NATIONWIDE INVESTING FOUNDATION III
485APOS, 1998-01-15
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<PAGE>   1
   

                                                      '33 ACT FILE NO.333-40455
                                                      '40 ACT FILE NO.811-08495

              AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                             ON JANUARY __, 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. 1
    

                                     AND/OR
       REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/
   
                                AMENDMENT NO. 2
    

                        (CHECK APPROPRIATE BOX OR BOXES)
                       NATIONWIDE INVESTING FOUNDATION III
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                   NATIONWIDE MID CAP GROWTH FUND 
                   NATIONWIDE GROWTH FUND 
                   NATIONWIDE FUND 
                   NATIONWIDE S&P 500 INDEX FUND 
                   NATIONWIDE BOND FUND
                   NATIONWIDE TAX-FREE INCOME FUND 
                   NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND 
                   NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
                   NATIONWIDE MONEY MARKET FUND

                             THREE NATIONWIDE PLAZA
                              COLUMBUS, OHIO 43215
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (614) 249-7855

      MR. DAVID E. SIMAITIS                 SEND COPIES OF COMMUNICATIONS TO:
       ONE NATIONWIDE PLAZA                         DRUEN, DIETRICH,
        COLUMBUS, OHIO 43215                      REYNOLDS AND KOOGLER
(NAME AND ADDRESS OF AGENT FOR SERVICE)            ONE NATIONWIDE PLAZA
                                                    COLUMBUS, OHIO 43215
   
/X/ It is proposed that this filing will become effective 60 days after filing
    pursuant to paragraph (a)(1) of Rule 485.
    

                                       1


<PAGE>   2

                       NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX FUND
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
NATIONWIDE MONEY MARKET FUND
<TABLE>
<CAPTION>

                              CROSS REFERENCE SHEET

N-1A ITEM NO.                                                                   LOCATION

                                     PART A
<S>               <C>                                                           <C>
Item 1.           Cover Page                                                    Cover Page
Item 2.           Synopsis                                                      Summary of Fund Expenses
Item 3.           Condensed Financial Information                               *
Item 4.           General Description of Registrant                             Objectives, and Management;
                                                                                Investment Techniques,
                                                                                Considerations and Risk
                                                                                Factors
Item 5.           Management of the Fund                                        Management of the Trust
Item 6.           Capital Stock and Other Securities                            Additional Information;
                                                                                Distributions and Taxes
Item 7.           Purchase of Securities Being Offered                          How to Purchase Shares
Item 8.           Redemption or Repurchase                                      How to Sell (Redeem) Shares
Item 9.           Pending Legal Proceedings                                     *

                                     PART B
Item 10.          Cover Page                                                    Cover Page
Item 11.          Table of Contents                                             Table of Contents
Item 12.          General Information and History                               General Information and
                                                                                History
Item 13.          Investment Objectives and Policies                            Additional Information on
                                                                                Portfolio Instruments
                                                                                and Investment Policies;
                                                                                Investment Restrictions
Item 14.          Management of the Registrant                                  Trustees and Officers of the Trust
Item 15.          Control Persons and Principal Holders
                  of Securities                                                 *
Item 16.          Investment Advisory and Other Services                        Investment Advisory and Other
                                                                                Services
Item 17.          Brokerage Allocation                                          Brokerage Allocation
Item 18.          Capital Stock and Other Securities                            Additional Information
Item 19.          Purchase, Redemption and Pricing
                  of Securities Being Offered                                   *
Item 20.          Tax Status                                                    Additional General Tax Information
Item 21.          Underwriters                                                  *
Item 22.          Calculation of Yield Quotations of
                  Money Market Funds                                            Calculating Money Market Fund Yield
</TABLE>


<PAGE>   3
<TABLE>
<S>               <C>                                                           <C>
Item 23.          Financial Statements                                          *
</TABLE>


                                     PART C

Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration statement.

* Not applicable or negative answer.

<PAGE>   4
 
This Prospectus provides
you with information you
should know before
investing in the Funds.
Read it and keep it for
future reference.
   
A Statement of Additional
Information dated March
  , 1998, incorporated
herein by reference and
containing further
information about the
Funds, has been filed with
the Securities and
Exchange Commission. You
may obtain a copy without
charge by calling or
writing Nationwide
Advisory Services, Inc.
(NAS), Three Nationwide
Plaza, P.O. Box 1492,
Columbus, Ohio 43216-1492.
    
 
Nationwide Investing
Foundation III ("NIF-III"
or the "Trust") is an
open-end management
investment company.

NIF-III was created under
the laws of Ohio, as an
Ohio business trust as of
October 30, 1997. The
Trust offers shares in
nine separate mutual
funds, each with its own
investment objectives.
This Prospectus relates to
the following eight funds
(collectively, the
"Funds"):

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
 
   
The three different
classes of shares offered
by this prospectus are A,
B and D. For more detailed
information and specific
limitations on purchasing
shares, see "How to
Purchase Shares".
    
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

AN INVESTMENT IN THE NATIONWIDE MONEY MARKET FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE NATIONWIDE MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
                        Three Nationwide Plaza - P.O.
                        Box 1492
                        Columbus, Ohio 43216-1492
   
                        March   , 1998
    
 
                        Call toll-free 1-800-848-0920
                        for information, assistance,
                        and wire orders, 8 AM-5 PM
 
                        Call toll-free 1-800-637-0012
                        for 24-hour account access
 
                        FAX: (614) 249-8705
 
                                    CONTENTS
 
   
<TABLE>
                              <S>                                         <C>
                              A Brief Overview of the Funds..............    2
                              Summary of Fund Expenses...................    3
                              Which Fund Is Right for You................   11
                              Objectives And Management..................   13
                              Investment Techniques, Considerations and
                                Risk Factors.............................   18
                              How to Purchase Shares.....................   24
                              How to Sell (Redeem) Shares................   27
                              Investor Strategies........................   29
                              Investor Privileges........................   30
                              Investor Services..........................   31
                              Management of the Trust....................   32
                              Distributions and Taxes....................   34
                              Tax Advantages of the Tax-Free Income
                                Fund.....................................   35
                              Performance Advertising for the Funds......   35
                              Additional Information.....................   36
</TABLE>
    
 
   
                                                          NATIONWIDE(R)
    
                                                            FAMILY OF
                                                              FUNDS
   
                                                   NATIONWIDE(R)
    
                                                   Mid Cap
                                                   Growth Fund
                                                   Capital Appreciation --
                                                   Mid size companies
   
                                                   NATIONWIDE(R)
    
                                                   Growth Fund
                                                   Capital Appreciation --
                                                   Companies of all sizes
   
                                                   NATIONWIDE(R)
    
                                                   Fund
                                                   Total Return --
                                                   Generally larger companies
   
                                                   NATIONWIDE(R)
    
                                                   Bond Fund
                                                   Monthly Income --
                                                   Investment grade
                                                   debt securities
   
                                                   NATIONWIDE(R) Tax-Free
    
                                                   Income Fund
                                                   Monthly Income --
                                                   Free from Federal income
                                                   taxes
   
                                                   NATIONWIDE(R)
    
                                                   Long-Term
                                                   U.S. Government
                                                   Bond Fund
                                                   Monthly Income --
                                                   U.S. Gov't securities with
                                                   long-term average
                                                   duration
   
                                                   NATIONWIDE(R)
    
                                                   Intermediate
                                                   U.S. Government
                                                   Bond Fund
                                                   Monthly Income --
                                                   U.S. Gov't securities
                                                   with intermediate
                                                   average duration
 
   
                                                   NATIONWIDE(R)
    
                                                   Money Market Fund
                                                   Monthly Income --
                                                   Current money market rates
<PAGE>   5
 
A BRIEF OVERVIEW OF THE FUNDS
 
WHAT ARE THE INVESTMENT OBJECTIVES OF THE FUNDS?
 
THE STOCK FUNDS --  The Mid Cap Growth Fund and Growth Fund each seek long-term
capital appreciation while the Nationwide Fund seeks total return from a
combination of capital appreciation and current income.
 
THE BOND FUNDS --  Each of the Bond Funds (except the Tax-Free Income Fund)
seeks as a high level of income as is consistent with preservation of capital.
The Tax-Free Income Fund seeks as high a level of current income exempt from
Federal income tax as is consistent with the preservation of capital through
investing in investment grade municipal obligations.
 
THE MONEY MARKET FUND --  The Money Market Fund seeks a high level of income
with preservation of capital and maintenance of liquidity. The Fund will attempt
to maintain a stable net asset value of $1 per share.
 
HOW WILL THE FUNDS ATTEMPT TO ACHIEVE THEIR INVESTMENT OBJECTIVES?
 
THE STOCK FUNDS --  The Stock Funds will primarily invest in equity securities,
generally common stocks. The Mid Cap Growth Fund will generally invest in equity
securities of mid cap companies, the Nationwide Fund in equity securities of
larger companies and the Growth Fund in equity securities of companies of all
sizes.
 
THE BOND FUNDS --  The Bond Funds will invest primarily in investment-grade
fixed income securities with various lengths of maturities or duration. The U.S.
Government Bond Funds will concentrate investments in securities of the U.S.
Government and its agencies and instrumentalities; the Bond Fund will invest
primarily in a combination of corporate and U.S. Government fixed income
securities and the Tax-Free Income Fund will invest primarily in municipal
securities.
 
THE MONEY MARKET FUND --  The Money Market Fund will invest primarily in
high-quality money market instruments maturing in 397 days or less.
 
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
 
Each of the Funds (except the Money Market Fund) involves the risk that the
value of a Fund's shares will fluctuate in response to economic conditions,
interest rates and market perception. The Stock Funds are generally more
volatile than the Bond Funds while Bond Funds tend to be affected more by
changes in interest rates.
 
WHAT CLASSES OF SHARES ARE AVAILABLE?
 
   
The Stock and Bond Funds currently offer Class A, B, and D shares. Class A
shares are purchased with a front-end sales charge and a 0.25% 12b-1 fee. Class
B shares are subject to a contingent deferred sales charge ("CDSC") on
redemption and a 1.00% 12b-1 fee for the Stock Funds and an 0.85% 12b-1 fee for
the Bond Funds. Class D shares are purchased with a front-end sales charge but
no 12b-1 fee. The Money Market Fund, whose shares have no class designation, has
no sales charge or 12b-1 fee and are available to only certain investors. See
"Net Asset Value Purchase Privilege." For more information about 12b-1 fees, see
"Distribution Plan."
    
 
HOW DO I PURCHASE AND REDEEM SHARES?
 
You can purchase or redeem shares on any day that the Funds are open for
business through a representative of Nationwide Advisory Services, Inc. ("NAS")
or directly with the Funds. See "How to Purchase Shares" and "How to Sell
(Redeem) Shares" in this Prospectus for more information.
 
HOW ARE DIVIDENDS PAID?
 
Dividends are distributed quarterly by the Stock Funds and distributed monthly
by the Bond and Money Market Funds. Capital gains, if any, are paid at least
annually by each Fund.
 
WHO IS THE FUNDS' INVESTMENT ADVISER?
 
NAS is the investment manager, administrator and distributor of the Funds. NAS
is a wholly-owned subsidiary of Nationwide Life Insurance Company.
 
                                        2
<PAGE>   6
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
SUMMARY OF
FUND EXPENSES
 
   
This summary helps you
understand the various
costs and expenses you
will bear, directly or
indirectly, when investing
in the Funds. The expenses
have been restated to
reflect current fees.
    
 
   
Nationwide Mid Cap Growth
           Fund
    
   
Nationwide Growth Fund
    
   
Nationwide Fund
    
   
Nationwide Bond Fund
    
   
Nationwide Tax-Free
    
       Income Fund
   
Nationwide Long-Term
    
       U.S. Government
       Bond Fund
   
Nationwide Intermediate
    
       U.S. Government
       Bond Fund
   
Nationwide Money Market
           Fund
    
   
                      SHAREHOLDER TRANSACTION EXPENSES FOR CLASS A SHARES
    
                      (OTHER THAN MONEY MARKET FUND)
 
   
<TABLE>
<CAPTION>
                                                                                            LONG-TERM
                                              MID                               TAX-FREE      U.S.       INTERMEDIATE     MONEY
                                              CAP     GROWTH    FUND    BOND     INCOME       GOV'T       U.S. GOV'T      MARKET
                                 <S>          <C>     <C>       <C>     <C>     <C>         <C>          <C>             <C>
                                 Maximum
                                   Sales
                                   Charge
                                   Imposed on
                                   Purchases* 5.50%   5.50%     5.50%   4.50%    4.50%        4.50%         4.50%          None
                                   (as a
                                   percentage
                                   of
                                   offering
                                   price)
                                 Redemption
                                   Fee**      None     None     None    None      None         None          None          None
                                   (as a
                                   percentage
                                   of amount
                                   redeemed,
                                   if
                                  applicable)
</TABLE>
    
 
   
                        * Lower sales charges are available as the amount of the
                      investment increases. To receive even greater sales charge
                      discounts, investors may also include the value of Class A
                      shares held in certain other accounts (including household
                      family members' accounts). See "Sales Charge Schedule and
                      Available Discounts for Class A and D Shares."
    
   
                       ** A $5 fee will be deducted from the proceeds of any
                      redemptions wired to your bank. A fee also will be charged
                      if you utilize Western Union's Quick Cash service; this
                      fee is $9.50 per $10,000 redeemed. See "How to Sell
                      (Redeem) Shares" for more information.
    
 
                      ANNUAL FUND OPERATING EXPENSES***
                      (as a percentage of average net assets)
 
   
<TABLE>
<CAPTION>
                                                                                            LONG-TERM
                                            MID                                 TAX-FREE      U.S.       INTERMEDIATE     MONEY
                                            CAP     GROWTH    FUND     BOND      INCOME       GOV'T       U.S. GOV'T      MARKET
                                 <S>       <C>      <C>       <C>      <C>      <C>         <C>          <C>             <C>
                                 Management
                                   Fees     .60%     .60%      .60%    .50%        .50%        .50%           .50%          .40%
                                 12b-1
                                   Fees     .25%     .25%      .25%    .25%        .25%        .25%           .25%          None
                                 Other
                                  Expenses  .38%     .20%      .15%    .29%        .19%        .27%           .29%          .20%
                                           -----    -----     -----    -----      -----       -----          -----         -----
                                 Total
                                   Fund
                                 Operating
                                  Expenses 1.23%    1.05%     1.00%    1.04%       .94%       1.02%          1.04%          .60%
</TABLE>
    
 
   
                      Example:
    
   
                      The following example illustrates the expenses you would
                      pay on a $1,000 investment over the indicated time periods
                      assuming: (1) a 5% annual return, (2) redemption at the
                      end of each time period, and (3) payment of the maximum
                      applicable sales charge.
    
 
   
<TABLE>
<CAPTION>
                                                                                              LONG-TERM
                                                MID                               TAX-FREE      U.S.       INTERMEDIATE    MONEY
                                                CAP     GROWTH    FUND    BOND     INCOME       GOV'T       U.S. GOV'T     MARKET
                                 <S>            <C>     <C>       <C>     <C>     <C>         <C>          <C>             <C>
                                  1 Year        $ 67     $ 65     $65     $55       $ 54        $  55          $ 55         $  6
                                  3 Years       $ 92     $ 87     $85     $77       $ 74        $  76          $ 77         $ 19
</TABLE>
    
 
   
                      THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
                      PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
                      LESS THAN THOSE SHOWN.
    
 
   
                      *** For a more detailed explanation of these expenses, see
                          "Management of the Trust" below.
    
 
                                        3
<PAGE>   7
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   
                      SHAREHOLDER TRANSACTION EXPENSES FOR CLASS B SHARES
    
                      (OTHER THAN MONEY MARKET FUND)
 
   
<TABLE>
<CAPTION>
                                                                                            LONG-TERM
                                              MID                               TAX-FREE      U.S.       INTERMEDIATE     MONEY
                                              CAP     GROWTH    FUND    BOND     INCOME       GOV'T       U.S. GOV'T      MARKET
                                 <S>          <C>     <C>       <C>     <C>     <C>         <C>          <C>             <C>
                                 Maximum
                                   Contingent
                                   Deferred
                                   Sales
                                   Charge on
                                  Redemptions 5.00%   5.00%     5.00%   5.00%    5.00%        5.00%         5.00%         None*
                                 Redemption
                                   Fee**      None     None     None    None      None         None          None          None
                                   (as a
                                   percentage
                                   of amount
                                   redeemed,
                                   if
                                  applicable)
</TABLE>
    
 
   
                        * Class B shares exchanged for Money Market shares will
                      be charged a CDSC if the Money Market Fund shares are
                      subsequently redeemed. In addition, the CDSC aging
                      schedule will stop running during the time period that the
                      shares are held in the Money Market Fund. See "Exchanges
                      Among Funds" for further information.
    
   
                       ** A $5 fee will be deducted from the proceeds of any
                      redemptions wired to your bank. A fee also will be charged
                      if you utilize Western Union's Quick Cash service; this
                      fee is $9.50 per $10,000 redeemed. See "How to Sell
                      (Redeem) Shares" for more information.
    
 
                      ANNUAL FUND OPERATING EXPENSES***
                      (as a percentage of average net assets)
 
   
<TABLE>
<CAPTION>
                                                                                            LONG-TERM
                                            MID                                 TAX-FREE      U.S.       INTERMEDIATE     MONEY
                                            CAP     GROWTH    FUND     BOND      INCOME       GOV'T       U.S. GOV'T      MARKET
                                 <S>       <C>      <C>       <C>      <C>      <C>         <C>          <C>             <C>
                                 Management
                                   Fees     .60%     .60%      .60%    .50%        .50%        .50%           .50%          .40%
                                 12b-1
                                   Fees    1.00%    1.00%     1.00%    .85%        .85%        .85%           .85%          None
                                 Other
                                  Expenses  .38%     .20%      .15%    .29%        .19%        .27%           .29%          .20%
                                           -----    -----     -----    -----      -----       -----          -----         -----
                                 Total
                                   Fund
                                 Operating
                                  Expenses 1.98%    1.80%     1.75%    1.64%      1.54%       1.62%          1.64%          .60%
</TABLE>
    
 
   
                      Example:
    
   
                      The following example illustrates the expenses you would
                      pay on a $1,000 investment over the indicated time periods
                      assuming: (1) a 5% annual return, (2) redemption at the
                      end of each time period, and (3) payment of the applicable
                      CDSC on redemption.
    
 
   
<TABLE>
<CAPTION>
                                                                                              LONG-TERM
                                                MID                               TAX-FREE      U.S.       INTERMEDIATE    MONEY
                                                CAP     GROWTH    FUND    BOND     INCOME       GOV'T       U.S. GOV'T     MARKET
                                 <S>            <C>     <C>       <C>     <C>     <C>         <C>          <C>             <C>
                                  1 Year        $ 70     $ 68     $68     $67       $ 66        $  66          $ 67         $  6
                                  3 Years       $ 92     $ 87     $85     $82       $ 79        $  81          $ 82         $ 19
</TABLE>
    
 
   
                      You would pay the following expenses assuming no
                      redemption at the end of each time period.
    
 
   
<TABLE>
<CAPTION>
                                                                                              LONG-TERM
                                                MID                               TAX-FREE      U.S.       INTERMEDIATE    MONEY
                                                CAP     GROWTH    FUND    BOND     INCOME       GOV'T       U.S. GOV'T     MARKET
                                 <S>            <C>     <C>       <C>     <C>     <C>         <C>          <C>             <C>
                                  1 Year        $ 20     $ 18     $18     $17       $ 16        $  16          $ 17         $  6
                                  3 Years       $ 62     $ 57     $55     $52       $ 49        $  51          $ 52         $ 19
</TABLE>
    
 
   
                      THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
                      PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
                      LESS THAN THOSE SHOWN.
    
 
   
                      *** For a more detailed explanation of these expenses, see
                          "Management of the Trust" below.
    
 
                                        4
<PAGE>   8
 
                           NATIONWIDE FAMILY OF FUNDS
 
   
                      SHAREHOLDER TRANSACTION EXPENSES FOR CLASS D SHARES
    
                      (OTHER THAN MONEY MARKET FUND)
 
   
<TABLE>
<CAPTION>
                                                                                            LONG-TERM
                                              MID                               TAX-FREE      U.S.       INTERMEDIATE     MONEY
                                              CAP     GROWTH    FUND    BOND     INCOME       GOV'T       U.S. GOV'T      MARKET
                                 <S>          <C>     <C>       <C>     <C>     <C>         <C>          <C>             <C>
                                 Maximum
                                   Sales
                                   Charge
                                   Imposed on
                                   Purchases* 4.50%   4.50%     4.50%   4.50%    4.50%        4.50%         4.50%          None
                                   (as a
                                   percentage
                                   of
                                   offering
                                   price)
                                 Redemption
                                   Fee**      None     None     None    None      None         None          None          None
                                   (as a
                                   percentage
                                   of amount
                                   redeemed,
                                   if
                                   applicable)
</TABLE>
    
 
   
                        * Lower sales charges are available as the amount of the
                      investment increases. To receive even greater sales charge
                      discounts, investors may also include the value of Class D
                      shares held in certain other accounts (including household
                      family members' accounts). See "Sales Charge Schedule and
                      Available Discounts for Class A and D shares."
    
                       ** A $5 fee will be deducted from the proceeds of any
                      redemptions wired to your bank. A fee also will be charged
                      if you utilize Western Union's Quick Cash service; this
                      fee is $9.50 per $10,000 redeemed. See "How to Sell
                      (Redeem) Shares" for more information.
 
                      ANNUAL FUND OPERATING EXPENSES***
                      (as a percentage of average net assets)
 
   
<TABLE>
<CAPTION>
                                                                                            LONG-TERM
                                            MID                                 TAX-FREE      U.S.       INTERMEDIATE     MONEY
                                            CAP     GROWTH    FUND     BOND      INCOME       GOV'T       U.S. GOV'T      MARKET
                                 <S>       <C>      <C>       <C>      <C>      <C>         <C>          <C>             <C>
                                 Management
                                  Fees      .60%     .58%      .57%    .50%        .50%        .50%           .50%          .40%
                                 12b-1
                                  Fees     .None     None      None    None        None        None           None          None
                                 Other
                                  Expenses  .38%     .20%      .15%    .29%        .19%        .27%           .29%          .20%
                                           -----    -----     -----    -----      -----       -----          -----         -----
                                 Total
                                  Fund
                                 Operating
                                  Expenses  .98%     .78%      .72%    .79%        .68%        .77%           .79%          .60%
</TABLE>
    
 
                      Example:
                      The following example illustrates the expenses you would
                      pay on a $1,000 investment over the indicated time periods
                      assuming: (1) a 5% annual return, (2) redemption at the
                      end of each time period, and (3) payment of the maximum
                      applicable sales charge.
 
