RB
New Zealand Investment Director
23 Cathedral Yard
Exeter EX1 1HB
Taiwan Opportunities Fund Director
C/O Martin-Currie
20 Castle Terrace
Edinburgh 2H1 2ES
U.K.
World Trust Fund Director
Kredietrust
11 rue Aldringen
Luxembourg 1-2960
</TABLE>
C-31
<PAGE> 96
ITEM 29. PRINCIPAL UNDERWRITERS
(a) See Item 28 above.
(b) Nationwide Advisory Services, Inc.
<TABLE>
<CAPTION>
Position with Position
Name Business Address Underwriter with Registrant
---- ---------------- ----------- ---------------
<S> <C> <C> <C>
Dimon R. McFerson One Nationwide Plaza Chairman and CEO Chairman of Board of
Columbus OH 43215 Trustees
Joseph J. Gasper One Nationwide Plaza President and Director Vice Chairman of
Board
Columbus OH 43215 of Trustees
Robert A. Oakley One Nationwide Plaza Exec. VP - Chief Financial N/A
Columbus OH 43215 Officer and Director
Robert J. Woodward, Jr. One Nationwide Plaza Exec. VP - Chief Investment Trustee
Columbus OH 43215 Officer and Director
William S. Druen One Nationwide Plaza Sr. VP - General Counsel N/A
Columbus OH 43215 and Assistant Secretary
James F. Laird, Jr. Three Nationwide Plaza VP - General Manager Treasurer
Columbus OH 43215
Edwin P. McCausland One Nationwide Plaza Senior VP - Fixed Income Assistant Treasurer
Columbus OH 43215 Securities
Joseph P. Rath One Nationwide Plaza VP - Compliance N/A
Columbus OH 43215
Peter J. Neckermann One Nationwide Plaza Vice President Assistant Treasurer
Columbus OH 43215
William G. Goslee One Nationwide Plaza Vice President N/A
Columbus OH 43215
Christopher A. Cray Three Nationwide Plaza Treasurer Assistant Treasurer
Columbus OH 43215
Susan A. Wolken Three Nationwide Plaza Director N/A
Columbus OH 43215
Dennis W. Click One Nationwide Plaza Vice President and Secretary N/A
Columbus OH 43215
David E. Simaitis One Nationwide Plaza Assistant Secretary Secretary
Columbus OH 43215
Patricia J. Smith Three Nationwide Plaza Assistant Secretary Assistant Secretary
Columbus OH 43215
Elizabeth A. Davin One Nationwide Plaza Assistant Secretary Assistant Secretary
Columbus OH 43215
</TABLE>
C-32
<PAGE> 97
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Christopher A. Cray
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, OH 43215
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(1) The Trust undertakes to furnish to each person to whom a prospectus is
delivered, a copy of the Trust's Annual Report, upon request and
without charge.
(2) The Trust undertakes to hold a shareholder meeting, if requested to do
so by the shareholders of at least 10% of the Trust's outstanding
shares, to call a meeting of shareholders for the purpose of voting
upon removal of a trustee or trustees and to assist shareholders in
communications with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940.
C-33
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No.8 to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbus, and State of
Ohio, on this fifth day of November 1998.
NATIONWIDE INVESTING FOUNDATION III
By: JAMES F. LAIRD, JR.
-------------------
James F. Laird, Jr., Treasurer
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED ON THE FIFTH DAY OF NOVEMBER 1998.
<TABLE>
<CAPTION>
Signature & Title
- -----------------
Principal Executive Officer
<S> <C>
DIMON R. MCFERSON*
- ------------------
Dimon R. McFerson, Trustee and Chairman
Principal Accounting and Financial Officer
JAMES F. LAIRD, JR. DAVID C. WETMORE*
- ------------------- -----------------
James F. Laird, Jr., Treasurer David C. Wetmore, Trustee
JOHN C. BRYANT* *By: JAMES F. LAIRD, JR.