   
<TABLE>
<CAPTION>
                                                                                              LONG-TERM
                                                MID                               TAX-FREE      U.S.       INTERMEDIATE    MONEY
                                                CAP     GROWTH    FUND    BOND     INCOME       GOV'T       U.S. GOV'T     MARKET
                                 <S>            <C>     <C>       <C>     <C>     <C>         <C>          <C>             <C>
                                  1 Year        $ 55     $ 53     $ 52    $ 53      $ 52        $  53          $ 53         $  6
                                  3 Years       $ 75     $ 69     $ 67    $ 69      $ 66        $  68          $ 69         $ 19
                                  5 Years       $ 97     $ 86     $ 83    $ 87      $ 82        $  86          $ 87         $ 33
                                 10 Years       $160     $137     $130    $138      $128        $ 136          $138         $ 75
</TABLE>
    
 
                      THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
                      PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
                      LESS THAN THOSE SHOWN.
 
                      *** For a more detailed explanation of these expenses, see
                          "Management of the Trust" below.
 
                                        5
<PAGE>   9
 
                           NATIONWIDE FAMILY OF FUNDS
 
   
The information set forth in the foregoing Fee Tables and examples relates to
the Class A, Class B and Class D shares (except with respect to the Money Market
Fund which only has one class of shares without designation) of the Funds. The
three classes of shares are subject to the same expenses except that the level
of 12b-1 fees paid by the holder of Class A shares and Class B shares of each
Fund differs (Class D shares pay no 12b-1 fees).
    
 
   
Class D shares are purchased with a front-end sales charge and are available for
purchase only by (1) shareholders receiving Class D shares or Money Market Fund
shares as a result of the Reorganization (as defined below) if the shareholder
is purchasing in the same capacity and through the same account, and (2)
shareholders entitled to purchase shares of a Fund at net asset value as
    
described in "Net Asset Value Purchase Privilege".
 
                                        6
<PAGE>   10
 
   
                              FINANCIAL HIGHLIGHTS
    
 
   
The Funds are eight separate series of the Trust. As of March   , 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 below, 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").
    
 
   
The following chart shows the Acquired Funds and the corresponding Fund:
    
 
   
<TABLE>
<CAPTION>
        ACQUIRED FUNDS                       FUNDS
- ------------------------------   ------------------------------
<S>                              <C>
Growth Fund of FHIT              Mid Cap Growth Fund
Growth Fund of NIF               Growth Fund
Nationwide Fund of NIF           Nationwide Fund
Bond Fund of NIF                 Bond Fund
Tax-Free Income Fund of NIF II   Tax-Free Income Fund
and Municipal Bond Fund of
 FHIT
Government Bond Fund of FHIT     Long-Term U.S. Government Bond
                                 Fund
U.S. Government Income Fund of   Intermediate U.S. Government
 NIF II                          Bond Fund
Money Market Fund of NIF and     Money Market Fund
Cash Reserve Fund of FHIT
</TABLE>
    
 
   
For accounting purposes, each Acquired Fund is deemed to be the survivor of the
Reorganization except that the Tax-Free Income Fund of NIF II is deemed to be
the survivor of the Tax-Free Income Fund and the Money Market Fund of NIF is
deemed to be the survivor of the Money Market Fund.
    
 
   
The following Financial Highlights for the Ten Year Period ended October 31,
1997 (or such shorter period as such fund had been operating) have been audited
by KPMG Peat Marwick LLP, Independent Auditors, whose reports thereon insofar as
it relates to each of the years in the five year period ended October 31, 1997,
together with the financial statements, which are incorporated by reference in
the Statement of Additional Information from the Annual Reports for NIF, NIF II
and FHIT.
    
 
   
The Trust's Statement of Additional Information and the Annual Reports for NIF,
NIF II and FHIT, which contain further information about the Funds' performance
including Management's Discussion of Fund Performance, may be obtained free of
charge by calling 1-800-848-0920.
    
 
                                        7
<PAGE>   11
 
   
                              FINANCIAL HIGHLIGHTS
    
 
        For a Share Outstanding Throughout the Periods Ended October 31,
   
<TABLE>
<CAPTION>
                                           Net
                                         Realized                                      Distributions
            Net                        Gain (Loss)                                       from Net                           Net
           Asset                           and             Total        Dividends        Realized                          Asset
          Value--         Net           Unrealized          from         from Net        Gain from                         Value--
         Beginning     Investment      Appreciation      Investment     Investment      Investment           Total         End of
         of Period       Income       (Depreciation)     Operations       Income       Transactions      Distributions     Period
     <S> <C>           <C>            <C>                <C>            <C>            <C>               <C>               <C>
                                INCOME FROM
                           INVESTMENT OPERATIONS                                     LESS DISTRIBUTIONS
          $  8.34         $.23            $ 1.70           $ 1.93         $ (.42)         $ (1.07)          $ (1.49)       $ 8.78
     ----------------------------------------------------------------------------------------------------------------------------
             8.78          .31               .63              .94           (.20)            (.34)             (.54)         9.18
     ----------------------------------------------------------------------------------------------------------------------------
             9.18          .33             (1.53)           (1.20)          (.31)            (.33)             (.64)         7.34
 G   ----------------------------------------------------------------------------------------------------------------------------
 R           7.34          .22              2.77             2.99           (.25)            (.51)             (.76)         9.57
 O   ----------------------------------------------------------------------------------------------------------------------------
 W           9.57          .20               .46              .66           (.20)            (.09)             (.29)         9.94
 T   ----------------------------------------------------------------------------------------------------------------------------
 H           9.94          .17              1.41             1.58           (.17)            (.21)             (.38)        11.14
     ----------------------------------------------------------------------------------------------------------------------------
 F          11.14          .09               .53              .62           (.19)            (.22)             (.41)        11.35
 U   ----------------------------------------------------------------------------------------------------------------------------
 N          11.35          .21              2.10             2.31           (.20)            (.24)             (.44)        13.22
 D   ----------------------------------------------------------------------------------------------------------------------------
            13.22          .16              1.36             1.52           (.16)           (1.24)            (1.40)        13.34
     ----------------------------------------------------------------------------------------------------------------------------
            13.34          .12              3.94             4.06           (.12)            (.96)            (1.08)        16.32
 
          $ 13.53         $.35            $ 1.63           $ 1.98         $ (.47)         $ (1.42)          $ (1.89)       $13.62
 N   ----------------------------------------------------------------------------------------------------------------------------
 A          13.62          .44              2.78             3.22           (.45)           (1.51)            (1.96)        14.88
 T   ----------------------------------------------------------------------------------------------------------------------------
 I          14.88          .37             (1.23)            (.86)          (.39)           (1.31)            (1.70)        12.32
 O   ----------------------------------------------------------------------------------------------------------------------------
 N          12.32          .38              3.97             4.35           (.40)            (.50)             (.90)        15.77
 W   ----------------------------------------------------------------------------------------------------------------------------
 I          15.77          .37               .98             1.35           (.36)            (.45)             (.81)        16.31
 D   ----------------------------------------------------------------------------------------------------------------------------
 E          16.31          .31               .67              .98           (.33)            (.41)             (.74)        16.55
     ----------------------------------------------------------------------------------------------------------------------------
 F          16.55          .37               .41              .78           (.36)            (.85)            (1.21)        16.12
 U   ----------------------------------------------------------------------------------------------------------------------------
 N          16.12          .31              2.49             2.80           (.31)           (1.26)            (1.57)        17.35
 D   ----------------------------------------------------------------------------------------------------------------------------
            17.35          .36              3.98             4.34           (.35)            (.93)            (1.28)        20.41
     ----------------------------------------------------------------------------------------------------------------------------
            20.41          .31              7.44             7.75           (.31)           (1.28)            (1.59)        26.57
 
          $  9.28         $.88            $  .18           $ 1.06         $ (.99)              --           $  (.99)       $ 9.35
     ----------------------------------------------------------------------------------------------------------------------------
             9.35          .88              (.02)             .86           (.84)              --              (.84)         9.37
 B   ----------------------------------------------------------------------------------------------------------------------------
 O           9.37          .88              (.36)             .52           (.90)              --              (.90)         8.99
 N   ----------------------------------------------------------------------------------------------------------------------------
 D           8.99          .85               .45             1.30           (.83)              --              (.83)         9.46
     ----------------------------------------------------------------------------------------------------------------------------
 F           9.46          .76               .23              .99           (.85)              --              (.87)*        9.58
 U   ----------------------------------------------------------------------------------------------------------------------------
 N           9.58          .74               .52             1.26           (.77)              --              (.77)        10.07
 D   ----------------------------------------------------------------------------------------------------------------------------
            10.07          .60             (1.56)            (.96)          (.65)              --              (.65)         8.46
     ----------------------------------------------------------------------------------------------------------------------------
             8.46          .63              1.04             1.67           (.63)              --              (.63)         9.50
     ----------------------------------------------------------------------------------------------------------------------------
             9.50          .61              (.15)             .46           (.62)              --              (.62)         9.34
     ----------------------------------------------------------------------------------------------------------------------------
             9.34          .60               .15              .75           (.60)              --              (.60)         9.49
     ----------------------------------------------------------------------------------------------------------------------------
 
<CAPTION>
 
                                        Net
                                     Investment                 Average     Net Assets
                       Expenses      Income to                Commission    at End of
           Total      to Average      Average       Portfolio    Rate         Period
           Return     Net Assets     Net Assets     Turnover     Paid        (000's)
     <S> <C>          <C>            <C>            <C>          <C>       <C>           <C>
 
                                     RATIOS & SUPPLEMENTAL DATA                ASSETS    YEAR
             28.4%        .67%          2.82%          40.8%        --     $  231,901    1988
 G   -----------------------------------------------------------------------------------------------------
 R           11.2         .67           3.35           38.8         --        252,456    1989
 O   ---------------------------------------------------------------------------------------------------------------
 W         (14.1)         .68           3.86           36.2         --        198,691    1990
 T   -------------------------------------------------------------------------------------------------------------------------
 H
             43.4         .68           2.54           12.4         --        277,019    1991
 F   ----------------------------------------------------------------------------------------------------------------------------
 U
 N            6.9         .65           1.97           13.1         --        330,950    1992
 D   ----------------------------------------------------------------------------------------------------------------------------
 
             16.2         .68           1.63           10.2         --        411,853    1993
     ----------------------------------------------------------------------------------------------------------------------------
 
              5.7         .68           1.71           14.5         --        464,715    1994
     ----------------------------------------------------------------------------------------------------------------------------
 
             21.0         .66           1.66           27.1         --        582,927    1995
     ----------------------------------------------------------------------------------------------------------------------------
 
             12.4         .64           1.20           25.6      5.3923c      655,616    1996
     ----------------------------------------------------------------------------------------------------------------------------
 
             32.1         .64            .81           45.1      4.6222c      818,124    1997
  
             17.2%        .63%          2.79%          13.3%        --     $  407,175    1988
 N   ----------------------------------------------------------------------------------------------------------------------------
 A
 T           27.1         .64           3.21           21.9         --        469,427    1989
 I   ----------------------------------------------------------------------------------------------------------------------------
 O
 N          (7.0)         .63           2.69           13.4         --        441,188    1990
 W   ----------------------------------------------------------------------------------------------------------------------------
 I
 D           36.5         .61           2.56           13.6         --        620,113    1991
 E   ----------------------------------------------------------------------------------------------------------------------------
 
 F            8.7         .61           2.32           12.8         --        726,012    1992
 U   ----------------------------------------------------------------------------------------------------------------------------
 N
 D            6.2         .62           1.96           25.8         --        753,239    1993
     ----------------------------------------------------------------------------------------------------------------------------
 
              4.9         .63           2.26           15.4         --        706,674    1994
     ----------------------------------------------------------------------------------------------------------------------------
 
             19.2         .63           1.95           16.5         --        795,666    1995
     ----------------------------------------------------------------------------------------------------------------------------
 
             26.1         .61           1.89           16.7      5.9393c      958,590    1996
     ----------------------------------------------------------------------------------------------------------------------------
 
             40.2         .60           1.32           14.9      5.8506c    1,448,422    1997
 
             12.0%        .66%          9.45%          73.1%        --     $   35,759    1988
     ----------------------------------------------------------------------------------------------------------------------------
 
              9.7         .68           9.38           72.7         --         36,430    1989
     ----------------------------------------------------------------------------------------------------------------------------
 B
 O            5.9         .68           9.62           82.1         --         36,378    1990
 N   ----------------------------------------------------------------------------------------------------------------------------
 D
             15.1         .67           9.13           93.6         --         54,187    1991
 F   ----------------------------------------------------------------------------------------------------------------------------
 U
 N           10.9         .65           8.63          100.8         --         90,187    1992
 D   ----------------------------------------------------------------------------------------------------------------------------
 
             13.6         .68           7.63           68.5         --        151,090    1993
     ----------------------------------------------------------------------------------------------------------------------------
 
             (9.8)        .71           7.11           58.0         --        124,455    1994
     ----------------------------------------------------------------------------------------------------------------------------
 
             20.4         .71           7.04           70.4         --        133,633    1995
     ----------------------------------------------------------------------------------------------------------------------------
 
              5.1         .70           6.60           39.0         --        133,253    1996
     ----------------------------------------------------------------------------------------------------------------------------
 
              8.3         .72           6.43           70.6         --        124,404    1997
     ----------------------------------------------------------------------------------------------------------------------------
 
</TABLE>
    
 
    * Includes $.02 from Paid In Capital.
 
                                        8
 
<PAGE>   12
 
   
                              FINANCIAL HIGHLIGHTS
    
 
        For a Share Outstanding Throughout the Periods Ended October 31,
   
<TABLE>
<CAPTION>
                                           Net
                                         Realized                                      Distributions
            Net                        Gain (Loss)                                       from Net                           Net
           Asset                           and             Total        Dividends        Realized                          Asset
          Value--         Net           Unrealized          from         from Net        Gain from                         Value--
         Beginning     Investment      Appreciation      Investment     Investment      Investment           Total         End of
         of Period       Income       (Depreciation)     Operations       Income       Transactions      Distributions     Period
     <S> <C>           <C>            <C>                <C>            <C>            <C>               <C>               <C>
                                      INCOME FROM
                                 INVESTMENT OPERATIONS                                LESS DISTRIBUTIONS
 T        $  8.61         $.62            $  .75           $ 1.37         $ (.62)              --           $  (.62)       $ 9.36
 A   ----------------------------------------------------------------------------------------------------------------------------
 X           9.36          .62               .08              .70           (.62)              --              (.62)         9.44
 -   ----------------------------------------------------------------------------------------------------------------------------
 F           9.44          .61              (.13)             .48           (.61)              --              (.61)         9.31
 R   ----------------------------------------------------------------------------------------------------------------------------
 E           9.31          .58               .50             1.08           (.58)              --              (.58)         9.81
 E   ----------------------------------------------------------------------------------------------------------------------------
             9.81          .56               .13              .69           (.56)              --              (.56)         9.94
 I   ----------------------------------------------------------------------------------------------------------------------------
 N           9.94          .54              1.10             1.64           (.54)            (.09)             (.63)        10.95
 C   ----------------------------------------------------------------------------------------------------------------------------
 O          10.95          .53             (1.45)            (.92)          (.51)            (.12)             (.63)         9.40
 M   ----------------------------------------------------------------------------------------------------------------------------
 E           9.40          .51               .84             1.35           (.53)              --              (.53)        10.22
     ----------------------------------------------------------------------------------------------------------------------------
            10.22          .51               .02              .53           (.51)              --              (.51)        10.24
     ----------------------------------------------------------------------------------------------------------------------------
            10.24          .50               .27              .77           (.50)              --              (.50)        10.51
   U
I  S      $ 10.00         $.46            $ (.03)          $  .43         $ (.46)         $    --           $  (.46)       $ 9.97
N    ----------------------------------------------------------------------------------------------------------------------------
T  G         9.97          .53               .45              .98           (.53)            (.16)             (.69)        10.26
E  O ----------------------------------------------------------------------------------------------------------------------------
R  V        10.26          .54              (.96)            (.42)          (.55)            (.07)             (.62)         9.22
M  E ----------------------------------------------------------------------------------------------------------------------------
E  R         9.22          .59               .89             1.48           (.58)              --              (.58)        10.12
D  N ----------------------------------------------------------------------------------------------------------------------------
I  M        10.12          .59              (.08)             .51           (.59)**            --              (.59)        10.04
A  E ----------------------------------------------------------------------------------------------------------------------------
T  N        10.04          .59               .27              .86           (.59)              --              (.59)        10.31
E  T

<CAPTION>
 
                                                        Net             Net
                                                     Investment     Investment                 Net Assets
                       Expenses       Expenses       Income to       Income to                 at End of
           Total      to Average     to Average       Average         Average       Portfolio    Period
           Return     Net Assets     Net Assets*     Net Assets     Net Assets*     Turnover    (000's)
     <S> <C>          <C>            <C>             <C>            <C>             <C>        <C>           <C>
 
                                       RATIOS & SUPPLEMENTAL DATA                                  ASSETS    YEAR
 T           16.3%        .86%           1.21%          6.82%           6.45%         117.7%    $  51,884    1988
 A   ----------------------------------------------------------------------------------------------------------------------------
 X
 -            7.7         .85            1.20           6.62            6.28           79.7        72,097    1989
 F   ----------------------------------------------------------------------------------------------------------------------------
 R
 E            5.3         .90            1.16           6.51            6.25           68.9        89,374    1990
 E   ----------------------------------------------------------------------------------------------------------------------------

 I           11.9        1.01            1.16           6.05            5.90           45.5       122,005    1991
 N   ----------------------------------------------------------------------------------------------------------------------------
 C
 O            7.2         .98            1.13           5.62            5.47           69.8       170,650    1992
 M   ----------------------------------------------------------------------------------------------------------------------------
 E
             17.0         .98            1.13           5.07            4.92           28.4       253,042    1993
     ----------------------------------------------------------------------------------------------------------------------------
 
            (8.7)         .99            1.14           5.02            4.87           59.2       241,097    1994
     ----------------------------------------------------------------------------------------------------------------------------
 
             14.7         .98            1.13           5.20            5.05           31.7       262,484    1995
     ----------------------------------------------------------------------------------------------------------------------------
 
              5.3         .96            1.11           4.98            4.83           24.2       264,642    1996
     ----------------------------------------------------------------------------------------------------------------------------
 
              7.7         .96            1.11           4.85            4.70           39.5       256,486    1997
   U
I  S          7.3%       1.00%           1.17%          6.38%           6.21%         157.4%    $  18,211    1992(1)
N    ----------------------------------------------------------------------------------------------------------------------------
T  G
E  O         10.2        1.10            1.25           5.12            4.97           99.0        38,452    1993
R  V ----------------------------------------------------------------------------------------------------------------------------
M  E
E  R        (4.2)        1.09            1.24           5.62            5.47           67.5        37,749    1994
D  N ----------------------------------------------------------------------------------------------------------------------------
I  M
A  E         16.5        1.08            1.23           5.92            5.77           25.4        39,777    1995
T  N ----------------------------------------------------------------------------------------------------------------------------
E  T
              5.3        1.06            1.21           5.86            5.71            9.3        39,497    1996
     ----------------------------------------------------------------------------------------------------------------------------
 
              8.9        1.07            1.22           5.85            5.70           26.6        41,328    1997
</TABLE>
    
 
    (1) Period from February 10, 1992 (date of commencement of operations)
    through October 31, 1992. Ratio percentages and total return are annualized
    for periods of less than twelve months. 

   
<TABLE>
     <S> <C>           <C>            <C>                <C>            <C>              <C>               <C>               <C>
         $  1.00         $.07                --           $  .07         $ (.07)              --           $  (.07)       $ 1.00
     ----------------------------------------------------------------------------------------------------------------------------
            1.00          .09                --              .09           (.09)              --              (.09)         1.00
     ----------------------------------------------------------------------------------------------------------------------------
            1.00          .08                --              .08           (.08)              --              (.08)         1.00
 M   ----------------------------------------------------------------------------------------------------------------------------
 O          1.00          .06                --              .06           (.06)              --              (.06)         1.00
 N   ----------------------------------------------------------------------------------------------------------------------------
 E          1.00          .03                --              .03           (.03)              --              (.03)         1.00
 Y   ----------------------------------------------------------------------------------------------------------------------------
            1.00          .03                --              .03           (.03)              --              (.03)         1.00
 M   ----------------------------------------------------------------------------------------------------------------------------
 A          1.00          .03                --              .03           (.03)              --              (.03)         1.00
 R   ----------------------------------------------------------------------------------------------------------------------------
 K          1.00          .05                --              .05           (.05)              --              (.05)         1.00
 E   ----------------------------------------------------------------------------------------------------------------------------
 T          1.00          .05                --              .05           (.05)              --              (.05)         1.00
     ----------------------------------------------------------------------------------------------------------------------------
            1.00          .05                --              .05           (.05)              --              (.05)         1.00
     ----------------------------------------------------------------------------------------------------------------------------
 
<CAPTION>
             6.9%        .76%            .76%          6.71%           6.71%            --     $ 421,901    1988
     <S> <C>          <C>            <C>             <C>            <C>             <C>        <C>           <C>
     ----------------------------------------------------------------------------------------------------------------------------
 
 M           8.9         .74             .74           8.55            8.55             --       535,292    1989
 O   ----------------------------------------------------------------------------------------------------------------------------
 N
 E           8.0         .73             .73           7.67            7.67             --       600,324    1990
 Y   ----------------------------------------------------------------------------------------------------------------------------

 M           6.1         .71             .71           5.97            5.97             --       594,988    1991
 A   ----------------------------------------------------------------------------------------------------------------------------
 R
 K           3.5         .71             .71           3.50            3.50             --       488,998    1992
 E   ----------------------------------------------------------------------------------------------------------------------------
 T
             2.6         .70             .73           2.57            2.54             --       418,615    1993
     ----------------------------------------------------------------------------------------------------------------------------
 
             3.3         .65             .70           3.33            3.28             --       491,737    1994
     ----------------------------------------------------------------------------------------------------------------------------
 
             5.5         .62             .67           5.34            5.29             --       604,711    1995
     ----------------------------------------------------------------------------------------------------------------------------
 
             5.1         .60             .65           4.93            4.88             --       729,500    1996
     ----------------------------------------------------------------------------------------------------------------------------
 
             5.1         .59             .64           4.96            4.91             --       820,657    1997
     ----------------------------------------------------------------------------------------------------------------------------
 
</TABLE>
    
 
     *Ratios calculated as if no expenses were waived.
 
    **Includes $.01 dividend in excess of net investment income.
 
                                       9
<PAGE>   13
 
   
                              FINANCIAL HIGHLIGHTS
    
 
   
        For a Share Outstanding Throughout the Periods Ended October 31,
    
   
<TABLE>
<CAPTION>
                                           Net
                                         Realized                                      Distributions
            Net                        Gain (Loss)                                       from Net                           Net
           Asset          Net              and             Total        Dividends        Realized                          Asset
          Value--      Investment       Unrealized          from         from Net        Gain from                         Value--
         Beginning       Income        Appreciation      Investment     Investment      Investment           Total         End of
         of Period       (Loss)       (Depreciation)     Operations       Income       Transactions      Distributions     Period
     <S> <C>           <C>            <C>                <C>            <C>            <C>               <C>               <C>
 M                                     INCOME FROM
 I                                INVESTMENT OPERATIONS                               LESS DISTRIBUTIONS
 D        $ 10.00         $.25            $  .34           $  .59         $ (.11)         $    --           $  (.11)       $10.48
     ----------------------------------------------------------------------------------------------------------------------------
 C          10.48          .32             (1.90)           (1.58)          (.25)              --              (.25)         8.65
 A   ----------------------------------------------------------------------------------------------------------------------------
 P           8.65          .17              3.72             3.89           (.30)            (.25)             (.55)        11.99
     ----------------------------------------------------------------------------------------------------------------------------
 G          11.99          .22               .43              .65           (.18)              --              (.18)        12.46
 R   ----------------------------------------------------------------------------------------------------------------------------
 O          12.46          .08              1.73             1.81           (.10)              --              (.10)        14.17
 W   ----------------------------------------------------------------------------------------------------------------------------
 T          14.17          .03               .95              .98           (.04)              --              (.04)        15.11
 H   ----------------------------------------------------------------------------------------------------------------------------
            15.11         (.01)             3.23             3.22           (.01)+           (.15)             (.16)        18.17
 F   ----------------------------------------------------------------------------------------------------------------------------
 U          18.17          .01              3.28             3.29             --            (1.99)            (1.99)        19.47
 N   ----------------------------------------------------------------------------------------------------------------------------
 D          19.47          .04              4.38             4.42           (.03)            (.99)            (1.02)        22.87
   
          $ 10.00         $.73            $  .41           $ 1.14         $ (.73)         $    --           $  (.73)       $10.41
     ----------------------------------------------------------------------------------------------------------------------------
   G        10.41          .96              (.28)             .68           (.96)              --              (.96)        10.13
L  O ----------------------------------------------------------------------------------------------------------------------------
O  V        10.13          .90               .68             1.58           (.89)            (.01)             (.90)        10.81
N  E ----------------------------------------------------------------------------------------------------------------------------
G  R        10.81          .89               .25             1.14           (.89)            (.06)             (.95)        11.00
- -  N ----------------------------------------------------------------------------------------------------------------------------
T  M        11.00          .63               .50             1.13           (.66)            (.16)             (.82)        11.31
E  E ----------------------------------------------------------------------------------------------------------------------------
R  N        11.31          .58             (1.10)            (.52)          (.58)            (.09)             (.67)        10.12
M  T ----------------------------------------------------------------------------------------------------------------------------
            10.12          .68               .95             1.63           (.68)              --              (.68)        11.07
   F ----------------------------------------------------------------------------------------------------------------------------
   U        11.07          .68              (.15)             .53           (.68)              --              (.68)        10.92
   N ----------------------------------------------------------------------------------------------------------------------------
   D        10.92          .66               .27              .93           (.66)              --              (.66)        11.19
     ----------------------------------------------------------------------------------------------------------------------------
 
<CAPTION>
                                        Net                         Net
                                     Investment                  Investment
                       Expenses        Income       Expenses       Income
                          to         (Loss) to         to        (Loss) to                   Average    Net Assets
                       Average        Average       Average       Average                  Commission    at End of
           Total         Net            Net           Net           Net         Portfolio     Rate        Period
           Return       Assets         Assets       Assets*       Assets*       Turnover      Paid       (000's)
     <S> <C>          <C>            <C>            <C>          <C>            <C>          <C>       <C>           <C>
 
                                            RATIOS & SUPPLEMENTAL DATA                                     ASSETS    YEAR
 
 M           6.5%        1.48%          2.62%          2.17%         1.73%         22.4%        --      $     531    1989**
 I
 D   ----------------------------------------------------------------------------------------------------------------------------

 C          (15.5)       1.42           3.49           2.17          2.73          47.5         --            526    1990
 A
 P   ----------------------------------------------------------------------------------------------------------------------------

 G           46.7        1.20           2.01           1.95          1.26           5.7         --          1,175    1991
 R
 O   ----------------------------------------------------------------------------------------------------------------------------
 W
 T            5.4        1.27           1.45           2.02           .70          12.1         --          3,095    1992
 H
     ----------------------------------------------------------------------------------------------------------------------------
 F
 U           14.6        1.44           0.63           2.03           .05          13.0         --          5,165    1993
 N
 D   ----------------------------------------------------------------------------------------------------------------------------
 
              6.9        1.59           0.21           1.90         (.82)          14.1         --          6,787    1994
 
     ----------------------------------------------------------------------------------------------------------------------------
 
             21.6        1.47          (.05)           1.72         (.30)          29.2         --          7,594    1995
 
     ----------------------------------------------------------------------------------------------------------------------------
 
             19.4        1.44            .03           1.69         (.22)          17.2      5.9080c        9,095    1996
 
     ----------------------------------------------------------------------------------------------------------------------------
 
             23.7         .96            .20           1.70         (.54)          40.7      5.8006c        9,541    1997
 
            13.5%        1.42%          8.33%          2.11%         6.98%           --%        --      $   1,119    1989**
     
     ----------------------------------------------------------------------------------------------------------------------------
     
              6.9          --           9.32           1.98          7.37          51.0         --          3,150    1990
     
     ----------------------------------------------------------------------------------------------------------------------------
     
             16.3          --           8.22           1.73          6.49          95.3         --         25,873    1991
   G
L  O ----------------------------------------------------------------------------------------------------------------------------
O  V
N  E         10.9         .65           8.18           1.66          7.17          87.7         --         64,249    1992
G  R
- -  N ----------------------------------------------------------------------------------------------------------------------------
T  M
E  E         10.8        1.00           5.55           1.61          4.93         143.6         --         84,602    1993
R  N
M  T ----------------------------------------------------------------------------------------------------------------------------

   F         (4.8)       1.28           5.42           1.58          5.12         174.4         --         70,218    1994
   U
   N ----------------------------------------------------------------------------------------------------------------------------
   D
             16.7         .89           6.42           1.58          5.73         140.6         --         69,190    1995
 
     ----------------------------------------------------------------------------------------------------------------------------
 
              5.0         .84           6.26           1.59          5.51          21.0         --         58,737    1996
 
     ----------------------------------------------------------------------------------------------------------------------------
 
              8.8         .85           6.04           1.60          5.29          52.1         --         48,549    1997
 
     ----------------------------------------------------------------------------------------------------------------------------
 
</TABLE>
    
 
     *Ratios calculated as if no expenses were waived.    +Distribution in
      excess of net investment income.
 
    **Period from December 19, 1988 (commencement of operations) through October
      31, 1989. Total return and ratios are annualized for periods of less than
      twelve months.
 
                                       10
 
<PAGE>   14
 
                           NATIONWIDE FAMILY OF FUNDS
 
   
Each Fund is a separate, diversified investment fund of the Trust, which was
organized as of October 30, 1997, as an Ohio business trust. The Trust is
registered and operates as an open-end management investment company. Each Fund
was organized for the purposes of acquiring all of the assets and liabilities of
one or more separate series of NIF, NIF II and/or FHIT (together called the
"Former Trusts"), to effect a Reorganization of each series of the Former Trusts
with and into a separate series of NIF III as described above.
    
 
   
AVAILABLE SHARE CLASS OPTIONS
    
 
   
Class A shares are available for purchase with a front-end sales charge and a
0.25% 12b-1 fee. Class B shares are available for purchase with a CDSC and a
1.00% 12b-1 fee for the Stock Funds and an 0.85% 12b-1 fee for the Bond Funds.
Class D shares are purchased with a front-end sales charge but no 12b-1 fee. The
Money Market Fund, whose shares have no class designation, has no sales charge
or 12b-1 fee.
    
 
   
WHICH FUND IS RIGHT FOR YOU?
    
 
Long-term and short-term goals require different financial planning. Whether
you're seeking greater growth opportunity, looking for more income, or a
combination of both, Nationwide's Family of Funds, strategies, and services may
help.
 
While there is careful selection of securities and constant supervision of the
Funds, there can be no guarantee that a Fund's investment objective will be
achieved.
 
CONSIDER YOUR TIME FRAME
 
For long-term goals, you have the luxury of time on your side. With goals five
or more years away -- where growth of your investments is the highest
priority -- you may want to consider Nationwide's Stock Funds. These Stock Funds
provide greater long-term return potential through portfolios of common stocks
with a higher degree of risk.
 
If you're seeking greater income today or have intermediate to long-term
goals -- you may want to consider Nationwide's Bond Funds. These Bond Funds
invest in high-quality and investment grade bonds, providing monthly income and
normally providing greater price stability than stock funds. Plus, it is also
possible to have some capital appreciation in these Bond Funds.
 
For short-term goals such as saving for next year's needs, an emergency reserve,
or as a temporary "parking place" for your money, the Money Market Fund may be
more appropriate for you. This Fund provides investors with greater stability of
principal while providing current monthly income.
 
Most investors have a combination of long and short-term goals. By investing in
one or more of the Funds, you may be able to satisfy many of your investment
needs.
 
ASSESS YOUR TOLERANCE FOR RISK
 
Where you choose to invest depends as much on your tolerance for risk as on your
desire for reward. Opportunity and risk go hand-in-hand. Generally the greater
the potential long-term opportunity, the greater the potential risk.
 
The most common risk people associate with investing is short-term market
risk -- the day-to-day fluctuation of an investment's value. Although short-term
market risk cannot be eliminated, the Funds' portfolio managers seek to minimize
this risk by investing primarily in quality securities.
 
Investors looking for greater growth in our Stock Funds should be willing to
accept greater account value fluctuation. A wide range of factors -- corporate
earnings potential, interest rates, competition, and other economic
conditions -- can cause both downward and upward share price changes.
 
In the past, investors with a long-term time horizon and a tolerance for
fluctuation have typically been rewarded. Despite years when short-term returns
have not been satisfactory, over most long-term holding periods, money invested
in common stocks has grown more than money invested in fixed income securities.
 
Bond funds generally provide investors with greater price stability than stock
funds. More predictable investments may make an investor more comfortable, but
historically the total return in bond funds has been less than in stock funds.
Prevailing interest rates, more than any other factor, contribute to price
fluctuation in bond funds, and long-term bonds are generally affected more than
shorter-term bonds.
 
Investors who would prefer not to have their investment principal fluctuate
should consider the Money Market Fund. While it provides greater price stability
than the other Funds, it has less long-term return potential.
 
One of the biggest risks investors may face is being too conservative, thereby
not earning enough return on their investments to achieve their future goals.
Another big risk to consider is inflation. The amount of money needed to satisfy
a financial goal (after taking inflation into consideration) may dictate
investment in a Fund with the potential for greater returns. Although com-
 
                                       11
<PAGE>   15
 
                           NATIONWIDE FAMILY OF FUNDS
 
   
mon stocks are generally more volatile, historically they have provided higher
returns than bonds or money market instruments and their returns have exceeded
inflation over long periods.
    
 
Procrastination is yet another risk investors must consider. Delay, and you take
the chance that there may not be enough time to attain your objective. Start
early and invest regularly in funds with growth opportunities, and you stand a
better chance to reach your financial goals.
 
For more information concerning the risk factors of the Funds, see "Investment
Techniques, Considerations and Risk Factors."
 
CONSIDER YOUR TAX BRACKET
 
For investors seeking to shelter their investment income from Federal income
taxes, the Tax-Free Income Fund may be an appropriate investment. The
tax-equivalent yield of this Fund can be especially appealing for investors in
the 28% or higher tax brackets. To determine if such an investment may be right
for you, see "Tax Advantages of the Tax-Free Income Fund."
 
                                       12
<PAGE>   16
 
                           OBJECTIVES AND MANAGEMENT
 
THE MID CAP GROWTH FUND
INVESTMENT OBJECTIVE & POLICY: Seeks long-term capital appreciation. The Fund
invests primarily in equity securities of mid size companies.
 
- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION.
 
- - EQUITY PORTFOLIO -- GENERALLY MID CAP COMPANIES.
 
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Mid Cap Growth Fund generally falls on this continuum.
 
       ++
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
PORTFOLIO MANAGEMENT: Major emphasis in the selection of securities is placed on
companies which have capable management, and are in fields where social and
economic trends, technological developments, and new processes or products
indicate a potential for greater-than-average growth.
   
    Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of mid cap companies. The Fund defines mid cap
companies as those with market capitalization or sales in the range between $300
million and $8 billion, but will generally focus on companies between $300
million and $5 billion. The equity securities in which the Fund will invest are
generally common stocks or securities convertible into common stocks
("convertible securities").
    
    Investments are made in equity securities of many different companies and
industries which provide diversification to help minimize risk.
 
   
THE GROWTH FUND
    
INVESTMENT OBJECTIVE & POLICY:  Seeks long-term capital appreciation. The Fund
invests primarily in equity securities of companies of all sizes.
 
- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION.
 
- - EQUITY PORTFOLIO -- COMPANIES OF ALL SIZES.
 
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Growth Fund generally falls on this continuum.
 
       ++
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
PORTFOLIO MANAGEMENT: Major emphasis in the selection of securities is placed on
companies which have capable management, and are in fields where social and
economic trends, technological developments, and new processes or products
indicate a potential for greater-than-average growth.
   
    Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of companies of all sizes. Equity securities
in which the Fund will invest generally are common stocks and convertible
securities.
    
    Investments are made in equity securities of many different companies and
industries which provide diversification to help minimize risk.
 
   
THE NATIONWIDE FUND
    
INVESTMENT OBJECTIVE & POLICY: Seeks total return through a flexible combination
of current income and capital appreciation. The Fund invests primarily in common
stocks, but also in convertible securities, other equity securities, bonds and
money market obligations.
 
- - TOTAL RETURN THROUGH CAPITAL APPRECIATION AND CURRENT INCOME.
 
- - COMMON STOCK PORTFOLIO -- GENERALLY LARGER COMPANIES.
 
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Nationwide Fund generally falls on this continuum.
 
             ++
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
PORTFOLIO MANAGEMENT: Major emphasis is placed on capital appreciation and
current income. The Fund seeks to maximize shareholder returns through a
diversified portfolio where the primary emphasis is given to equity securities,
especially common stocks. Although not limited to these investments, in the past
the majority of the portfolio assets of the Fund's predecessor, NIF Nationwide
Fund, normally consisted of the common stocks of well-known, larger companies.
    Investments are made in securities of many different companies and
industries which provide diversification to help minimize risk.
 
   
ADDITIONAL INFORMATION CONCERNING THE STOCK FUNDS
    
Equity securities include common stock, preferred stock, convertible securities
and warrants, and the Stock Funds may invest in both domestic and foreign
issues. The Stock Funds may invest in foreign securities directly or through
depository receipts. In addition to investing in equity securities, the Stock
Funds may invest in index futures, options and other derivatives and securities
which are not readily marketable or are restricted as to disposition. They may
also invest in U.S. Government
 
                                       13
<PAGE>   17
 
                           OBJECTIVES AND MANAGEMENT
 
securities, short-term fixed income securities and money market obligations
("Money Market Obligations") and shares of other investment companies. The Stock
Funds may also enter into repurchase agreements, lend portfolio securities, and
may purchase securities on a when-issued or delayed delivery basis.
    As a temporary defensive position as determined by NAS each such Fund may
invest up to 100% of its total assets in cash and/or Money Market Obligations.
    See "Investment Techniques, Considerations and Risk Factors" below and
"Additional Information on Portfolio Instruments and Investment Policies" in the
Statement of Additional Information for further information.
 
THE BOND FUND
 
   
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of income as is consistent
with preservation of capital. The Fund invests primarily in fixed-income
securities and currently focuses on corporate debt investments and U.S.
Government mortgage-backed securities. Under normal market conditions, the
dollar-weighted average portfolio maturity of the Fund will be intermediate,
which is defined by the Fund as being between six and ten years.
    
 
- - MONTHLY INCOME FROM A PORTFOLIO OF INVESTMENT GRADE CORPORATE AND GOVERNMENT
  OBLIGATIONS.
 
- - INTERMEDIATE MATURITIES -- YIELDS AND VOLATILITY ARE USUALLY HIGHER THAN
  SHORT-TERM FUNDS, BUT WITH LOWER YIELDS AND VOLATILITY THAN LONGER-TERM FUNDS.
 
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Bond Fund generally falls on this continuum.
                               ++
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
   
PORTFOLIO MANAGEMENT: Under normal market conditions, the Fund will invest at
least 65% of its total assets in bonds. For purposes of this Fund's policy,
bonds are debt obligations of all types including bonds of varying maturities,
debentures and notes. Major emphasis is placed on investment grade taxable debt
securities including corporate debt securities rated within the four highest
rating categories by a nationally recognized statistical rating organization
("NRSRO") (e.g. Standard & Poor's Corporation or Moody's Investors Service,
Inc.), U.S. and Canadian Government obligations, mortgage-backed securities,
asset-backed securities and commercial paper rated in one of the two highest
rating categories by an NRSRO. The Fund may invest in zero coupon securities and
in unrated securities if NAS determines them to be of comparable quality. The
Fund may enter into repurchase agreements, purchase restricted or illiquid
securities which are not readily marketable or are restricted as to disposition,
and engage in securities lending transactions. The Fund may also purchase
securities on a when-issued or delayed delivery basis and securities of other
investment companies.
    
    Securities rated in the fourth highest rating category by an NRSRO are
commonly referred to as medium-grade securities. Should subsequent events cause
the rating of medium-grade securities to fall NAS will consider such an event in
determining whether the Fund should continue to hold that security. In no event,
however, would the Fund be required to liquidate any portfolio security where
the Fund would suffer a loss on the sale of such security.
    Certain debt securities in which the Fund may invest, such as
mortgage-backed securities and other securities subject to prepayment of
principal prior to the stated maturity date, are expected to be repaid prior to
their stated maturity dates. As a result, the effective maturity of these
securities is expected to be shorter than the stated maturity. For purposes of
calculating the Fund's average weighted portfolio maturity, the effective
maturity of such securities will generally be used.
    In addition, as a temporary defensive position, the Fund may invest up to
100% of its total assets in cash and/or Money Market Obligations.
    See "Investment Techniques, Considerations and Risk Factors" below and
"Additional Information on Portfolio Instruments and Investment Policies" in the
Statement of Additional Information for further information.
 
   
THE TAX-FREE INCOME FUND
    
 
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income exempt
from Federal income tax* as is consistent with the preservation of capital
through investing in investment grade municipal obligations.
 
- - MONTHLY INCOME FROM A PORTFOLIO OF INVESTMENT GRADE MUNICIPAL BONDS.
 
- - INCOME FREE FROM FEDERAL TAXES.*
 
*Investors may be subject to state and local tax.
 
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Tax-Free Income Fund generally falls on this continuum.
   
                                  ++
    
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
   
PORTFOLIO MANAGEMENT: The Fund has adopted a fundamental investment policy which
requires it to invest at least 80% of its net assets in securities, the interest
income from which is exempt from Federal income taxes and is not treated as a
preference item for purposes of the Federal alternative minimum tax. Major
emphasis is placed on municipal obligations rated within the four highest rating
categories (investment grade) by an NRSRO or, if not rated, are of equivalent
investment quality as determined by NAS.
    
 
                                       14
<PAGE>   18
 
                           OBJECTIVES AND MANAGEMENT
 
    Such obligations include: (1) municipal securities backed by the full faith
and credit of the United States; (2) municipal bonds and notes rated within the
four highest rating categories by an NRSRO; (3) other types of municipal
securities such as commercial paper, provided that such securities are rated
within the two highest rating categories by an NRSRO.
    The municipal securities in which the Fund may invest may include variable
and floating rate securities, some of which may be callable. The Fund also
purchases securities on a when-issued or delayed delivery basis, zero coupon
securities and securities of other investment companies and enters into
repurchase agreements.
    The Fund may, as a temporary defensive position, hold and invest up to 20%
of its assets in cash and in taxable Money Market Obligations.
    See "Investment Techniques, Consideration and Risk Factors" below and
"Additional Information on Portfolio Investments and Investment Policies" in the
Statement of Additional Information for further information.
 
   
THE LONG-TERM U.S. GOVERNMENT BOND FUND
    
 
   
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital. The Fund invests in securities of
the U.S. Government, and its agencies and instrumentalities ("U.S. Government
Securities"). The average duration of the Fund will be greater than six years
and the dollar-weighted average portfolio maturity will be greater than 10
years.
    
 
- - MONTHLY INCOME FROM A PORTFOLIO OF U.S. GOVERNMENT SECURITIES.
 
- - LONG-TERM PORTFOLIO.
 
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Long-Term U.S. Government Bond Fund generally falls on this
continuum.
 
                                  ++
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
   
PORTFOLIO MANAGEMENT: While the Fund will normally invest all of its assets in
U.S. Government Securities and in repurchase agreements collateralized by these
securities, it will under normal market conditions invest at least 65% of its
total assets in bonds issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. For purposes of this Fund's policy, bonds are
debt obligations of all types including bonds of varying maturities, bills and
notes.
    