- --------------- -------------------
John C. Bryant, Trustee James F. Laird, Jr., Attorney-In-Fact
C. BRENT DEVORE
- ---------------
C. Brent Devore, Trustee
SUE A. DOODY*
- -------------
Sue A. Doody, Trustee
ROBERT M. DUNCAN*
- -----------------
Robert M. Duncan, Trustee
CHARLES L. FUELLGRAF, JR.*
- --------------------------
Charles L. Fuellgraf, Jr., Trustee
THOMAS J. KERR, IV*
- -------------------
Thomas J. Kerr, IV, Trustee
DOUGLAS F. KRIDLER*
- -------------------
Douglas F. Kridler, Trustee
NANCY C. THOMAS*
- ----------------
Nancy C. Thomas, Trustee
HAROLD W. WEIHL*
- ----------------
Harold W. Weihl, Trustee
</TABLE>
C-34
<PAGE> 1
Exhibit 10
DRUEN, DIETRICH, REYNOLDS & KOOGLER, LLP
ATTORNEYS AT LAW
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215-2220
(614) 249-7617
FACSIMILE: (614) 249-2418
[LETTERHEAD]
November 5, 1998
VIA EDGAR
Nationwide Investing Foundation III
Three Nationwide Plaza, 26th Floor
Columbus, Ohio 43215
Re: Nationwide Investing Foundation III
Post-Effective Amendment No. 7
SEC File Nos. 333-40455, 811-08495
Ladies and Gentlemen:
In connection with the filing of Post-Effective Amendment No. 7 to the
Registration Statement for Nationwide Investing Foundation III (the
"Amendment"), it is our opinion that, upon the effectiveness of the Amendment,
the indefinite number of units of beneficial interest of Class R Shares of the
Nationwide Money Market Fund of the Nationwide Investing Foundation III, when
issued for the consideration described in the Amendment, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the Amendment.
Very truly yours,
DRUEN, DIETRICH, REYNOLDS & KOOGLER
<PAGE> 1
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The Nationwide Investing Foundation III:
We consent to use of our reports dated December 5, 1997 for the Nationwide
Investing Foundation, Nationwide Investing Foundation II and Financial Horizons
Investment Trust as incorporated by reference herein and to the reference to our
firm under the headings "Financial Highlights" in the Prospectus and "Other
Services for all the Funds" in the Statement of Additional Information included
herein.
Columbus, Ohio
November 5, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000069369
<NAME> NATIONWIDE INVESTING FOUNDATION
<SERIES>
<NUMBER> 1
<NAME> NATIONWIDE FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,045,510,308
<INVESTMENTS-AT-VALUE> 1,985,808,798
<RECEIVABLES> 32,215,600
<ASSETS-OTHER> 1,761,068
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,019,785,466
<PAYABLE-FOR-SECURITIES> 41,402,097
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,639,834
<TOTAL-LIABILITIES> 43,041,931
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 960,507,366
<SHARES-COMMON-STOCK> 63,757,974
<SHARES-COMMON-PRIOR> 54,513873
<ACCUMULATED-NII-CURRENT> 964,423
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74,973,256
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 940,298,490
<NET-ASSETS> 1,976,743,535
<DIVIDEND-INCOME> 12,503,272
<INTEREST-INCOME> 1,901,012
<OTHER-INCOME> 0
<EXPENSES-NET> 4,853,009
<NET-INVESTMENT-INCOME> 9,551,275
<REALIZED-GAINS-CURRENT> 74,973,256
<APPREC-INCREASE-CURRENT> 269,677,507
<NET-CHANGE-FROM-OPS> 354,202,038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,770,737
<DISTRIBUTIONS-OF-GAINS> 76,009,135
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,389,650
<NUMBER-OF-SHARES-REDEEMED> 3,191,046
<SHARES-REINVESTED> 3,045,497
<NET-CHANGE-IN-ASSETS> 528,321,631
<ACCUMULATED-NII-PRIOR> 1,183,885
<ACCUMULATED-GAINS-PRIOR> 76,009,135
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,144,558
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,853,009
<AVERAGE-NET-ASSETS> 1,671,534,402
<PER-SHARE-NAV-BEGIN> 26.57
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 5.81
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> 1.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 31.00
<EXPENSE-RATIO> .59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000069369
<NAME> NATIONWIDE INVESTING FOUNDATION
<SERIES>
<NUMBER> 2
<NAME> NATIONWIDE GROWTH FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 597,320,578
<INVESTMENTS-AT-VALUE> 980,218,639
<RECEIVABLES> 23,146,255
<ASSETS-OTHER> 13,620
<OTHER-ITEMS-ASSETS> 12,860
<TOTAL-ASSETS> 1,003,391,374
<PAYABLE-FOR-SECURITIES> 23,032,230
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 828,501
<TOTAL-LIABILITIES> 23,860,731
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 563,749,299
<SHARES-COMMON-STOCK> 56,951,128
<SHARES-COMMON-PRIOR> 50,125,860
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 342,240
<ACCUMULATED-NET-GAINS> 33,225,523
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 382,898,061
<NET-ASSETS> 979,530,643
<DIVIDEND-INCOME> 3,640,364
<INTEREST-INCOME> 774,768
<OTHER-INCOME> 0
<EXPENSES-NET> 2,769,226
<NET-INVESTMENT-INCOME> 1,645,906