    The Fund may also invest in mortgage-related securities issued by U.S.
Government agencies. These securities include pass-through securities and
collateralized mortgage obligations (CMOs). Pass-through securities represent
part ownership in a pool of mortgage loans. These securities differ from typical
bonds because principal is repaid monthly over the term of the loan rather than
returned in a lump sum at maturity. CMOs are fully collateralized by a pool of
mortgages on which payments of principal and interest are dedicated to payment
of principal and interest on the various classes of the CMOs.
    The Fund may also invest in zero coupon securities, that are direct
obligations of the U.S. Government and its agencies and instrumentalities and in
Money Market Obligations issued or guaranteed by the U.S. Government, and its
agencies or instrumentalities.
    In selecting securities for the Fund, NAS utilizes interest-rate
expectations, yield-curve analysis, economic forecasting, market sector
analysis, and other security selection techniques. The Fund's investments will
be concentrated in areas of the long-term U.S. Government Securities market
(based on sector, coupon or maturity) the investment manager believes are
relatively undervalued.
    The U.S. Government Securities in which the Fund may invest include variable
and floating rate securities, some of which may be callable. 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. In addition, as a
temporary defensive position, the Fund may invest up to 100% of its total assets
in cash and/or Money Market Obligations.
 
THE INTERMEDIATE U.S. GOVERNMENT BOND FUND
 
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital. The Fund invests primarily in U.S.
Government Securities. The average duration of the Fund will be between three
and a half and six years.
 
- - MONTHLY INCOME FROM A PORTFOLIO OF U.S. GOVERNMENT SECURITIES.
 
- - INTERMEDIATE PORTFOLIO.
 
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Intermediate U.S. Government Bond Fund generally falls on this
continuum.
 
                                        ++
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
   
PORTFOLIO MANAGEMENT: While the Fund will normally invest all of its assets in
U.S. Government Securities and in repurchase agreements collateralized by these
securities, it will under normal market conditions invest at least 65% of its
total assets in bonds issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. For purposes of this Fund's policy, bonds are
debt obligations of all types including bonds of varying maturities, bills and
notes.
    
 
                                       15
<PAGE>   19
 
                           OBJECTIVES AND MANAGEMENT
 
    The Fund may invest in mortgage-backed securities issued by U.S. Government
agencies. These securities include pass-through securities and CMOs as described
under "The Long-Term U.S. Government Bond Fund." Pass-through securities
represent part ownership in a pool of mortgage loans. These securities differ
from typical bonds because principal is repaid monthly over the term of the loan
rather than returned in a lump sum at maturity. CMOs are fully collateralized by
a pool of mortgages on which payments of principal and interest are dedicated to
payment of principal and interest on the various classes of the CMOs.
    The Fund may also invest in zero coupon securities, that are direct
obligations of the U.S. Government and its agencies and instrumentalities and in
Money Market Obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
    In selecting securities for the Fund, NAS utilizes interest-rate
expectations, yield-curve analysis, economic forecasting, market sector
analysis, and other security selection techniques. The Fund's investments will
be concentrated in areas of the intermediate U.S. Government Securities market
(based on sector, coupon or maturity) that NAS believes are relatively
undervalued.
    The U.S. Government Securities in which the Fund may invest include variable
and floating rate securities, some of which may be callable. 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. In addition, as a
temporary defensive position, the Fund may invest up to 100% of its total
assets, in cash and/or Money Market Obligations.
 
   
ADDITIONAL INFORMATION CONCERNING THE DURATION OF THE LONG-TERM AND INTERMEDIATE
U.S. GOVERNMENT BOND FUNDS (THE "U.S. GOVERNMENT BOND FUNDS"): The Long-Term
U.S. Government Bond Fund will maintain a duration which, on a weighted average
basis and under normal market conditions, will generally be greater than six
years. The Intermediate U.S. Government Bond Fund will maintain a duration
which, on a weighted average basis and under normal market conditions, will
generally be between three and a half and six years. Duration is a measure of
the average life of a fixed-income security that was developed as a more precise
alternative to the concepts of "term to maturity" or "average dollar weighted
maturity" as measures of "volatility" or "risk" associated with changes in
interest rates. Duration incorporates a security's yield, coupon interest
payments, final maturity and call features into one measure.
    
    Most debt obligations provide interest ("coupon") payments in addition to
final ("par") payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in interest rates.
    Traditionally, a debt security's "term-to-maturity " has been used as a
measure of the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term-to-maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Average dollar weighted maturity is calculated by averaging the
terms to maturity of each debt security held with each maturity "weighted"
according to the percentage of assets that it represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects
both principal and interest payments. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any debt security with interest payments
occurring prior to the payment of principal, duration is ordinarily less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a debt security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.
    There are some situations where the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, NAS will use more sophisticated analytical
techniques to project the economic life of a security and estimate its interest
rate exposure. Since the computation of duration is based on predictions of
future events rather than known factors, there can be no assurance that either
U.S. Government Bond Fund will at all times achieve its targeted portfolio
duration.
    The change in market value of U.S. Government fixed-income securities is
largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case.) When interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfolios. With
respect to the composition of a fixed-income portfolio, the longer the duration
of the portfolio, generally, the greater the anticipated potential for total
return, with, however, greater attendant interest rate risk and price volatility
than for a portfolio with a shorter duration.
    While each U.S. Government Bond Fund intends to maintain the average
duration described above under normal market
 
                                       16
<PAGE>   20
 
                           OBJECTIVES AND MANAGEMENT
 
conditions, there is no limit as to the maturity of any one security which each
U.S. Government Bond Fund may purchase.
 
THE MONEY MARKET FUND
 
INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity. The
Fund invests in high-quality money market instruments maturing in 397 days or
less. Although principal is not intended to fluctuate, there can be no assurance
that the Fund will be able to maintain a stable net asset value of $1.00 per
share.
 
- - MONTHLY INCOME WITH QUICK LIQUIDITY THROUGH CHECK-WRITING PRIVILEGE.
 
- - HISTORICALLY MAINTAINED A FIXED SHARE PRICE THROUGH HIGH-QUALITY, SHORT-TERM
  SECURITIES.
 
   
RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Money Market Fund generally falls on this continuum.
    
 
                                                   ++
ARROW
 
<TABLE>
<S>                       <C>
More risk; greater        Less risk; lower
potential for reward.     growth potential.
</TABLE>
 
   
PORTFOLIO MANAGEMENT: Emphasis is on a diversified portfolio having a dollar
weighted average maturity of 90 days or less. The portfolio consists of
high-quality money market instruments with a remaining maturity of 397 days or
less including, but not limited to: U.S. Government 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 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
an 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.
    
 
                                       17
<PAGE>   21
 
             INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
 
An investment in the Funds involves certain risks. As a general matter, an
investment in the Funds (except the Money Market Fund) involves the risk that
the net asset value of a Fund's shares will fluctuate in response to changes in
economic conditions, interest rates, and the market's perception of the
securities held by the Fund. In addition, an investment in the Stock Funds is
subject to stock market risk, which means that such an investment is subject to
the risk that stock prices in general will decline over short or extended
periods of time. Equity securities of companies with smaller capitalizations
generally are more volatile in price and may be less liquid than securities of
larger capitalized companies.
    An investment in the Bond Funds is subject to bond market risk, i.e., the
risk that the market price of bonds in general will fluctuate. Bond prices
fluctuate largely in response to changes in the level of interest rates. When
interest rates rise, bond prices generally fall; conversely, when interest rates
fall, bond prices generally rise. Although the fluctuation in the price of bonds
is normally less than that of common stocks, in the past there have been
extended periods of cyclical increases in interest rates that have caused
significant declines in the price of bonds in general and have caused the
effective maturity of securities with prepayment features to be extended, thus
effectively converting short or intermediate term securities (which tend to be
less volatile in price) into longer term securities (which tend to be more
volatile in price). The value of shares of the Bond Fund and the Tax-Free Income
Fund may also be affected by the market's perception of changes in any issuer's
credit risk. As perceived credit risk increases, the value of a specific
security generally decreases, and the reverse is also true.
    An investment in the Funds is subject to other risks as well, depending upon
the particular investment techniques employed by a Fund and the types of
securities in which a Fund invests. Certain of these risks are described below.
 
SPECIAL SITUATION COMPANIES -- The Mid Cap Growth Fund may invest in securities
of issuers in special situations. These securities may be more volatile than
other securities since the market value of these securities may decline in value
if the anticipated benefits do not materialize. Companies in "special
situations" include, but are not limited to, companies involved in an
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; litigation which, if
resolved favorably, would improve the value of the companies' securities; or
change in corporate control.
    Although investing in securities of issuers in "special situations" offers
potential for above-average returns if the companies are successful, the risk
exists that the benefit of the "special situation" may not materialize and
therefore the prices of those companies' shares could significantly decline in
value.
 
WARRANTS -- Each Stock Fund may invest in warrants. A warrant is an instrument
which gives the holder the right to subscribe to a specified amount of the
issuer's securities at a set price for a specified period of time or on a
specified date. Warrants do not carry the right to dividends or voting rights
with respect to their underlying securities and do not represent any rights in
assets of the issuer. An investment in warrants may be considered speculative.
In addition, the value of a warrant does not necessarily change with the value
of the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
 
CONVERTIBLE SECURITIES -- The Stock Funds may invest in convertible securities,
which are bonds, debentures, notes, preferred stocks or other securities that
may be converted into or exchanged for a specified amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. Convertible securities have general characteristics similar to
both debt obligations and equity securities. Although to a lesser extent than
with debt obligations generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock and therefore will also react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
    As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all debt obligations, there can be no assurance of
current income because the issuers of the convertible securities may default on
their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of similar quality
because of the potential for capital appreciation. A convertible security, in
addition to providing
 
                                       18
<PAGE>   22
 
             INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
 
fixed income, offers the potential for capital appreciation through the
conversion feature, which enables the holder to benefit from increases in the
market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because the market value of securities will
fluctuate.
    Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically are rated below investment grade or are not rated. The
Stock Funds will limit their investment in convertible securities rated below
investment grade to less than 5% of total net assets.
 
U.S. GOVERNMENT SECURITIES -- As discussed above, each of the Funds may invest
in 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 Bond Funds and the Money Market Fund may
invest in 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 will 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.
 
MORTGAGE- AND ASSET-BACKED SECURITIES -- The Bond Funds (except Tax-Free Income
Fund) may purchase mortgage-backed securities. The Nationwide Bond Fund and the
Nationwide Money Market Fund may also invest in asset-backed securities.
Mortgage-backed securities represent direct or indirect participation in, or are
secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and CMOs. Such
securities may be issued or guaranteed by the U.S. Government, and its agencies
or instrumentalities or in the case of the Nationwide Bond Fund only, by private
issuers, generally originators of or investors in mortgage loans, including
savings and loan associations, mortgage bankers, commercial banks, investment
banks, and special purpose entities (collectively, "private lenders"). The
underlying mortgage assets may have fixed rates or adjustable rates of interest.
Mortgage-backed securities in which the Bond Funds may invest include both
fixed-rate and adjustable-rate mortgage-backed securities.
    Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
    The yield characteristics of mortgage-backed securities differ from those of
traditional debt obligations. Among the principal differences are that interest
and principal payments are made more frequently on mortgage- and asset-backed
securities, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if a Fund purchases these securities at a premium, a
prepayment rate that is higher than expected will reduce yield, while a
prepayment rate that is lower than expected will have the opposite effect of
increasing the yield. Conversely, if a Fund purchases these securities at a
discount, a prepayment rate that is faster than expected will increase yield,
while a prepayment rate that is slower than expected will reduce yield.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a
 
                                       19
<PAGE>   23
 
             INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
 
risk of loss of principal because the premium may not have been fully amortized
by the time the principal is prepaid in full.
    Unlike fixed rate mortgage securities, adjustable rate mortgage securities
are collateralized by or represent interest in mortgage loans with variable
rates of interest. These variable rates of interest reset periodically to align
themselves with market rates. The Fund will not benefit from increases in
interest rates to the extent that interest rates rise to the point where then
cause the current coupon of the underlying adjustable rate mortgages to exceed
any maximum allowable annual or lifetime reset limits (or "cap rates") for a
particular mortgage. In this event, the value of the adjustable rate
mortgage-backed securities in the Fund would likely decrease. Also, the Fund's
net asset value could vary to the extent that current yields on adjustable rate
mortgage-backed securities are different than market yields during interim
periods between coupon reset dates or if the timing of changes to the index upon
which the rate for the underlying mortgage is based lags behind charges in
market rates. During periods of declining interest rates, income to the Fund
derived from adjustable rate mortgages which remain in a mortgage pool will
decrease in contrast to the income on fixed rate mortgages, which will remain
constant. Adjustable rate mortgages also have less potential for appreciation in
value as interest rates decline than do fixed rate investments.
    The Nationwide Bond Fund may purchase mortgage-backed securities issued by
private issuers, and therefore, the purchase of such securities may entail
greater risk than mortgage-backed securities that are guaranteed by the U.S.
Government, its agencies or instrumentalities. 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. Since privately-issued
mortgage certificates are not guaranteed by an entity having the credit status
of GNMA or FHLMC, such securities generally are structured with one or more
types of credit enhancement. Such credit support falls into two categories: (i)
liquidity protection; and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provisions of advances, generally by the entity administering the pool of
assets, to ensure that the pass-through of payments due on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default enhances the likelihood of ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches.
    The ratings of mortgage-backed securities for which third-party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could be
subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency loss
experience on the underlying pool of assets is better than expected. There can
be no assurance that the private issuers or credit enhancers of mortgage-backed
securities can meet their obligations under the relevant policies or other forms
of credit enhancement.
    Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments sometimes funded from a portion of the
payments on the underlying assets are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such security.
 
COLLATERALIZED MORTGAGE OBLIGATIONS -- The Bond Funds (other than the Tax-Free
Income Fund) may also acquire CMOs and stripped mortgage-backed securities. CMOs
are debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral collectively referred to as "Mortgage
Assets"). Payments of principal or interest on the Mortgage Assets, and any
reinvestment income thereon, provide the income to pay debt service on the CMOs.
CMOs may be issued by agencies or instrumentalities of the U.S. Government or by
private lenders.
 
INTEREST ONLY AND PRINCIPAL ONLY SECURITIES -- Stripped mortgage-backed
securities are securities representing interest in a pool of mortgages the cash
flow from which has been separated into interest and principal components. "IOs"
(interest only securities) receive the interest portion of the cash flow while
 
                                       20
<PAGE>   24
 
             INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
 
"POs" (principal only securities) receive the principal portion. Stripped
mortgage-backed securities may be issued by U.S. Government agencies or by
private lenders. As interest rates rise and fall, the value of IOs tends to move
in the same direction as interest rates. The value of POs, like other debt
instruments, will tend to move in the opposite direction compared to interest
rates. POs perform best when prepayments on the underlying mortgages rise since
this increases the rate at which the investment is returned and the yield to
maturity on the PO. When payments on mortgages underlying a PO are slow, the
life of the PO is lengthened and the yield to maturity is reduced.
   
    Each Bond Fund (other than the Tax-Free Income Fund) may purchase stripped
mortgage-backed securities for hedging purposes to protect that Fund against
interest rate fluctuations. For example, since an IO will tend to increase in
value as interest rates rise, it may be utilized to hedge against a decrease in
value of other fixed-income securities in a rising interest rate environment.
With respect to IOs, if the underlying mortgage securities experience greater
than anticipated prepayments of principal, the Fund may fail to recoup fully its
initial investment in these securities even if the securities are rated in the
highest rating category by an NRSRO. Stripped mortgage-backed securities may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors. The
market value of the class consisting entirely of principal payments can be
extremely volatile in response to changes in interest rates. The yields on
stripped mortgage-backed securities that receive all or most of the interest are
generally higher than prevailing market yields on other mortgage-backed
obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. No more
than 10% of a Bond Fund's total assets will be invested in IOs and in POs. The
market for CMOs and other stripped mortgage-backed securities may be less liquid
if these securities lose their value as a result of changes in interest rates;
in such instance, a Bond Fund may have difficulty in selling such securities.
    
 
MUNICIPAL SECURITIES -- The two principal classifications of municipal
securities which may be held by the Tax-Free Income Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Tax-Free Income Fund are in most cases revenue securities and are
not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
    The Tax-Free Income Fund may also invest in "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment, but not a legal obligation, of the state or municipality
which created the issuer.
   
    Proposals to restrict or eliminate the Federal income tax exemption of
interest on municipal securities have been discussed from time to time and may
be enacted in the future.
    
 
REPURCHASE AGREEMENTS -- Each of the Funds may engage in repurchase agreement
transactions as long as the underlying securities are of the type that the Fund
would be permitted to purchase directly. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Fund to resell, the obligation at an agreed upon price
and time, thereby determining the yield during the Fund's holding period. The
Fund will enter into repurchase agreements with member banks of the Federal
Reserve System or certain non-bank dealers. Under each repurchase agreement the
selling institution will be required to maintain the value of the securities
subject to the repurchase agreement at not less than their repurchase price
(including interest). Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon a Fund's ability to dispose of the underlying securities. NAS,
acting under the supervision of the Board of Trustees 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"), each Fund may invest up to 10% of its total assets,
calculated at the time of investment, in the securities of other investment
companies. No more than 5% of a Fund's total assets may be invested in the
securities of any one investment company nor may it acquire more than 3% of the
voting securities of any other investment company. Each Fund will indirectly
bear its proportionate share of any management fees paid by an investment
company in which it invests in addition to the advisory fee paid by the Fund.
    
 
                                       21
<PAGE>   25
 
             INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
 
WHEN-ISSUED SECURITIES -- Each of the Funds may invest without limitation in
securities purchased on a when-issued or delayed delivery basis. Although the
payment and interest terms of these securities are established at the time the
Fund enters into the commitment, these securities may be delivered and paid for
at a future date, generally within 45 days; for mortgage-backed securities, the
delivery date may extend to as long as 120 days. Purchasing when-issued
securities allows a Fund to lock in a fixed price or yield on a security it
intends to purchase. However, when the Fund purchases a when-issued security, it
immediately assumes the risk of ownership, including the risk of price
fluctuation until the settlement date.
    The greater a Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of a Fund.
Purchasing when-issued securities may involve the additional risk that the yield
available in the market when the delivery occurs may be higher or the market
price lower than that obtained at the time of commitment. Although the Fund may
be able to sell these securities prior to the delivery date, it will purchase
when-issued securities for the purpose of actually acquiring the securities,
unless after entering into the commitment a sale appears desirable for
investment reasons. The Fund will set aside liquid assets in a segregated
account to secure its outstanding commitments for when-issued securities.
 
   
FLOATING AND VARIABLE RATE OBLIGATIONS -- The Bond Funds and the Money Market
Fund may invest in floating and variable rate obligations. Floating or variable
rate obligations bear interest at rates that are not fixed, but vary with
changes in specified market 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 these Funds 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 the credit risks
other debt instruments have, but because the issuer may call the obligations,
these Funds are also subject to the risk that the rates at which a 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 these Funds 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 Bond Funds and the Money Market
Fund will limit their purchases of floating and variable rate obligations to
those of the same quality as they otherwise are allowed to purchase. NAS will
monitor on an ongoing basis the ability of an issuer of a demand instrument to
pay principal and interest on demand.
    
    Although there may be no active secondary market with respect to a
particular variable or floating rate obligation purchased by a Fund, the Fund
may attempt to resell the obligation at any time to a third party. The absence
of an active secondary market, however, could make it difficult for a Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations, and the Fund could, as a result
or for other reasons, suffer a loss to the extent of the default. Variable or
floating rate obligations may be secured by bank letters of credit.
    In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value or amortized cost, as the case may be.
    Variable and floating rate obligations for which no readily available market
exists and which are not subject to a demand feature that will permit 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.
 
ZERO COUPON SECURITIES -- The Bond Funds may invest in zero coupon securities.
Zero coupon securities are debt securities that pay no cash income but are sold
at substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Certain
zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. Zero coupon securities may have conversion features.
    Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during
 
                                       22
<PAGE>   26
 
             INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS
 
periods of declining interest rates and depreciates more during periods of
rising interest rates than ordinary interest-paying debt securities with similar
maturities. Zero coupon securities may be issued by a wide variety of corporate
and governmental issuers. Although these instruments are generally not traded on
a national securities exchange, they are widely traded by brokers and dealers
and, to such extent, will not be considered illiquid for the purposes of the
Fund's limitation on investments in illiquid securities.
    Current Federal income tax law requires the holder of a zero coupon security
to accrue income with respect to these securities prior to the receipt of cash
payments. Accordingly, to avoid liability for Federal income and excise taxes,
the Bond Funds may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
 
MONEY MARKET OBLIGATIONS -- Each of the Funds may invest its assets in
high-quality short-term money market obligations.
    Money Market Obligations in which the Funds may invest include: 1) U.S.
Government Securities (as described above) with remaining maturities of one year
or less; 2) commercial paper rated in one of the two highest ratings categories
of any NRSRO; 3) short-term bank obligations that are rated in one of the two
highest categories by any NRSRO, with respect to obligations maturing in one
year or less; 4) repurchase agreements relating to debt obligations which a Fund
could purchase directly; 5) unrated debt obligations with remaining maturities
of one year or less which are determined by NAS to be of comparable quality to
securities described above; or 6) money market mutual funds.
 
   
CANADIAN AND PROVINCIAL OBLIGATIONS -- The Money Market Fund and the Bond Fund
may invest in Canadian and Provincial obligations. They are unsecured,
discounted bills and notes are issued in U.S. currency. Obligations have a final
maturity of 270 days or less from date of issue and are exempt from registration
under section 3(a)(3) of the Securities Act of 1933, as amended. Canada Bills
constitute direct, unconditional obligations of Her Majesty in right of Canada
and are a direct charge on, and payable out of the Consolidated Revenue Fund of
Canada. Export Development Company and Canadian Wheat Board are crown
corporations and agents of Her Majesty in right of Canada. Provincial
obligations have the full faith and credit of the provincial governments.
    
 
MEDIUM-GRADE OBLIGATIONS -- The Nationwide Bond and Tax-Free Income Funds may
invest in medium-grade securities. Medium-grade securities are obligations rated
in the fourth highest rating category by any NRSRO. Medium-grade securities,
although considered investment-grade, have speculative characteristics and may
be subject to greater fluctuations in value than higher-rated securities. In
addition, the issuers of medium-grade securities may be more vulnerable to
adverse economic conditions or changing circumstances than issuers of
higher-rated securities.
   
    All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by NAS to consider what action,
if any, a Fund should take consistent with its investment objective. There is no
requirement that any such securities must be sold if downgraded.
    
 
LENDING PORTFOLIO SECURITIES -- From time to time, each of the Funds (except the
Tax-Free Income Fund) may lend their portfolio securities to brokers, dealers
and other financial institutions who need to borrow securities to complete
certain transactions. In connection with such loans, a Fund will receive
collateral consisting of cash, U.S. Government Securities or irrevocable letters
of credit. Such collateral will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. A Fund can
increase its income through the investment of such collateral and continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned security and receives interest on the amount
of the loan. Such loans will be terminable at any time upon specified notice.
The Fund might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the Fund.
 
DERIVATIVE INSTRUMENTS -- NAS may use a variety of derivative instruments,
including options, futures contracts ("futures"), options on futures, stock
index options and forward currency contracts to hedge a Stock Fund's portfolio
or for risk management. Derivatives are financial instruments whose value and
performance are based on the value and performance of another security,
financial instrument or index.
 
PORTFOLIO TURNOVER
The Funds will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever NAS
believes it to be in the best interests of a Fund. The Funds will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with their investment objective and policies.
    The annual portfolio turnover rate for each of the Funds (except the Money
Market Fund) is not expected to exceed 150% of such Fund's portfolio. For
regulatory purposes, the Money Market Fund is expected to have a 0% portfolio
turnover rate. Higher turnover rates (i.e., 100% or more) will generally result
in higher transaction costs to the Fund, as well as higher brokerage expenses
and higher levels of capital gains. The portfolio turnover rates of each Fund
may vary greatly from year to year and within a particular year.
 
                                       23
<PAGE>   27
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
HOW TO PURCHASE SHARES
 
YOU MAY INVEST IN THREE CONVENIENT WAYS:
 
BY MAIL -- Complete the application and mail with your check or other negotiable
bank draft payable to: NATIONWIDE ADVISORY SERVICES, INC., THREE NATIONWIDE
PLAZA, P.O. BOX 1492, COLUMBUS, OHIO 43216-1492. Purchases must be made in U.S.
dollars only. The share price you receive will be determined as of the Valuation
Time (as defined below) on the day the properly completed application is
received by NAS in Columbus, Ohio. Checks or drafts drawn on non-U.S. banks are
not accepted. NAS reserves the right to refuse certain third-party checks.
 
   
BY WIRE -- To avoid mail delays on initial and subsequent investments, you can
request that your bank transmit funds (Federal Funds) by wire to the Fund's
custodian bank. In order to use this method, you must call NAS by 11 A.M.
Eastern Time, and the wire must be received by the custodian bank by 2 P.M.
Eastern Time. The share price you receive will be determined as of the next
Valuation Time (as described below) after your order is received. If NAS does
not receive Federal Funds for your order within 3 business days, your order will
be cancelled. The bank that wires your money may charge you a fee for this
service. IF YOU CHOOSE THIS METHOD TO OPEN YOUR ACCOUNT, YOU MUST CALL OUR TOLL-
FREE NUMBER BEFORE YOU WIRE YOUR INVESTMENT. If this is an initial investment,
you must then complete and mail the application.
    
 
BY TELEPHONE (NAS NOW) -- By calling 1-800-637-0012, 24 hours a day, seven days
a week you will be connected to our automated voice-response system, NAS NOW. It
gives you quick, easy access to mutual fund information. Select from a menu of
choices to conduct transactions and hear fund price information, mailing and
wiring instructions as well as other mutual fund information.
 
IN ORDER TO USE NAS NOW TO MAKE A PURCHASE YOU MUST COMPLETE THE APPROPRIATE
SECTION ON THE APPLICATION.
 
   
MINIMUM INVESTMENT
    
   
A minimum investment is $1,000, and minimum subsequent investments are $100 or
more for a Fund at any time. For certain shareholders, each of the Stock Funds
and the Nationwide Bond Fund have a minimum investment of $250 and minimum
subsequent investments of $25 or more. This minimum is available for
shareholders who received Class D shares or Money Market Fund shares in
connection with the Reorganization if the shareholder is purchasing in the same
capacity and through the same account, and shareholders entitled to purchase
shares of such Funds at net asset value.
    
   
    You may establish an Automatic Asset Accumulation plan for as little as $50
per month. See "Investor Strategies" for more information.
    
   
    Minimum investment requirements may be waived for certain retirement plans.
See "Retirement Plans" for further information.
    
 
   
CHOOSE A SHARE CLASS
    
   
Each Fund (except for the Money Market Fund) offers three classes of shares.
Class A shares are purchased with a front-end sales charge and a 0.25% 12b-1
fee. Class B shares are subject to a CDSC on redemption and a 1.00% 12b-1 fee
for the Stock Funds and an 0.85% 12b-1 fee for the Bond Funds. Class D shares
are purchased with a front-end sales charge but no 12b-1 fee. The Money Market
Fund, whose shares have no class designation, has no sales charge or 12b-1 fee.
    
 
   
PURCHASE PRICE AND SALES CHARGES
    
 
   
THE PURCHASE PRICES OF THE FUNDS ARE DETERMINED AS FOLLOWS:
    
 
   
SHARES OF THE MONEY MARKET FUND
    
   
Shares of the Money Market Fund are purchased at net asset value. You pay no
sales charge when you invest in or redeem from the Money Market Fund.
    
 
   
CLASS A AND D SHARES OF THE STOCK AND BOND FUNDS
    
   
Class A and D shares are purchased at the offering price. The offering price is
determined by adding the sales charge (based as a percentage of the offering
price) to the net asset value per share.
    
 
   
SALES CHARGE SCHEDULE AND AVAILABLE DISCOUNTS FOR CLASS A AND D SHARES
    
   
For purchases of the Class A and D shares, your sales charge percentage is
calculated according to the charts below:
    
 
   
<TABLE>
<CAPTION>
                  SALES CHARGE SCHEDULE--
 Class A Shares of the Stock Funds         As a percentage
                            of:
- -----------------------------------------------------------
  If your investment plus the value   Offering      Amount
  of other shares held is:             Price       Invested
- -----------------------------------------------------------
<S>                                   <C>          <C>
less than $100,000, the sales charge
  is:                                    5.50%        5.82%
$100,000 but less than $250,000          4.25%        4.44%
$250,000 but less than $500,000          3.00%        3.09%
$500,000 but less than $1,000,000        1.75%        1.78%
$1,000,000 or more                       0.50%        0.50%
</TABLE>
    
 
                                       24
<PAGE>   28
 
                           NATIONWIDE FAMILY OF FUNDS
 
   
<TABLE>
<CAPTION>
                  SALES CHARGE SCHEDULE--
             Class A Shares of the Bond Funds
 and Class D Shares                       As a percentage
                            of:
- -----------------------------------------------------------
  If your investment plus the value   Offering      Amount
  of other shares held is:             Price       Invested
- -----------------------------------------------------------
<S>                                   <C>          <C>
less than $100,000, the sales charge
  is:                                    4.50%        4.71%
$100,000 but less than $250,000          3.50%        3.63%
$250,000 but less than $500,000          2.50%        2.56%
$500,000 but less than $1,000,000        1.50%        1.52%
$1,000,000 or more                       0.50%        0.50%
</TABLE>
    
 
   
    Shareholders can receive even greater discounts through the cumulative
effect of the discounts below:
    
 
   
LIFETIME ADDITIONAL DISCOUNT
    
   
The sales charge for Class A and D shares is computed at the rate applied to the
amount invested plus the accumulated value of Class A and D shares held in any
of the Funds (except Nationwide Money Market Fund) including shares acquired by
reinvestment of dividends and capital gains distributions.
    
 
   
FAMILY MEMBER DISCOUNT
    
   
In addition, all Class A and D shares held in any Fund accounts (except
Nationwide Money Market Fund) of members of the shareholder's family may be
included, provided these family members reside at the shareholder's address.
    
 
   
INSURANCE PROCEEDS OR BENEFITS DISCOUNT PRIVILEGE -- If the funds used to
purchase Class A and D shares come from proceeds or benefits of an insurance
policy issued by any member of the Nationwide Insurance Enterprise, the sales
charge is one-half the rate established, provided the purchase is made within 60
days after receipt of the proceeds or benefits.
    
 
   
LETTER OF INTENT (LOI) DISCOUNT -- This discount permits you to purchase Class A
and D shares at a reduced cost during a 13-month period if the amount invested
or the value of shares held by you and other family members of your household,
plus the amount invested (excluding investments in Nationwide Money Market
Fund), equals or exceeds $100,000. LOI is not a binding obligation upon the
investor to buy the shares. It is merely a statement of intent.
    
   
    By marking the appropriate box and signing the application, you indicate
your intention to complete the appropriate LOI. The LOI will be completed when
your new investments in a particular class, together with the value of all
existing shares of such class held by you, your spouse, minor children, and
other family members of your household, total an amount equal to the amount
checked on the application. You obtain a reduced sales charge on each share
purchased during the 13-month period. The LOI may be backdated, up to 90 days,
to include previous purchases under the reduced sales charge available under the
LOI.
    
   
    If the intended investment is not completed, the investor will be asked to
pay the difference between the sales charge actually paid and the sales charge
due on the amount invested according to the "Sales Charge Schedule." If the
difference is not paid within 20 days after written request, the investor
irrevocably constitutes and appoints NAS as his or her attorney-in-fact, with
full power of substitution, to redeem an appropriate number of shares from his
or her account to cover the amount due. For more details on the LOI Discount,
call 1-800-848-0920.
    
 
   
NET ASSET VALUE PURCHASE PRIVILEGE (CLASS A AND D SHARES ONLY). -- The sales
charge applicable to Class A and D shares may be waived for the following
purchases: (1) shares sold through institutional sales to other registered
investment companies affiliated with NAS, (2) for Class D shares, sales which
may be made (a) to any pension, profit sharing, or other employee benefit plan
for the employees of NAS, any of its affiliated companies, or investment
advisory clients and their affiliates, (b) to Trustees and retired Trustees of
NIF III (including its predecessor Trusts), (c) directors, officers, full-time
employees, sales representatives and their employees, and retired directors,
officers, employees, and sales representatives, their spouses, children of
immediate relatives, and immediate relatives of deceased employees (immediate
relatives include mother, father, brothers, sisters, grandparents, grandchildren
("Immediate Relatives")) of any member of the Nationwide Insurance Enterprise,
or any investment advisory clients of NAS and their affiliates, (d) to
directors, officers and full-time employees, their spouses, children or
Immediate Relatives and Immediate Relatives of deceased employees of any sponsor
group which may be affiliated with the Nationwide Insurance Enterprise from time
to time, which include but are not limited to Farmland Insurance Industries,
Inc., Maryland Farm Bureau, Inc., Ohio Farm Bureau Federation, Inc.,
Pennsylvania Farmers' Association, Ruralite Services, Inc., and Southern States
Cooperative, (e) any endowment or non-profit organization, (f) to any pension,
profit sharing, or deferred compensation plan which is qualified under section
401(a), 403(b) or 457 of the Internal Revenue Code of 1986 as amended, dealing
directly with NAS with no sales representative involved upon written assurance
of the purchaser that the shares are acquired for investment purposes and will
not be resold except to the Trust, (g) to any life insurance company separate
account registered as a unit investment trust, and (h) to any qualified pension
or profit sharing plan established by a Nationwide sales representative for
himself/herself and his/her employees. The sales charge applicable to Class A
shares may be waived for any person purchasing through an account with an
unaffiliated brokerage firm having an agreement with NAS to provide shareholder
servicing.
    
 
                                       25
<PAGE>   29
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   
CLASS B SHARES OF THE STOCK AND BOND FUNDS AND CDSC
    
   
A CDSC will be imposed on any redemption of Class B shares which causes the
current value of your account to fall below the total amount of all purchases
made during the preceding six years. THE CDSC IS NEVER IMPOSED ON DIVIDENDS,
WHETHER PAID IN CASH OR REINVESTED, OR ON APPRECIATION. The CDSC applies only to
the lesser of the original investment or current market value.
    
   
    Where the CDSC is imposed, the amount of the CDSC will depend on the number
of years since you made the purchase payment from which an amount is being
redeemed, according to the following table:
    
 
   
<TABLE>
<CAPTION>
- -----------------------------------------------------------
                                      CONTINGENT
                                      DEFERRED
YEAR OF REDEMPTION                     SALES
  AFTER PURCHASE                       CHARGE
<S>                                   <C>          
- -----------------------------------------------------------
First................................    5.00%
Second...............................    4.00%
Third................................    3.00%
Fourth...............................    3.00%
Fifth................................    2.00%
Sixth................................    1.00%
Seventh and following................    0.00%
</TABLE>
    
 
   
For purposes of calculating the CDSC, it is assumed that the oldest Class B
shares remaining in your account will be sold first. All payments during a month
will be aggregated and deemed to have been made on the last day of the preceding
month.
    
   
For the Bonds Funds your money will earn daily dividends through the date of
liquidation. If you redeem all of your shares in one of the Bond Funds, you will
receive a check representing the value of your account, less any applicable CDSC
calculated as of the date of your withdrawal, including all daily dividends
credited to your account through the date of withdrawal.
    
   
    THE CDSC WILL BE WAIVED IN THE CASE OF A TOTAL OR PARTIAL REDEMPTION
FOLLOWING THE DEATH OR DISABILITY OF A SHAREHOLDER (ACCOUNTS OWNED BY AN
INDIVIDUAL OR AN INDIVIDUAL JOINTLY WITH SPOUSE) IF REDEMPTION OCCURS WITHIN ONE
YEAR OF DEATH OR INITIAL DETERMINATION OF DISABILITY).
    
 
   
CONVERSION FEATURES FOR CLASS B SHARES
    
   
Class B shares which have been outstanding for seven years after the end of the
month in which the shares were initially purchased will automatically convert to
Class A shares and, consequently, will no longer be subject to the higher 12b-1
fee. Such conversion will be on the basis of the relative net asset values of
the two classes, without the imposition of a sales charge or other charge except
that the 12b-1 fee applicable to Class A shares shall thereafter be applied to
such converted shares. Because the per share net asset value of the Class A
shares may be higher than that of the Class B shares at the time of the
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
Reinvestments of dividends and distributions in Class B shares will not be
considered a new purchase for purposes of the conversion feature and will
convert to Class A shares in the same proportion as the number of the
shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and
distributions.
    
   
    If a shareholder effects one or more exchanges among Class B shares of the
Funds during the six-year period, the holding period for shares so exchanged
will be counted toward such period.
    
 
   
FACTORS TO CONSIDER WHEN SELECTING A SHARE CLASS
    
   
Before purchasing Class A shares or Class B shares of a Fund, investors should
consider whether, during the anticipated life of their investment in a Fund, the
accumulated 12b-1 fee and potential CDSC on Class B shares prior to conversion
(as described above) would be less than the initial sales charge and accumulated
12b-1 fee on Class A shares purchased at the same time, and to what extent such
differential would be offset by the higher yield of Class A shares. In this
regard, to the extent that the sales charge for the Class A shares is waived or
reduced by one of the methods described above or the investment is $100,000 or
more, investments in Class A shares become more desirable. NAS may refuse a
purchase order for Class B shares of over $100,000.
    
   
    Although Class A shares are subject to a 12b-1 fee, they are not subject to
the higher 12b-1 fee applicable to Class B shares. For this reason, Class A
shares can be expected to pay correspondingly higher dividends per shares.
However, because initial sales charges are deducted at the time of purchase,
purchasers of Class A shares who do not qualify for waivers of or reductions in
the initial sales charge would have less of their purchase price initially
invested in the Fund than purchasers of Class B shares.
    
   
    As described above, purchasers of Class B shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount may partially or wholly offset the expected higher
annual expenses borne by Class B shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Investors in
Class B shares would, however, own shares that are subject to higher annual
expenses and, for a six-year period, such shares would be subject to a CDSC
ranging from 5.00% to 1.00% upon redemption. Investors expecting to redeem
during this six-year period should compare the cost of the CDSC plus the
aggregate annual Class B shares' 12b-1 fees to the cost of the initial sales
charge and 12b-1 fee on the Class A shares. Over
    
 
                                       26
<PAGE>   30
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   
time the expense of the annual 12b-1 fee on the Class B shares may be equal to
or exceed the initial sales charge and annual 12b-1 fee applicable to Class A
shares. For example, if a Fund's net asset value remains constant and assuming
no waiving of any 12b-1 fees, the aggregate 12b-1 fee with respect to Class B
shares of a Fund would equal or exceed the initial sales charge and aggregate
12b-1 fee of Class A shares approximately eight years after the purchase. In
order to reduce such fees of investors that hold Class B shares for eight years
or more, Class B shares will be automatically converted to Class A shares, as
described, at the end of a seven-year period. This example assumes that the
initial purchase of Class A shares would be subject to the maximum initial sales
charge of 5.50% for the Stock Funds and 4.50% for the Bond Funds. This example
does not take into account the time value of money which reduces the impact of
the Class B shares' 12b-1 fee on the investment, the benefit of having the
additional initial purchase price invested during the period before it is
effectively paid out as a 12b-1 fee, fluctuations in net asset value, any waiver
of 12b-1 fees or the effect of different performance assumptions.
    
   
    If a shareholder who owns both Class A shares and Class B shares redeems
less than his or her entire investment, then shares will be redeemed in the
following order: (a) any Class B shares that are not subject to a CDSC (e.g.,
shares acquired as a result of reinvested dividends and distributions); (b)
Class A shares; and (c) Class B shares subject to a CDSC, unless a shareholder
has made a specific election otherwise.
    
 
   
HOW TO SELL (REDEEM) SHARES
    
 
   
You can sell (redeem) all, or any part of, your shares of any Fund at any time.
Shares are redeemed at net asset value next computed after receipt of the
properly completed request by NAS, at its offices in Columbus, Ohio. Redemptions
of Class B shares may be subject to a CDSC as described above.
    
    Requests for redemptions may be in writing or by telephone (if authorized).
Payment for shares redeemed is made within 3 business days of receipt. The value
of shares redeemed depends upon the market value of the investments of each Fund
at the time of redemption and may be more or less than the shareholders' cost.
    Payment of redemption proceeds may be delayed until the check purchasing
shares has cleared or up to fifteen days from the date of purchase, whichever
occurs first. This is to assure that your check has cleared. To avoid this
possible delay, you may make your investment by wire (see "How To Purchase
Shares by Wire"). You will receive a confirmation each time a liquidation of
shares is requested. Redemptions may be suspended or the date of payment
postponed when the New York Stock Exchange is closed (other than customary
weekend and holiday closings listed in the "How To Purchase Shares" section), or
if trading is restricted or if any emergency exists.
 
YOU CAN REDEEM IN ANY OF THE FOLLOWING WAYS:
 
BY TELEPHONE
 
   NAS NOW -- By calling 1-800-637-0012, 24 hours a day, seven days a week, you
   will automatically have access to NAS NOW to make a redemption (check mailed
   to address of record) unless you declined the option in your application.
   Additional NAS NOW redemption options are also available, if elected. NAS NOW
   also gives you quick, easy access to mutual fund information. Select from a
   menu of choices to conduct transactions and hear fund price information,
   mailing and wiring instructions as well as other mutual fund information.
   (Redemptions through NAS NOW, the automated voice-response system, will be
   limited to the following registrations: Individual, Joint, Transfer on Death,
   Trust, and Uniform Gift/Transfer to Minor accounts. Western Union redemptions
   are not allowed through NAS NOW.)
 
   CUSTOMER SERVICE LINE -- A check payable to the shareholder of record can be
   mailed to the address of record, unless you declined the option in your
   account application. Redemptions of $1,000 or more can be wired directly to
   your account at a commercial bank (voided check must be attached to the
   application) or sent via Western Union, if elected in the application. For
   additional information on Western Union, please see below.
 
   Telephone redemptions for IRAs are available upon receipt of the proper
   forms. These redemptions will be subject to mandatory 10% Federal income tax
   withholding, unless you elect out of withholding. For further information, or
   to request these forms, please call our customer service line at
   1-800-848-0920.
 
   
   You must call our toll-free number by Valuation Time (as defined below),
   which is usually 4:00 p.m. Eastern Time, to receive that day's closing share
   price.
    
 
   The Funds will employ reasonable procedures to confirm that instructions
   communicated by telephone are genuine. The Funds will not be liable for any
   loss, injury, damage, or expense as a result of acting upon instructions
   communicated by telephone reasonably believed to be genuine, and the Funds
   will be held harmless from any loss, claims or liability arising from its
   compliance with such instructions. These options are subject to the terms and
   conditions set forth in this Prospectus and all telephone transaction calls
   may be tape recorded. The Funds reserve
 
                                       27
<PAGE>   31
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   the right to revoke this privilege at any time without notice to shareholders
   and request the redemption in writing, signed by all shareholders.
 
   BY BANK WIRE -- Your funds will be wired to your bank on the next business
   day after your redemption order has been processed. A $5 fee will be deducted
   from the proceeds for this service. Your financial institution may also
   charge you a fee for receipt of the wire. (If elected, this authorization
   will remain in effect until written notice of its termination is received by
   NAS.)
 
   BY ACH -- Your funds will be sent via ACH to your bank account on the second
   business day after your redemption order has been received by NAS. There is
   no fee to receive your funds via ACH. (If elected, this authorization will
   remain in effect until written notice of its termination is received by NAS.)
   Funds sent through the automated clearing house should reach your bank in two
   business days.
 
   BY WESTERN UNION -- With Western Union's Quick Cash(R) service, you can
   receive your redemptions the next day across the United States or throughout
   the world. If you have elected, you can phone in your request to receive
   funds, next business day, at 24,000 locations - including major supermarkets
   and mail-box type outlets - many open 24 hours a day, seven days a week. The
   fee for the Western Union service is $9.50 per $10,000. Funds being sent
   outside of The United States may be subject to a higher fee. This fee is
   deducted from your account.
 