<REALIZED-GAINS-CURRENT> 33,225,523
<APPREC-INCREASE-CURRENT> 129,041,102
<NET-CHANGE-FROM-OPS> 163,912,531
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,645,906
<DISTRIBUTIONS-OF-GAINS> 101,432,058
<DISTRIBUTIONS-OTHER> 342,240
<NUMBER-OF-SHARES-SOLD> 3,500,235
<NUMBER-OF-SHARES-REDEEMED> 3,618,299
<SHARES-REINVESTED> 6,943,332
<NET-CHANGE-IN-ASSETS> 161,406,528
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 101,432,058
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,180,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,769,226
<AVERAGE-NET-ASSETS> 879,558,805
<PER-SHARE-NAV-BEGIN> 16.32
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 2.91
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> 2.02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.20
<EXPENSE-RATIO> .63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000069369
<NAME> NATIONWIDE INVESTING FOUNDATION
<SERIES>
<NUMBER> 3
<NAME> NATIONWIDE BOND FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 120,538,375
<INVESTMENTS-AT-VALUE> 124,170,093
<RECEIVABLES> 6,392,395
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 130,562,488
<PAYABLE-FOR-SECURITIES> 1,824,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 261,779
<TOTAL-LIABILITIES> 2,085,779
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,875,768
<SHARES-COMMON-STOCK> 13,476,131
<SHARES-COMMON-PRIOR> 13,109,316
<ACCUMULATED-NII-CURRENT> 65,791
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,096,568)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,631,718
<NET-ASSETS> 128,476,709
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,318,381
<OTHER-INCOME> 0
<EXPENSES-NET> 444,892
<NET-INVESTMENT-INCOME> 3,873,489
<REALIZED-GAINS-CURRENT> 1,426,573
<APPREC-INCREASE-CURRENT> (871,186)
<NET-CHANGE-FROM-OPS> 4,428,876
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,878,170
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,508,367
<NUMBER-OF-SHARES-REDEEMED> 1,481,995
<SHARES-REINVESTED> 339,688
<NET-CHANGE-IN-ASSETS> 4,072,297
<ACCUMULATED-NII-PRIOR> 70,472
<ACCUMULATED-GAINS-PRIOR> (9,523,141)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 316,306
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 444,892
<AVERAGE-NET-ASSETS> 127,578,711
<PER-SHARE-NAV-BEGIN> 9.49
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> .04
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.53
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000069369
<NAME> NATIONWIDE INVESTING FOUNDATION
<SERIES>
<NUMBER> 4
<NAME> NATIONWIDE MONEY MARKET FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 903,803,532
<INVESTMENTS-AT-VALUE> 903,803,532
<RECEIVABLES> 20,896,931
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,972,732
<TOTAL-ASSETS> 928,673,195
<PAYABLE-FOR-SECURITIES> 14,922,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,529,946
<TOTAL-LIABILITIES> 33,452,029
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 895,221,487
<SHARES-COMMON-STOCK> 895,221,487
<SHARES-COMMON-PRIOR> 820,657,237
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 862
<ACCUMULATED-NET-GAINS> 541
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 895,221,166
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,982,248
<OTHER-INCOME> 0
<EXPENSES-NET> 2,454,062
<NET-INVESTMENT-INCOME> 21,528,186
<REALIZED-GAINS-CURRENT> (562)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,527,624
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21,528,113
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 657,149,043
<NUMBER-OF-SHARES-REDEEMED> 603,138,245
<SHARES-REINVESTED> 20,553,452
<NET-CHANGE-IN-ASSETS> 74,563,761
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,103
<OVERDISTRIB-NII-PRIOR> (935)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,114,165
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,665,479
<AVERAGE-NET-ASSETS> 852,729,149
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000779239
<NAME> NATIONWIDE INVESTING FOUNDATION II
<SERIES>
<NUMBER> 1
<NAME> TAX-FREE INCOME FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 240,931,431
<INVESTMENTS-AT-VALUE> 253,943,169
<RECEIVABLES> 4,653,612
<ASSETS-OTHER> 3,514,017
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 262,110,798
<PAYABLE-FOR-SECURITIES> 7,517,715
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 717,571
<TOTAL-LIABILITIES> 8,235,286
<SENIOR-EQUITY> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> U.S. GOVERNMENT INCOME FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000832800
<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000832800
<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000832800
<NAME> FINANCIAL HORIZONS INVESTMENT TRUST
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<NAME> GROWTH FUND
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