BY MAIL OR FAX (NO MINIMUM) -- Write or fax to Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492 or FAX
(614) 249-8705. Please be sure that your letter or facsimile is signed exactly
as your account is registered and that your account number and the Fund from
which you wish to make the withdrawal are included. For example, if your account
is registered John Doe and Mary Doe, 'Joint Tenants With Right of Survivorship,'
then both John and Mary must sign the redemption request. For an IRA redemption,
you must include date of birth. Also, you must indicate whether or not you wish
Federal income tax (not less than 10%) to be withheld from the distribution. The
distribution will be processed effective the date the signed letter or fax is
received. Fax requests received after 4 P.M. Eastern time will be processed as
of the next business day. NAS reserves the right to require the original
document if you use the fax method.
 
   
BY MONEY MARKET CHECK WRITING -- Money Market Fund shareholders receive free
check writing privileges ($500 minimum). If you wish to withdraw your money this
way, please complete the appropriate section of the application. You pay no fee
for this service, but the Fund reserves the right to charge for it or to
terminate this service. For shares of the Money Market Fund exchanged from Class
B shares the check writing privilege is not available.
    
   
    IF YOU HAVE MONEY MARKET CHECK WRITING PRIVILEGES, YOU SHOULD NOT ATTEMPT TO
REDEEM YOUR ENTIRE ACCOUNT BY WRITING A CHECK. This is because dividends are
accrued daily which will not be credited to your account until the end of the
month. This could result in a small remaining balance, which would be subject to
the $2 per month fee on Money Market Fund accounts below minimum requirements.
    
 
ALTERNATE METHODS -- In the event of significant market activity, it may be
difficult to reach NAS by telephone. If so, an investor may choose to use
alternate methods to contact NAS such as sending instructions by a special
delivery service, or by facsimile (FAX) machine (614-249-8705). If you use the
FAX method, NAS reserves the right to require the original document.
 
ACCOUNTS FALLING BELOW MINIMUM INVESTMENT REQUIREMENTS
Because of the high cost of maintaining small accounts, NAS MAY CLOSE ANY
ACCOUNT WHICH, AS A RESULT OF REDEMPTIONS, HAS A VALUE OF LESS THAN $250
(EXCLUDING AUTOMATIC ASSET ACCUMULATION ACCOUNTS). However, you will be notified
if your account value is less than the required minimum, and you will be allowed
90 days to make additional investments before the account is liquidated.
    IN THE CASE OF A MONEY MARKET FUND ACCOUNT BELOW $250 ON AVERAGE FOR ANY
MONTH, A $2 MONTHLY FEE WILL BE ASSESSED. The fee is deposited into the Fund to
offset the expenses of carrying these small accounts. Shares are redeemed in the
first week of the following month to cover the fee.
 
SIGNATURE GUARANTEE
Based on the circumstances of each transaction, NAS reserves the right to
require that your signature be guaranteed by an authorized agent of an "eligible
guarantor institution," which include, but are not limited to, certain banks,
credit unions, savings associations, and member firms of national security
exchanges. A signature guarantee is designed to protect the shareholder by
helping to prevent an unauthorized person from redeeming shares and obtaining
the proceeds. A notary public is not an acceptable guarantor. In certain special
cases (such as corporate or fiduciary registrations), additional legal documents
may be required to ensure proper authorizations. If NAS decides to require
signature guarantees in all circumstances, shareholders will be notified in
writing prior to implementation of the policy.
 
                                       28
<PAGE>   32
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   
VALUATION OF SHARES
    
   
The net asset value per share for each Fund is determined as of the close of
regular trading on the New York Stock Exchange (usually 4 P.M. Eastern Time),
each day that the exchange is open and on such other days as the Board of
Trustees determines and on days in which there is sufficient trading in
portfolio securities of a Fund to materially affect the net asset value of that
Fund (the "Valuation Time").
    
   
    The Funds will not compute net asset value on customary business holidays,
including Christmas, New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day and Thanksgiving.
    
   
    The net asset value per share of a class is computed by adding the value of
all securities and other assets in a Fund's portfolio allocable to such class,
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 such class.
    
   
    In determining net asset value, portfolio securities listed on national
exchanges are valued at the last sale price on the principal exchange, or if
there is no sale on that day, or if the securities are traded only in the
over-the-counter market, at the quoted bid prices, all obtained from an
independent pricing organization. Securities for which market quotations are not
available, or for which an independent pricing agent does not provide a value or
provides a value that does not represent fair value in the judgment of NAS are
valued at fair value in accordance with procedures adopted by the Board of
Trustees.
    
   
    In determining net asset value of the Money Market Fund, 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.
    
 
INVESTOR STRATEGIES
 
1 MONEY MARKET PLUS GROWTH -- This strategy provides the security of principal
that the Money Market Fund offers plus the opportunity for greater long-term
capital appreciation through reinvestment of dividends into one of the Stock
Funds.
   
    An initial investment of $5,000 or more is made in the Money Market, and
monthly dividends are then automatically invested into one or more of the Stock
Funds chosen by you at such Stock Fund's current offering price. Money Market
Plus Growth gives investors stability of principal through the Money Market's
stable share price, and its portfolio of high quality, short-term money market
investments. And the Money Market Fund offers instant liquidity through
unlimited free checking ($500 minimum), telephone redemption, or NAS NOW. NOTE:
Money Market Fund dividends reinvested into one of the Stock Funds are subject
to applicable sales charges.
    
 
2 MONEY MARKET PLUS INCOME -- This strategy provides the security of principal
that the Money Market Fund offers plus the opportunity for greater income by
reinvesting dividends into one or more of the Bond Funds.
   
    An initial investment of $5,000 or more is made in the Money Market Fund and
monthly dividends are then reinvested into one of the Bond Funds chosen by you
at such Fund's current offering price.
    
    When short-term interest rates increase, so do Money Market dividends. At
the same time, share prices of the Bond Funds generally decrease. So, with Money
Market Plus Income, when you earn higher Money Market dividends, you can
generally purchase more shares of one of the Bond Funds at lower prices.
Conversely, when interest rates and Money Market dividends decrease, the share
prices of the Bond Funds usually increase -- you will automatically buy fewer
shares of one of the Bond Funds at higher prices. Money Market Plus Income
provides investors with stability of principal, instant liquidity through Money
Market free checking ($500 minimum), telephone redemption, or NAS NOW, and the
opportunity for greater income. NOTE: Money Market Fund dividends reinvested
into one of the Bond Funds are subject to applicable sales charges.
 
3 AUTOMATIC ASSET ACCUMULATION -- This is a systematic investment strategy which
combines automatic monthly transfers from your personal checking account to your
mutual fund account with the concept of Dollar Cost Averaging. With this
strategy, you invest a fixed amount monthly over an extended period of time,
during both market highs and lows. Dollar Cost Averaging can allow you to
achieve a favorable average share cost over time since your fixed monthly
investment buys more shares when share prices fall during low markets, and fewer
shares at higher prices during market highs. Although no formula can assure a
profit or protect against loss in a declining market, systematic investing has
proven a valuable investment strategy in the past.
   
    You can get started with Automatic Asset Accumulation for as little as $50 a
month in a Fund. Another way to take advantage of the benefits that Dollar Cost
Averaging can offer is through the Money Market Plus Growth or Money Market Plus
Income investor strategies.
    
 
4 AUTOMATIC ASSET ALLOCATION -- This strategy is for investors who want to set
up an account in more than one of our Funds. This allows you to diversify
further your portfolio to accommodate your unique needs. If you set up your
account with Automatic Asset Accumulation, additional investments can be
 
                                       29
<PAGE>   33
 
                           NATIONWIDE FAMILY OF FUNDS
 
automatically allocated among the Funds based upon your initial percentage. You
must satisfy the account minimum requirements (subsequent investments) of each
Fund in which you invest. Changes to your percentage allocation can be made by
calling toll-free 1-800-848-0920.
 
   
5 AUTOMATIC ASSET TRANSFER -- This systematic investment plan is designed
especially for investors who want to invest $5,000 or more in the Stock or Bond
Funds, but not all at one time. An initial investment of $5,000 or more is made
in the Money Market Fund, then a fixed amount that you predetermine is
transferred systematically monthly or quarterly into another Fund for $50 in
each Fund. The money is transferred on the 25th day of the month or on the
business day preceding the 25th day. This strategy can provide investors with
the benefits of Dollar Cost Averaging through an opportunity to achieve a
favorable average share cost over time. With this plan, your fixed monthly or
quarterly transfer from the Money Market to any Fund you select buys more shares
when share prices fall during low markets and fewer shares at higher prices
during market highs. Although no formula can assure a profit or protect against
loss in a declining market, systematic investing has proven a valuable
investment strategy in the past.
    
    Those who have a more conservative outlook on investing can transfer smaller
sums monthly and spread the transfer of assets into another Fund over a longer
period of time, while those with a more aggressive outlook can transfer larger
sums over a shorter period. Either way, you receive the added benefits of
current rates paid on the portion of your investment in the Money Market, along
with the stability offered by the Money Market's fixed share price.
 
6 AUTOMATIC WITHDRAWAL PLAN ($50 OR MORE) -- You may have checks for any fixed
amount of $50 or more automatically sent bi-monthly, monthly, quarterly, three
times/year, semi-annually or annually, to you (or anyone you designate) from
your account.
    NOTE: If your monthly withdrawals exceed the monthly dividends from your
account, you will be depleting principal, which will reduce your future dividend
potential.
 
INVESTOR PRIVILEGES
 
The Funds offer the following privileges to shareholders. Additional information
may be obtained by calling NAS toll-free at 1-800-848-0920.
 
1 NO SALES CHARGE ON REINVESTMENTS -- All dividends and capital gains will be
automatically reinvested in the form of additional shares free of charge within
the same Fund unless you have chosen to receive them in cash on your
application. Unless requested in writing by the shareholder, the Trust will not
mail checks for dividends and capital gains of less than $5 but instead they
will automatically be reinvested in the form of additional shares, and you will
receive a confirmation.
 
   
2 EXCHANGE PRIVILEGE -- The exchange privilege is a convenient way to exchange
shares from one Fund to another Fund in order to respond to changes in your
goals or in market conditions. HOWEVER, AN EXCHANGE IS A SALE AND PURCHASE OF
SHARES AND, FOR FEDERAL AND STATE INCOME TAX PURPOSES, MAY RESULT IN A CAPITAL
GAIN OR LOSS. The registration of the account to which you are making an
exchange must be exactly the same as that of the Fund account from which the
exchange is made, and the amount you exchange must meet the applicable minimum
investment of the Fund being purchased. (Shares of the Fund exchanged to must be
registered in the shareholder's state of residence).
    
 
   
EXCHANGES AMONG FUNDS
    
   
Exchanges may be made among any of the Funds. For exchanges of Class A shares
among the Funds, you will pay the difference between the sales charges if any.
Exchanges within Class B or Class D shares may be made without incurring a sales
charge. An exchange between classes will be subject to the applicable sales
charges of each class.
    
   
    An exchange from the Money Market Fund into another Fund will be subject to
the applicable sales charge unless already paid. The CDSC aging period for Class
B shares will be stopped during the time period when shares are exchanged into
the Money Market Fund. If the Money Market Fund shares are subsequently sold, a
CDSC will be charged at the level that would have been charged had the shares
been sold at the time when they were exchanged into the Money Market Fund. If
the Money Market Fund shares are exchanged back into Class B shares, the CDSC
aging period will continue from the point in time when the shares were
originally exchanged into the Money Market Fund.
    
   
    There is no administrative fee or exchange fee. The Trust reserves the right
to reject any exchange request it believes will result in excessive transaction
costs, or otherwise adversely affect other shareholders. An exchange, whether or
not subject to sales charges, is a sale and purchase of shares, and for Federal
and state income tax purposes, may result in a capital gain or loss. The
registration of the account to which you are making an exchange must be exactly
the same as that of the Fund account from which the exchange is made, and the
amount you exchange must meet the applicable minimum investment of the Fund
being purchased. For a description of CDSC see "Class B Shares of the Stock and
Bond Funds and CDSC." The Trust reserves the
    
 
                                       30
<PAGE>   34
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   
right to change the exchange privilege upon at least 60 days' written notice to
shareholders.
    
 
EXCHANGES MAY BE MADE THREE CONVENIENT WAYS:
 
BY TELEPHONE
 
    NAS NOW -- You can automatically process exchanges by calling
    1-800-637-0012, 24 hours a day, seven days a week. However, if you declined
    the option in the application, you will not have this automatic exchange
    privilege. NAS NOW also gives you quick, easy access to mutual fund
    information. Select from a menu of choices to conduct transactions and hear
    fund price information, mailing and wiring instructions as well as other
    mutual fund information.
 
   
    CUSTOMER SERVICE LINE -- By calling 1-800-848-0920, you may exchange shares
    by telephone if the shares are not issued in certificate form. Requests may
    be made only by the account owner(s). You must call our toll-free number by
    Valuation Time, which is usually 4:00 p.m. Eastern Time, to receive that
    day's closing share price.
    
 
    NAS may record all instructions to exchange. NAS reserves the right at any
    time without prior notice to suspend, limit or terminate the telephone
    exchange privilege or its use in any manner by any person or class.
 
    The funds will employ the same procedure described under "How to Sell
    (Redeem) Shares" to confirm that the instructions are genuine.
 
BY MAIL -- An exchange may be made by writing to Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492. Please
be sure that your letter is signed by all owners of the account and that your
account number and the Fund you wish to exchange to are included.
 
ALTERNATE METHODS -- In the event of significant market activity, it may be
difficult to reach NAS by telephone. If so, an investor may choose to use
alternate methods to contact NAS such as sending instructions by a special
delivery service or by facsimile (FAX) machine (614-249-8705). If you use the
FAX method, NAS reserves the right to require the original document.
 
   
3 NO SALES CHARGE ON A REPURCHASE -- If you redeem all or part of your Class A
or D shares on which you paid a front-end sales charge, you have a one-time
privilege to reinvest all or part of the redemption proceeds in any of the Class
A or D shares without a sales charge, within 30 days after the effective date of
the redemption. If you redeem Class B shares, and then reinvest the proceeds
within 30 days, NAS will reinvest an amount equal to any CDSC you paid on
redemption.
    
    If you realize a gain on your redemption, the transaction is taxable and
reinvestment will not alter any capital gains tax payable. If you realize a loss
and you use the reinstatement privilege, some or all of the loss will not be
allowed as a tax deduction depending upon the amount reinvested.
 
   
4 FREE CHECKING ACCOUNT PRIVILEGE (MONEY MARKET FUND ONLY) -- You may request a
supply of free checks for your personal use and there is no monthly service fee.
You may use them to make withdrawals of $500 or more from your account at any
time. Your account will continue to earn daily income dividends until your check
clears your account. There is no limit on the number of checks you may write.
Cancelled checks will not be returned to you. However, your monthly statement
will provide the check number, date and amount of each check written. You will
also be able to obtain copies of cancelled checks by contacting one of our
service representatives at 1-800-848-0920.
    
 
INVESTOR SERVICES
 
1 NAS NOW AUTOMATED VOICE RESPONSE SYSTEM -- Our toll-free number 1-800-637-0012
will connect you 24 hours a day, seven days a week to NAS NOW, our automated
voice response system. Through a selection of menu options, you can conduct
transactions, hear fund price information, mailing and wiring instructions and
other mutual fund information.
 
2 TOLL-FREE INFORMATION AND ASSISTANCE -- Customer service representatives are
available to answer questions regarding the Funds and your account(s) between
the hours of 8 A.M. and 5 P.M. Eastern Time. Call toll-free: 1-800-848-0920. Or
contact NAS at our FAX telephone number (614) 249-8705.
 
   
3 RETIREMENT PLANS (NOT AVAILABLE WITH THE TAX-FREE INCOME FUND) -- Shares of
the Funds may be purchased for Self-Employed Retirement Plans, Individual
Retirement Accounts (IRAs), Roth IRAs, Educational IRAs, Simplified Employee
Pension Plans, Corporate Pension Plans, Profit Sharing Plans and Money Purchase
Plans. For a free information kit, call 1-800-848-0920.
    
 
4 MUTUAL FUND GIFT CERTIFICATES -- Gift Certificates may be purchased for
special occasions such as birthdays, graduations, weddings and as appreciation
gifts. NOTE: Respective minimum initial and subsequent purchase amounts must be
met when using gift certificates to open new accounts. Contact one of our
service representatives at 1-800-848-0920 for complete details and instructions.
 
                                       31
<PAGE>   35
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
5 SHAREHOLDER CONFIRMATIONS -- You will receive a confirmation statement each
time a requested transaction is processed. However, no confirmations are mailed
on certain pre-authorized, systematic transactions. Instead, these will appear
on your next consolidated statement.
 
6 CONSOLIDATED STATEMENTS -- Shareholders of the Stock Funds receive quarterly
statements as of the end of March, June, September and December. Shareholders of
the Bond and Money Market Funds receive monthly statements. Please review your
statement carefully and notify us immediately if there is a discrepancy or error
in your account.
    For shareholders with multiple accounts, your consolidated statement will
reflect all your current holdings in the Funds. Your accounts are consolidated
by social security number and zip code. Accounts in your household under other
social security numbers may be added to your statement at your request.
Depending on which Funds you own, your consolidated statement will be sent
either monthly or quarterly. Only transactions during the reporting period will
be reflected on the statements. An annual summary statement reflecting all
calendar-year transactions in all your Funds will be sent after year-end.
 
7 AVERAGE COST STATEMENT -- This statement may aid you in preparing your tax
return and in reporting capital gains and losses to the IRS. If you redeemed any
shares during the calendar year, a statement reflecting your taxable gain or
loss for the calendar year (based on the average cost you paid for the redeemed
shares) will be mailed to you following each year-end. Average cost can only be
calculated on accounts opened on or after January 1, 1984. Fiduciary accounts
and accounts with shares acquired by gift, inheritance, transfer, or by any
means other than a purchase cannot be calculated.
    Average cost is one of the IRS approved methods available to compute gains
or losses. You may wish to consult a tax advisor on the other methods available.
The information on your average cost statement will not be provided to the IRS.
If you have any questions, contact one of our service representatives at
1-800-848-0920.
 
8 SHAREHOLDER REPORTS -- All shareholders will receive reports semi-annually
detailing the financial operations of the funds.
 
9 PROSPECTUSES -- Updated prospectuses will be mailed to you annually.
 
10 UNDELIVERABLE MAIL -- If mail from NAS to a shareholder is returned as
undeliverable on three or more consecutive occasions, NAS will not send any
future mail to the shareholder unless it receives notification of a correct
mailing address for the shareholder. Any dividends that would be payable by
check to such shareholders will be reinvested in the shareholder's account until
NAS receives notification of the shareholder's correct mailing address.
 
MANAGEMENT OF THE TRUST
 
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The Board of Trustees sets and reviews policies regarding the
operation of the Trust, whereas the officers perform the daily functions of the
Trust.
 
INVESTMENT MANAGEMENT
 
   
Under the terms of the Investment 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, an Ohio corporation, is a wholly
owned subsidiary of Nationwide Life Insurance Company, which is owned by
Nationwide Financial Services, Inc. (NFS). NFS, a holding company, has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all outstanding Class B Common Stock) to
control NFS. Nationwide Corporation is also a holding company in the Nationwide
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 Funds pay NAS fees based on average daily net assets of each Fund at the
following annual rates:
 
<TABLE>
<CAPTION>
             FUND                      ASSETS          FEE
- ------------------------------ ----------------------- ----
<S>                            <C>                     <C>
Nationwide Mid Cap Growth,        up to $250 Mill.      .60%
                                 $250 Mill. up to $1
Nationwide Growth, Nationwide           Bill.          .575%
Fund                           $1 Bill. up to $2 Bill.  .55%
                               $2 Bill. up to $5 Bill. .525%
                                  $5 Bill. and more     .50%
Nationwide Bond, Nationwide       up to $250 Mill.      .50%
                                 $250 Mill. up to $1
Tax-Free Income, Nationwide             Bill.          .475%
Long-Term U.S. Government      $1 Bill. up to $2 Bill.  .45%
Bond, Nationwide Intermediate  $2 Bill. up to $5 Bill. .425%
U.S. Government Bond              $5 Bill. and more     .40%
 
Nationwide Money                   up to $1 Bill.       .40%
Market Fund                    $1 Bill. up to $2 Bill.  .38%
                               $2 Bill. up to $5 Bill.  .36%
                                  $5 Bill. and more     .34%
</TABLE>
 
                                       32
<PAGE>   36
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   
PORTFOLIO MANAGERS FOR THE FUNDS
    
 
   
PORTFOLIO MANAGER: John M. Schaffner, MBA, CFA, is the portfolio manager for the
Nationwide Mid Cap Growth Fund and the Nationwide Growth Fund. He has been with
Nationwide since 1977 and managed the FHIT Growth Fund which was the predecessor
to the Mid Cap Growth Fund from June 1989 through December 1995. Mr. Schaffner
resumed managing the FHIT Growth Fund in August 1997. He also managed the NIF
Growth Fund from June 1981 to March 1998. Mr. Schaffner graduated with a
Bachelor of Arts in Economics from Occidental College. He received his Master of
Business Administration degree from the University of Michigan and is a
Chartered Financial Analyst.
    
 
   
PORTFOLIO MANAGER: Charles Bath, MBA, CFA, CPA, is the portfolio manager of the
Nationwide Fund. Mr. Bath joined Nationwide as a securities analyst in 1982 and
managed the NIF Nationwide Fund, predecessor to the Nationwide Fund from 1985 to
1998. He graduated with a Bachelor of Science in Accounting from Miami
University. He received his Master of Business Administration degree in Finance
from The Ohio State University and is a Certified Public Accountant and a
Chartered Financial Analyst.
    
 
   
PORTFOLIO MANAGER: Douglas Kitchen, CFA, is the portfolio manager of the
Nationwide Bond Fund. He joined Nationwide in 1986 as a securities analyst and
began managing the NIF Nationwide Bond Fund, the predecessor of the Nationwide
Bond Fund, on March 11, 1997. From 1992 to March 11, 1997, he managed the bond
portfolio for the Nationwide Foundation. Mr. Kitchen received a Bachelor of Arts
in Geology from Thiel College and a Bachelor of Science in Finance from The Ohio
State University and is a Chartered Financial Analyst.
    
 
   
PORTFOLIO MANAGER: Alpha Benson, MBA, is the portfolio manager of the Nationwide
Tax-Free Income Fund. She joined Nationwide in 1977 as a financial analyst in
the Securities Investment Department. She managed the NIF II Tax-Free Income
Fund, the predecessor of the Nationwide Tax-Free Income Fund from its inception
in March 1986 and the FHIT Municipal Bond Fund from March 1997 to March 1998.
Ms. Benson graduated with a Bachelor of Science in Accounting from Central State
University. She received her Master of Business Administration degree from the
University of Dayton.
    
 
   
PORTFOLIO MANAGERS FOR THE U.S. GOVERNMENT BOND FUNDS: Wayne Frisbee, CFA;
Kimberly Bingle, CFA, FLMI; and Gary Hunt, MBA, are the portfolio managers for
the U.S. Government Bond Funds. Mr. Frisbee joined Nationwide in 1981 as a
securities analyst and managed the NIF II Nationwide U.S. Government Income
Fund, predecessor to the Nationwide Intermediate U.S. Government Bond Fund, from
its inception in 1992 and the FHIT Government Bond Fund, predecessor to the
Nationwide Long-Term U.S. Government Bond Fund, from its inception in 1988. He
received a Bachelor of Science from The Ohio State University and is a Chartered
Financial Analyst.
    
   
    Ms. Bingle joined Nationwide in 1986 as a securities analyst and began
co-managing the predecessors to the U.S. Government Bond Funds on March 11,
1997. Since April of 1992, she has also managed the Fixed Income Fund which is
part of the Nationwide Insurance Enterprise incentive savings plan. Prior to
April 1992, she co-managed the Nationwide Foundation bond portfolio. Ms. Bingle
received a Bachelor of Arts in Finance from The Pennsylvania State University.
She is a Chartered Financial Analyst and a Fellow of the Life Management
Institute.
    
   
    Mr. Hunt joined Nationwide in 1992 as a securities analyst and began
co-managing the predecessors to the U.S. Government Bond Funds on March 11,
1997. In his career at Nationwide, Mr. Hunt has been responsible for the
analysis of agency CMOs and U.S. Treasury securities. In addition, he has
managed the commercial mortgage-backed securities sector for Nationwide Life
Insurance Company and its affiliates. Mr. Hunt received a Bachelor of Science in
Finance and a Master of Business Administration from The Ohio State University.
    
 
   
PORTFOLIO MANAGER: Patricia A. Mynster, Director of Short-Term Investments,
began managing the NIF Money Market Fund, the predecessor of the Nationwide
Money Market Fund, in July 1997 and has managed short-term investments for over
20 years. She received a Bachelor of Arts degree in Business Administration from
Otterbein College. She has held her current position as Director of Short-Term
Investments for the Nationwide Enterprise since 1991.
    
 
   
DISTRIBUTION PLAN
    
 
   
The Trust has adopted a Distribution Plan under Rule 12b-1 of the 1940 Act which
permits the Funds to compensate the Distributor, NAS, for expenses associated
with distribution of its shares. Under the Distribution Plan, the Funds pay NAS
compensation accrued daily and paid monthly. The Funds shall pay amounts not
exceeding an annual maximum amount of .25% of the daily net assets of Class A
shares and 1.00% of the daily net assets for the Stock Funds and .85% of the
daily net assets for the Bond Funds of Class B shares. Distribution expenses
paid by NAS may include the costs of printing and mailing prospectuses and sales
literature to prospective investors, advertising, and compensation to sales
personnel and broker-dealers.
    
 
OTHER SERVICES
 
Under the terms of a Fund Administration Agreement, NAS also provides various
administrative and accounting services, including daily valuation of the Funds'
shares and preparation of
 
                                       33
<PAGE>   37
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
   
financial statements, tax returns, and regulatory reports. For these services,
each Fund pays NAS an annual fee based on each Fund's average daily net assets
in the amount of 0.07% up to $250 million in assets, 0.05% on the next $750
million of assets and 0.04% on assets of $1 billion and more.
    
 
TRANSFER AND DIVIDEND DISBURSING AGENT
   
NAS, through its wholly-owned subsidiary, Nationwide Investors Services, Inc.
(NISI), serves as transfer agent and dividend disbursing agent for the Trust.
For these services, NAS receives an annual per account fee from each of the
Funds at the following rates; $16 per Stock Fund account, $18 per Bond Fund
account and $27 per Money Market Fund account.
    
 
DISTRIBUTIONS AND TAXES
 
INCOME DIVIDENDS AND CAPITAL GAINS
   
Substantially all of the net investment income, if any, will be distributed to
shareholders quarterly by the Stock Funds and at the end of each month by the
Bond and Money Market Funds in the form of additional shares of the Fund unless
the shareholder has chosen to receive them in cash. Unless requested in writing
by the Shareholder, checks will not be mailed for dividends and capital gains of
less than $5. These dividends will be automatically reinvested in the form of
additional shares and you will receive a confirmation showing the transaction.
If a shareholder has elected to receive dividends and/or capital gains
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailing with regard to uncashed distribution checks, such
shareholder's distribution option will automatically be converted to having all
dividends and other distributions reinvested in additional shares. Any request
to change a distribution option must be received by NISI by the record date for
a dividend or distribution in order to be effective for that dividend or
distribution. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
    
    In those years in which sales of a Fund's portfolio securities result in net
realized capital gains, these gains will be declared and cause to be paid to
shareholders in December.
 
FEDERAL TAXES
Each of the Funds intends to qualify for treatment under subchapter M of the
Internal Revenue Code of 1986, as amended, (the "Code") and, therefore, must
distribute all or substantially all net investment income and capital gains to
shareholders annually. In general, if a Fund distributes all of its net
investment income, it is not required to pay any Federal income taxes. In
addition to Federal income tax, if a Fund fails to distribute the required
portion of investment income or capital gains in any year, it will be subject to
a non-deductible 4% excise tax on the amount which it failed to distribute. Each
Fund intends to make distributions in sufficient amounts to avoid the imposition
of this excise tax.
    Dividends paid by each of the Funds (with the exception of the Tax-Free
Income Fund) are taxable as income to the shareholder for Federal income tax
purposes. For corporate shareholders, a portion of each year's distribution may
be eligible for the corporate dividend received deduction.
    Dividends paid by the Tax-Free Income Fund will be exempt from Federal
income tax to the extent that the income of the Fund is derived from bonds that
qualify for such exemption. Some portion of the income from the Tax-Free Income
Fund may be taxable annually. The taxable portion of each distribution will be
based on the ratio, each year, between the Fund's taxable income and total
income. This ratio shall be determined within 60 days following the close of the
taxable year. The annual ratio may differ significantly from the ratio for the
period actually covered by each distribution.
    The Taxpayer Relief Act of 1997 has substantially changed the manner in
which the income tax on net long-term capital gains is computed for individuals.
For corporations, net long-term capital gains are taxed at the same rates as
ordinary income. The following is a summary of the new rules for the taxation of
net long-term capital gains, which are applicable to individuals but not
corporations for sales and exchanges after May 6, 1997.
    For investments held for more than 18 months (12 months if the investment
was sold after May 6 and before July 29, 1997), the top net long-term capital
gain rate is 20%. For taxpayers who are in the 15% regular tax bracket for 1997,
the top net long-term capital gain rate is 10%.
    Commencing with sales after July 28, 1997, gain from assets that are held
for more than 12 months but not more than 18 months is treated as mid-term gain.
The top tax rate for mid-term gain is 28%.
    If the investor's regular tax rate is lower than the top long-term capital
gain rate, the tax is computed using the regular tax rates.
    The Funds will annually report to each shareholder that shareholder's
portion of the net income and capital gain of each Fund, for inclusion in the
shareholder's income.
    Individual and corporate shareholders may be subject to the Alternative
Minimum Tax ("AMT") if their Alternative Minimum Taxable Income ("AMTI") exceeds
the exemption amounts set forth in Section 55 of the Code. The AMT, at rates as
high as 28% for individuals and 20% for corporations, is reduced by the
 
                                       34
<PAGE>   38
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
regular tax due for the year. AMTI is the taxpayer's taxable income for the year
for regular tax purposes, increased by the tax preferences described in Section
57 of the Code and adjusted as described in Section 56 of the Code. Preferences
include interest from Specified Private Activity Bonds, as defined in Section 57
(a) (5) (C) of the Code. Bonds of this type may be held by one or more of the
Funds from time to time.
    A shareholder may be subject to federal backup withholding at a rate of 31%
of each distribution if the shareholder fails to certify that the taxpayer
identification number given is correct and that the shareholder is not subject
to such withholding because of underreporting of income (or if the Internal
Revenue Service gives notice that such certifications are not accurate).
 
STATE AND LOCAL TAXES
Distributions to shareholders of the Funds may be subject to state and local
taxes, even if not subject to Federal income taxes. These laws vary, and you are
advised to consult a tax adviser regarding such taxes.
 
REDEMPTIONS OF SHARES
Redeeming shares may result in a capital gain or loss for tax purposes. For your
convenience, NAS provides a year-end statement, reflecting your taxable gain or
loss for the year based on the average cost paid for redeemed shares.
 
TAX ADVANTAGES OF THE
TAX-FREE INCOME FUND
 
The yield on taxable securities is normally higher than on tax-exempt securities
of comparable quality and maturity. However, you can determine whether a
tax-free investment provides a higher after-tax yield or return than an
investment subject to tax by using the following formula:
 
<TABLE>
<C>                     <C>  <S>
    Tax-Free Yield           What you must earn
- -----------------------  =   on a taxable investment
 100%--[Your Tax Rate]       to equal this tax-free yield
</TABLE>
 
   
    By using current tax-free yields and your own tax rate in the formula above,
you can make an informed investment decision. This formula will not be
applicable if you are subject to the AMT.
    
 
PERFORMANCE ADVERTISING
FOR THE FUNDS
 
FUND PERFORMANCE ADVERTISING
 
   
The Funds may use historical performance in advertisements, sales literature,
semi-annual and annual reports and the prospectus. Such figures will include
quotations of average annual (compound) total return for the most recent one,
five, and ten-year periods (or the life of the Fund if less). Average annual
(compound) total return represents the average annual percentage change in the
value of an investment for the specified periods assuming a redemption of the
investment at the end of such periods. It reflects the changes in share price
and assumes reinvestment of all dividends and distributions at net asset value.
Average annual (compound) total return reflects the effect of maximum sales
charges. Standardized yield and total return quotations will be computed
separately for Class A, B and D shares. Because of differences in the fees
and/or expenses borne by Class A, B and D shares of the Funds, 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 Funds may also choose to show nonstandard returns including total return
and simple average total return. Nonstandard returns may or may not reflect
reinvestment of all dividends and capital gains. In addition, sales charge
assumptions will vary. Initial sales charge percentages decrease as amounts
invested increase, therefore, returns increase as sales charges decrease.
    
    Total return represents the cumulative percentage change in the value of an
investment over time, calculated by subtracting the original investment from the
redeemable value and dividing the result by the original amount of the
investment. The simple average total return is calculated by dividing total
return by the number of years in the period, and unlike average annual
(compound) total return, does not reflect compounding.
    The Bond Funds may advertise their SEC yields. The SEC yield is based on a
30-day period. This yield takes into account the yields to maturity on all debt
instruments and all dividends accrued on equity securities, since equity
securities do not have maturity dates. The SEC yield is computed by dividing the
net investment income per share earned during the 30-day period by the maximum
offering price per share on the last day of the period.
    The Money Market Fund may advertise current seven-day yield quotations
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the base period to obtain a base period return and then
multiplying the base period return by (365/7). For purposes of
 
                                       35
<PAGE>   39
 
   
                           NATIONWIDE FAMILY OF FUNDS
    
 
this calculation, the net change in account value reflects the value of
additional shares purchased with dividends from the original share, and
dividends declared on both the original share and any such additional shares.
The Money Market's effective yield represents a compounding on an annualized
basis of the current yield quotations.
 
RANKINGS AND RATINGS IN FINANCIAL PUBLICATIONS
The Funds may report their performance relative to other mutual funds or
investments. The performance comparisons are made to: other mutual funds with
similar objectives; other mutual funds with different objectives; or, to other
sectors of the economy. Other investments which the Funds may be compared to
include, but are not limited to: precious metals; real estate; stocks and bonds;
closed-end funds; market indexes; fixed-rate, insured bank CDs, bank money
market deposit accounts and passbook savings; and the Consumer Price Index.
    Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's,
Schabaker Investment Management, Kanon Bloch Carre & Co.; magazines such as
Money, Fortune, Forbes, Kiplinger's Personal Finance Magazine, Smart Money,
Mutual Funds, Worth, Financial World, Consumer Reports, Business Week, Time,
Newsweek, U.S. News and World Report; and other publications such as the Wall
Street Journal, Barron's, Columbus Dispatch, Investor's Business Daily, and
Standard & Poor's Outlook.
    The rankings may or may not include the effects of sales charges.
 
ADDITIONAL INFORMATION
 
DESCRIPTION OF SHARES
   
The Trust presently offers nine 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 you have an interest only in the shares of
the class 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. The Money Market Fund offers
shares without class designation and its shareholders have an equal
proportionate interest in the shares of that Fund. 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
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 shares 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, policies, and 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 Fund affected by the
proposal. In addition, holders of Class A shares or Class B shares of a Fund
will vote as a class and not with holders of any other class of that Fund 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 Commission that 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.
    
 
SHAREHOLDER INQUIRIES
Inquiries regarding the Funds should be directed to Nationwide Advisory
Services, Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio
43216-1492, or call 1-800-848-0920.
 
                                       36
<PAGE>   40
 
NATIONWIDE INVESTING
FOUNDATION III FUNDS:
Mid Cap Growth Fund
Growth Fund
Nationwide Fund
Bond Fund
Tax-Free Income Fund
Long-Term U.S. Government Bond Fund
Intermediate U.S. Government Bond Fund
Money Market Fund
 
NATIONAL DISTRIBUTOR AND
INVESTMENT MANAGER
Nationwide Advisory Services, Inc.
P.O. Box 1492
Three Nationwide Plaza
Columbus, Ohio 43216-1492
 
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215-2537
 
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Nationwide Advisory Services, Inc.
(Through its wholly owned subsidiary,
Nationwide Investors Services, Inc.)
 
LEGAL COUNSEL
Druen, Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215-2220
 
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263-0001
 
                                       37
<PAGE>   41
 
                             Nationwide(R) and LOGO are registered Federal
                       Service marks of the Nationwide Mutual Insurance Company.
<PAGE>   42
PART B:

   
             STATEMENT OF ADDITIONAL INFORMATION MARCH __, 1998
    

NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX FUND
(together referred to as the "Stock Funds")
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
(together referred to as the "Bond Funds")
NATIONWIDE MONEY MARKET FUND
(all together the "Funds")

               This Statement of Additional Information is not a prospectus. It
contains information in addition to and more detailed than that set forth in the
Prospectuses for the Funds and should be read in conjunction with the
Prospectuses dated March __, 1998. 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                                                     21
Trustees and Officers of the Trust                                          22
Investment Advisory and Other Services                                      25
Brokerage Allocation                                                        29
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                                                         30
Additional Information                                                      31
Additional General Tax Information                                          32
Major Shareholders                                                          37
Financial Statement                                                         38
Independent Auditors Report                                                 40
Appendix                                                                    41
    

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 without approval by the shareholders. There is no guarantee
that any of the Funds' investment objectives will be realized.
    


                                       1
<PAGE>   43
DEBT OBLIGATIONS. Each of the Funds (except S&P 500 Index Fund) may invest in
debt obligations. Debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and
general market liquidity ("market risk"). Lower-rated securities are more likely
to react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates.

   
         RATINGS AS INVESTMENT CRITERIA. High-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.




                                       2
<PAGE>   44

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;
    

        -- 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 may invest in
asset-backed securities. Mortgage-backed securities represent direct or indirect
participation in, or are secured by and payable from, mortgage loans secured by
real property, and include single-and multi-class pass-through securities and
collateralized mortgage obligations. Such securities may be issued or guaranteed
by U.S. Government agencies or instrumentalities or, in the case of the
Nationwide Bond Fund only, by 




                                       3
<PAGE>   45


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 mortgaged-backed securities.

         Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interest therein, rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.

         The yield characteristics of mortgage and asset-backed securities
differ from those of traditional debt obligations. Among the principal
differences are that interest and principal payments are made more frequently on
mortgage and asset-backed securities, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is lower than expected
will have the opposite effect of increasing the yield to maturity. Conversely,
if a Fund purchases these securities at a discount, a prepayment rate that is
faster than expected will increase yield to maturity, while a prepayment rate
that is slower than expected will reduce yield to maturity. Accelerated
prepayments on securities purchased by the Fund at a premium also pose a risk of
loss of principal because the premium may not have been fully amortized at the
time the principal is prepaid in full. 

         There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA certificates also are supported by the authority of GNMA to borrow
funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States. Fannie Maes are guaranteed as to timely payment of
the principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate


                                       4
<PAGE>   46

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. 



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 


                                       5
<PAGE>   47
the underlying securities during the period in which a Fund seeks to assert its
rights to the securities, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or part of the income from the
repurchase agreement.

WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each of the Funds
(except the S&P 500 Index Fund) may purchase securities on a "when-issued" or
"delayed delivery" basis (i.e., payment or delivery occurs beyond the normal
settlement date at a stated price and yield). When-issued transactions normally
settle within 45 days. The payment obligation and the interest rate, if
applicable, that will be received on when-issued securities are fixed at the
time the fund enters into the commitment to buy such securities. Due to
fluctuations in the value of securities purchased or sold on a when-issued or   
delayed-delivery basis, the yields obtained on 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 Funds custodian will set
aside permissible liquid assets equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of such Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, such Fund's liquidity and the ability of NAS to
manage it might be affected in the event its commitments to purchase
"when-issued" securities ever exceeded 25% of the value of its total assets.
Under normal market conditions, however, a Fund's commitment to purchase
"when-issued" or "delayed-delivery" securities will not exceed 25% of the value
of its total assets. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in a Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

The Funds will engage in "when-issued" or "delayed delivery" transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives and policies and not for investment leverage. If the
Tax-Free Income Fund sells a "when-issued" or "delayed-delivery" security before
delivery, any gain would not be tax-exempt.

LENDING PORTFOLIO SECURITIES. Each Fund  (except the Tax-Free Income Fund) may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, the Fund can
increase its income through the investment of the cash collateral. For the
purposes of this policy, the Fund considers U.S. Government securities or
letters of credit issued by banks whose securities meet the standards for
investment by the Fund to be the equivalent of cash. From time to time, the Fund
may return to the borrower or a third party which is unaffiliated with it, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.


         The SEC currently requires that the following conditions must be met
whenever portfolio securities are loaned: (1) a Fund must receive from the
borrower at least


                                       6
<PAGE>   48
   
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 commissions on foreign
securities exchanges are generally higher than negotiated commissions on United
States exchanges, although each such Fund endeavors to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed companies in foreign countries than in the United States. In addition,
with respect to certain foreign countries, there is the possibility of exchange
control restrictions, expropriation or confiscatory taxation, and political,
economic or social instability, which could affect investments in those
countries. Foreign securities, such as those purchased by a Fund, may be subject
to foreign government 
    


                                       7
<PAGE>   49

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 (except the S&P Index Fund) 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 (except the S&P 500 Index Fund) may invest in 
depository receipts through "sponsored" or "unsponsored" facilities. While ADRs
and EDRs issued under these two types of facilities are in some respects        
similar, there are distinctions between them relating to the rights and
obligations of ADR and EDR holders and the practices of market participants.

         A depository may establish an unsponsored facility without
participation by (or even necessarily the acquiescence of) the issuer of the
deposited securities, although typically the depository requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs and EDRs generally bear all the costs of such
facilities. The depository usually charges fees upon the deposit and withdrawal
of the deposited securities, the conversion of dividends into U.S. dollars, the
disposition of non-cash distributions, and the performance of other services.
The depository of an unsponsored facility frequently is under no obligation to
pass through voting rights to ADR and EDR holders in respect of the deposited
securities. In addition, an unsponsored facility is generally not obligated to
distribute communications received from the issuer of the deposited securities
or to disclose material information about such issuer in the U.S. and thus there
may not be a correlation between such information and the market value of the
depository receipts. Unsponsored ADRs and EDRs tend to be less liquid than
sponsored ADRs and EDRs, respectively.

         Sponsored ADR and EDR facilities are created in generally the same
manner as unsponsored facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the depository. The deposit
agreement sets out the rights and responsibilities of the issuer, the
depository, and the ADR and EDR holders. With sponsored facilities, the issuer
of the deposited securities generally will bear some of the costs relating to
the facility (such as dividend payment fees of the depository), although ADR and
EDR holders continue to bear


                                       8
<PAGE>   50

certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.


         EURODOLLAR AND YANKEE OBLIGATIONS. Eurodollar bank obligations are
dollar-denominated certificates of deposit and time deposits issued outside the
U.S. capital markets by foreign branches of U.S. banks and by foreign banks.
Yankee bank obligations are dollar-denominated obligations issued in the U.S.
capital markets by foreign banks.

         Eurodollar and Yankee bank obligations are subject to the same risks
that pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Eurodollar (and to a limited extent, Yankee) bank
obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of
dollars, from flowing across their borders. Other risks include: adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign
withholding taxes, and the expropriation or nationalization of foreign issuers.
However, Eurodollar and Yankee bank obligations held in the Money Market Fund
will undergo the same credit analysis as domestic issues in which the Money
Market Fund invests, and will have at least the same financial strength as the
domestic issuers approved for the Money Market Fund.

         MUNICIPAL SECURITIES. As stated in the prospectus, the assets of the
Tax-Free Income Fund will be primarily invested in municipal securities.
Municipal securities include debt obligations issued by governmental entities to
obtain funds for various public purposes, such as the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term municipal securities if the interest paid thereon
is exempt from federal taxes including the federal alternative minimum tax.

         Among other types of municipal securities, the Tax-Free Income Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Tax-Free Income Fund may invest in other types
of tax-exempt instruments, such as municipal bonds, private activity bonds, and
pollution control bonds.

         Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing




                                       9
<PAGE>   51

authority which provide that, if required, the federal government will lend the
issuer an amount equal to the principal of and interest on the Project Notes.

         As described in the prospectus, the two principal classifications of
municipal securities consist of "general obligation" and "revenue" issues. The
Tax-Free Income Fund may also acquire "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of municipal securities, both within a particular classification
and between classifications, and the yields on municipal securities depend upon
a variety of factors, including the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Ratings represent the
opinions of an NRSRO as to the quality of municipal securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and municipal securities with the same maturity, interest rate and
rating may have different yields, while municipal securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase, an issue of municipal securities may cease to be rated
or its rating may be reduced below the minimum rating required for purchase. NAS
will consider such an event in determining whether the Tax-Free Income Fund
should continue to hold the obligation.

         An issuer's obligations under its municipal securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal bankruptcy code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its municipal securities may be
materially adversely affected by litigation or other conditions.

         The Tax-Free Income Fund may invest in AMT bonds. An AMT bond is an
otherwise tax-exempt municipal bond whose interest is treated as a preference
item for purposes of computing the alternative minimum tax imposed on
individuals and corporations. Specifically, private activity bonds, other than
501(c)(3) bonds issued 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 Tax
Code. Qualified bonds include issues for certain facilities such as airport
bonds, water and sewer service bonds, qualified single and multifamily housing
bonds, certain "small" industrial development bonds and bonds for local
furnishing of gas and electricity. Qualified bonds are also bonds for water,
solid waste facility bonds, docks and wharves issues and "enterprise zone"
bonds.

   
         In addition to the normal risks associated with bonds, there is a
slight risk of less active secondary market for AMT bonds. In general, a larger
secondary market will exist for 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.

        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



                                       10
<PAGE>   52

investment value. The conversion value of a convertible security is determined
by the market price of the underlying common stock. If the conversion value is
low relative to the investment value, the price of the convertible security is
governed principally by its investment value. Generally, the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. A convertible security generally will sell at a premium
over its conversion value by the extent to which investors place value on the
right to acquire the underlying common stock while holding a fixed income
security.

         A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption, a
Fund will be required to permit the issuer to redeem the security, convert it
into the underlying common stock, or sell it to a third party.

WARRANTS. The Mid Cap Growth Fund, Growth Fund, and Nationwide Fund may acquire
warrants. Warrants are securities giving the holder the right, but not the
obligation, to buy the stock of an issuer at a given price (generally higher
than the value of the stock at the time of issuance), on a specified date,
during a specified period, or perpetually. Warrants may be acquired separately
or in connection with the acquisition of securities.

         Warrants do not carry with them the right to dividends or voting rights
with respect to the securities that they entitle their holder to purchase, and
they do not represent any rights in the assets of the issuer. As a result,
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have value
if it is not exercised prior to its expiration date.

RESTRICTED, NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Each Fund may not
invest more than 15% (10% for the Money Market Fund) of its net assets, in the
aggregate, in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits maturing in more than seven
days and securities that are illiquid because of the absence of a readily
available market or legal or contractual restrictions on resale. 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.


                                       11
<PAGE>   53


         In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including foreign securities, municipal securities and corporate bonds and
notes. Institutional investors depend on an efficient institutional market in
which the unregistered security can be readily resold or on an issuer's ability
to honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may not
be indicative of the liquidity of such investments.

         The SEC has adopted Rule 144A 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


                                       12
<PAGE>   54

include the lender. The Funds have established a line-of-credit ("LOC") with
their custodian by which they may borrow for temporary or emergency purposes.
The Funds intend to use the LOC to meet large or unexpected redemptions that
would otherwise force a Fund to liquidate securities under circumstances which
are unfavorable to a Fund's remaining shareholders.

DERIVATIVE INSTRUMENTS. As discussed in the Prospectuses, NAS or a Subadviser
may use a variety of derivative instruments, including options, futures
contracts (sometimes referred to as "futures"), options on futures contracts,
stock index options and forward currency contracts to hedge a Fund's portfolio
or for risk management. Derivations are financial instruments whose value and
performance are based on the value and performance of another security,
financial instrument or index. Except for the S&P 500 Index Fund, 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


                                       13
<PAGE>   55

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".

         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.


                                       14
<PAGE>   56

         A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize the profit or
limit the loss on an option position prior to its exercise or expiration.

         A Fund may purchase or write both OTC options and options traded on
foreign and U.S. exchanges. Exchange-traded options are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. OTC
options are contracts between the Fund and the counterparty (usually a
securities dealer or a bank) with no clearing organization guarantee. Thus, when
the Fund purchases or writes an OTC option, it relies on the counter party to
make or take delivery of the underlying investment upon exercise of the option.
Failure by the counter party to do so would result in the loss of any premium
paid by the fund as well as the loss of any expected benefit of the transaction.

         Each Stock Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Each of the
Stock Funds intends to purchase or write only those exchange-traded options for
which there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although a Fund will enter into OTC options only with counterparties
that are expected to be capable of entering into closing transactions with a
Fund, there is no assurance that such Fund will in fact be able to close out an
OTC option at a favorable price prior to expiration. In the event of insolvency
of the counter party, a Fund might be unable to close out an OTC option position
at any time prior to its expiration.

   
         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.
    

         If a Fund is unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as a cover for the written option until the option
expires or is exercised.

   
         Each Stock Fund may engage in options transactions on indices in much
the same manner as the options on securities discussed above, except that index
options may serve as a hedge against overall fluctuations in the securities
markets in general. 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 by 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 ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging.





                                       15
<PAGE>   57
   
    


         FUTURES CONTRACTS. The Stock Funds may enter into futures contracts,
including interest rate, index, and currency futures and purchase and write
(sell) related options. The purchase of futures or call options thereon can
serve as a long hedge, and the sale of futures or the purchase of put options
thereon can serve as a short hedge. Writing covered call options on futures
contracts can serve as a limited short hedge, and writing covered put options on
futures contracts can serve as a limited long hedge, using a strategy similar to
that used for writing covered options in securities. A Fund's hedging may
include purchases of futures as an offset against the effect of expected
increases in securities prices or currency exchange rates and sales of futures
as an offset against the effect of expected declines in securities prices or
currency exchange rates. A Fund may write put options on futures contracts while
at the same time purchasing call options on the same futures contracts in order
to create synthetically a long futures contract position. Such options would
have the same strike prices and expiration dates. A Fund will engage in this
strategy only when NAS or a Subadviser believes it is more advantageous to a
Fund than is purchasing the futures contract.


                                       16
<PAGE>   58

         To the extent required by regulatory authorities, a Fund will only
enter into futures contracts that are traded on U.S. or foreign exchanges or
boards of trade approved by the CFTC and are standardized as to maturity date
and underlying financial instrument. These transactions may be entered into for
"bona fide hedging" purposes as defined in CFTC regulations and other
permissible purposes including increasing return and hedging against changes in
the value of portfolio securities due to anticipated changes in interest rates,
currency values and/or market conditions. The ability of a Fund to trade in
futures contracts may be limited by the requirements of the Code applicable to a
regulated investment company.

         A Fund will not enter into futures contracts and related options for
other than "bona fide hedging" purposes for which the aggregate initial margin
and premiums required to establish positions exceed 5% of the Fund's net asset
value after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into. There is no overall limit on the percentage
of a Fund's assets that may be at risk with respect to futures activities.
Although techniques other than sales and purchases of futures contracts could be
used to reduce a Fund's exposure to market, currency, or interest rate
fluctuations, such Fund may be able to hedge its exposure more effectively and
perhaps at a lower cost through using futures contracts.

         A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., debt security) or currency for a specified price at a
designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified multiplier times the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index futures contract was originally written. Transactions costs are
incurred when a futures contract is bought or sold and margin deposits must be
maintained. A futures contract may be satisfied by delivery or purchase, as the
case may be, of the instrument, the currency, or by payment of the change in the
cash value of the index. More commonly, futures contracts are closed out prior
to delivery by entering into an offsetting transaction in a matching futures
contract. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of those securities is made.
If the offsetting purchase price is less than the original sale price, a Fund
realizes a gain; if it is more, a Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, a Fund realizes
a gain; if it is less, a Fund realizes a loss. The transaction costs must also
be included in these calculations. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular futures contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, that Fund will continue to be required to
maintain the margin deposits on the futures contract.

         No price is paid by a Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, the Fund is required to deposit
in a segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash,
U.S. Government securities or other liquid obligations, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call or put option on a futures contract, in accordance with
applicable exchange rules. Unlike margin in securities transactions, initial
margin on futures contracts does not represent a borrowing, but rather is in the
nature of a performance bond or good-faith deposit that is returned to a Fund at
the termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances,


                                       17
<PAGE>   59

such as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.

         Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If a Fund has insufficient cash to meet daily variation
margin requirements, it might need to sell securities at a time when such sales
are disadvantageous. Purchasers and sellers of futures positions and options on
futures can enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument held or written.
Positions in futures and options on futures may be closed only on an exchange or
board of trade on which they were entered into (or through a linked exchange).
Although the Funds intend to enter into futures transactions only on exchanges
or boards of trade where there appears to be an active market, there can be no
assurance that such a market will exist for a particular contract at a
particular time.

         Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.

         If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses, because it would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.

         Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin calls
and might be compelled to liquidate futures or options on futures contracts
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.


                                       18
<PAGE>   60


FORWARD CURRENCY CONTRACTS. The Mid Cap Growth Fund, Growth Fund and Nationwide
Fund may enter into forward currency contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers.

         At or before the maturity of a forward contract, a Fund may either sell
a portfolio security and make delivery of the currency, or retain the security
and fully or partially offset its contractual obligation to deliver the currency
by purchasing a second contract. If a Fund retains the portfolio security and
engages in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices.

         The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.

SECURITIES OF OTHER NON-AFFILIATED INVESTMENT COMPANIES. Some of the countries
in which a Fund may invest may not permit direct investment by outside
investors. Investments in such countries may only be permitted through foreign
government-approved or government-authorized investment vehicles, which may
include other investment companies. The Funds may also invest in shares of other
non-affiliated investment companies registered under the 1940 Act. Investing
through such vehicles may involve frequent or layered fees or expenses and may
also be subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may
invest up to 10% of its assets in shares of investment companies and up to 5% of
its assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.

BANK OBLIGATIONS. As stated in a Fund's Prospectus, bank obligations that may be
purchased by a Fund include certificates of deposit, banker's acceptances and
fixed time deposits. A certificate of deposit is a short-term negotiable
certificate issued by a commercial bank against funds deposited in the bank and
is either interest-bearing or purchased on a discount basis. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. The borrower
is liable for payment as is the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date. Fixed time deposits are
obligations of branches of U.S. banks or foreign banks which are payable at a
stated maturity date and bear a fixed rate of interest. Although fixed time
deposits do not have a market, there are no contractual restrictions on the
right to transfer a beneficial interest in the deposit to a third party.

         Bank obligations may be general obligations of the parent bank or may
be limited to the issuing branch by the terms of the specific obligations or by
government regulation.


                                       19
<PAGE>   61

FLOATING AND VARIABLE RATE INSTRUMENTS. The Nationwide Bond, Tax-Free Income and
Money Market Fund may invest in floating and variable rate instruments. Certain
of the floating or variable rate obligations that may be purchased by these
Funds may carry a demand feature that would permit the holder to tender them
back to the issuer of the instrument or to a third party at par value prior to
maturity. Some of the demand instruments purchased by a Fund are not traded in a
secondary market and derive their liquidity solely from the ability of the
holder to demand repayment from the issuer or third party providing credit
support. If a demand instrument is not traded in a secondary market, the Fund
will nonetheless treat the instrument as "readily marketable" for the purposes
of its investment restriction limiting investments in illiquid securities unless
the demand feature has a notice period of more than seven days in which case the
instrument will be characterized as "not readily marketable" and therefore
illiquid.

         The Fund's right to obtain payment at par on a demand instrument could
be affected by events occurring between the date the Fund elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument or third party providing credit support to make payment when due,
except when such demand instruments permit same day settlement. To facilitate
settlement, these same day demand instruments may be held in book entry form at
a bank other than a Fund's custodian subject to a subcustodian agreement
approved by the Fund between that bank and the Fund's custodian.

   
ZERO COUPON SECURITIES. The Bond Funds may invest in zero coupon securities in
accordance with investment policies described in the Prospectus.
    

         Zero coupon securities are debt securities that pay no cash income but
are sold at substantial discounts from their value at maturity. When a zero
coupon security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Zero
coupon securities may have conversion features.

         Zero coupon securities tend to be subject to greater price fluctuations
in response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.

         Current federal income tax law requires the holder of a zero coupon
security acquired at a discount to accrue income with respect to these
securities prior to the receipt of cash payments. Accordingly, to avoid
liability for federal income and excise taxes, the Fund may be required to
distribute income accrued with respect to these securities and may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.


                                       20
<PAGE>   62


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:

     -    Except for the S&P 500 Index Fund, may not purchase securities of any
          one issuer, other than obligations issued or guaranteed by the U.S.
          Government, its agencies or instrumentalities, if, immediately after
          such purchase, more than 5% of 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.


                                       21
<PAGE>   63

     -    May not purchase the securities of any issuer if, as a result,  25% or
          more (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 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, telephone utilities, captive borrowing conduit, equipment
          finance, premium finance, leasing finance, consumer finance and other
          finance.

In addition, the S&P 500 Index Fund may not purchase securities of one issuer,
other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if at the end of each fiscal quarter, (a) more
than 5% of the Fund's total assets (taken at current value) would be invested
in such issuer (except that up to 50% of the Fund's total assets may be
invested without regard to such 5% limitation), and (b) more than 25% of its
total assets (taken at current value) would be invested in securities of a
single issuer. 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 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:


                                       22
<PAGE>   64


JOHN C. BRYANT, Trustee*, Age -- 61
11 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 -- 57
North Walnut and West College Avenue, Westerville, Ohio
Dr. DeVore is President of Otterbein College.

SUE A. DOODY, Trustee, Age -- 63
169 East Beck Street, Columbus, Ohio
Ms. Doody is President of Lindey's Restaurant, Columbus, Ohio. She is an active
member of the Greater Columbus Area Chamber of Commerce Board of Trustees.

ROBERT M. DUNCAN, Trustee*, Age -- 70 
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 -- 66
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 -- 64
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 -- 42
55 E. State Street, Columbus, Ohio
Mr. Kridler is President of the Columbus Association of Performing Arts.

DIMON R. MCFERSON, Trustee*+, Age -- 60
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise.

NANCY C. THOMAS, Trustee+, Age -- 63
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 -- 65
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 -- 49
11495 Sunset Hills Rd - Suite #210, Reston, Virginia
Mr. Wetmore is the Managing Director of The Updata Capital, a venture capital
firm.


                                       23
<PAGE>   65


JAMES F. LAIRD, JR., Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Laird is Vice President and General Manager of Nationwide Advisory Services,
Inc., the Distributor and Investment Manager.

CHRISTOPHER A. CRAY, Assistant Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Cray is Treasurer of Nationwide Advisory Services, Inc., the Distributor and
Investment Manager. Prior to that he was Director - Corporate Accounting of
Nationwide Insurance Enterprise.

DAVID E. SIMAITIS, Secretary
Three Nationwide Plaza, Columbus, Ohio
Mr. Simaitis is Counsel of Druen, Dietrich, Reynolds & Koogler, the Trust's
legal counsel.

+ A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act.

*Members of the Executive Committee. Mr. McFerson is Chairman. Mr. Fuellgraf is
the Alternate Member. The Executive Committee has the authority to act for the
Board of Trustees except as provided by law and except as specified in the
Trust's 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 ending 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, included 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--           10,000
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--
</TABLE>
    



                                       24
<PAGE>   66
<TABLE>

<S>                                       <C>            <C>            <C>             <C>  
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--           10,000

<FN>
**The Fund Complex includes Trusts comprised of twenty nine investment company
  portfolios.
</TABLE>

INVESTMENT ADVISORY AND OTHER SERVICES

Under the terms of the Investment Advisory Agreement dated _________1997,
Nationwide Advisory Services, Inc. ("NAS") manages the investment of the assets
of the Funds in accordance with the policies and procedures established by the
Trustees.

The Adviser pays the compensation of the Trustees and officers affiliated with
the Adviser. The Adviser also furnishes, at its own expense, all necessary
administrative services, office space, equipment, and clerical personnel for
servicing the investments of the Trust and maintaining its investment advisory
facilities, and executive and supervisory personnel for managing the investments
and effecting the portfolio transactions of the Trust.

The Investment Advisory Agreement also specifically provides that the Adviser,
including its directors, officers, and employees, shall not be liable for any
error of judgment, or mistake of law, or for any loss arising out of any
investment, or for any act or omission in the execution and management of the
Trust, except for willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of reckless disregard of its obligations
and duties under the Agreement. The Agreement will continue in effect for an
initial period of two years and thereafter shall continue automatically for
successive annual periods provided such continuance is specifically approved at
least annually by the Trustees, or by vote of a majority of the outstanding
voting securities of the Trust, and, in either case, by a majority of the
Trustees who are not parties to the Agreement or interested persons of any such
party. The Agreement terminates automatically in the event of its "assignment",
as defined under the 1940 Act. It may be terminated 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. 


                                       25
<PAGE>   67
For services provided under the Investment Management Agreement, NAS receives an
annual fee paid monthly based on average daily net assets of each Fund (except
the S&P 500 Index Fund) according to the following schedule:

<TABLE>
<CAPTION>

             FUND                                        ASSETS                   FEE
             ----                                        ------                   ---

<S>                                           <C>                                <C>                    
Nationwide Mid Cap Growth, Nationwide             $0 up to $250 million           .60%
Growth and Nationwide Fund                    $250 million up to $1 billion      .575%
                                               $1 billion up to $2 billion        .55%
                                               $2 billion up to $5 billion       .525%
                                                   $5 Billion and more            .50%

Nationwide Bond, Nationwide Tax-Free,             $0 up to $250 million           .50%
Nationwide Intermediate U.S. Government       $250 million up to $1 billion      .475%

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>

During the fiscal years ended October 31, 1997, 1996 and 1995, NAS received the 
following fees for investment advisory services: 

   
<TABLE>
<CAPTION>

                              ACQUIRED                             YEARS ENDED OCTOBER 31,            
          FUNDS                 FUNDS                     1997               1996              1995
          -----               --------                    ----               ----              ----
<S>                           <C>                         <C>                <C>               <C>                    
Mid Cap Growth             Growth of FHIT             $   63,883          $   54,053       $   46,886
Growth                     Growth of NIF               3,750,599           3,212,196        2,542,155
Nationwide Fund            Nationwide Fund of NIF      5,938,011           4,425,921        3,658,939
Bond                       Bond of NIF                   629,068             663,545          635,757
Tax-Free                   Tax-Free of NIF II          1,688,233           1,704,966        1,629,584
LT U.S. Govt.              Government of FHIT            343,259             414,415          447,894
Intermediate U.S. Govt.    U.S. Govt. of NIF II          256,016             255,149          248,765
Money Market*              Money Market of NIF*        3,502,716           2,952,726        2,465,549
</TABLE>

* Net of waivers of $389,150, $328,076 and $273,950 for 1997, 1996 and 1995,
respectively.
    

ADVISORY SERVICES FOR THE S&P 500 INDEX FUND

Under the terms of the Investment Advisory Agreement, NAS oversees the
investment of the assets for the S&P 500 Index Fund. Subject to the supervision
and direction of the Trustees, the Adviser also evaluates and monitors the
performance of the subadviser. The Adviser is also authorized to select and
place portfolio investments on behalf of the Fund, however the Adviser does not
intend to do so at this time.

The Adviser provides to the Fund investment management evaluation services
principally by performing initial due diligence on prospective Subadvisers for
the Fund and thereafter monitoring the performance of the Subadviser through
quantitative and qualitative analysis as well as periodic in-person, telephonic
and written consultations with the Subadviser. The Adviser has responsibility
for communicating performance expectations and evaluations to the Subadviser and
ultimately recommending to the Trust's Board of Trustees whether the
Subadviser's contract should be renewed, modified or terminated; however, the
Adviser does not expect to recommend frequent changes of subadvisers. The
Adviser will regularly provide written reports to the Board of Trustees
regarding the results of its evaluation and monitoring functions. Although the
Adviser will monitor the performance of the Subadvisers, there is no certainty
that the Subadviser or the Fund will obtain favorable results at any given time.

The S&P 500 Index Fund pays the Adviser a fee at the annual rate of .13% of the
Fund's average daily net assets for investment advisory services.

The Adviser may from time to time waive some or all of its investment advisory
fee or other fees. The waiver of such fees will cause the total return and yield
of the Fund to be higher than they would otherwise be in the absence of such a
waiver.

The Subadviser - Subject to the supervision of the Adviser and the Trust's 
Board of Trustees, The Dreyfus Corporation manages the S&P 500 Index Fund's
assets in accordance with such Fund's investment objective and policies. The
Subadviser shall make investment decisions for the S&P 500 Index Fund, and in
connection with such investment decisions


                                       26
<PAGE>   68
shall place purchase and sell orders for securities. For the investment
management services it provides to the Fund, the Subadviser receives an annual
fee from the Adviser in the following amounts:

     .07% on assets up to $250 million 
     .06% on assets of $250 million up to $500 million 
     .05% on assets of $500 million up to $1 billion 
     .04% on assets of $1 billion and more.

Below is a brief description of the Subadviser.

The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New York, N.Y. 10166, was
formed in 1947 and registered under the Investment Advisers Act of 1940, serves
as subadviser to the Fund pursuant to a Subadvisory Agreement
dated_____________. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation.

DISTRIBUTOR
- -----------

NAS serves as agent for each of the Funds in the distribution of its Shares
pursuant to a Underwriting Agreement dated as of ________, 1998 (the
"Underwriting Agreement"). Unless otherwise terminated, the Underwriting
Agreement will continue in effect until _________, 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 fiscal years ended October 31, 1997, 1996 and 1995, NAS received the 
following commissions from the sale of shares of the Funds: 

   
<TABLE>
<CAPTION>

                              ACQUIRED                             YEARS ENDED OCTOBER 31,            
     FUNDS                      FUNDS                     1997               1996              1995
     -----                    --------                    ----               ----              ----
<S>                           <C>                     <C>                <C>                 <C>                    
Growth                      Growth of NIF             $  873,750         $1,029,727          $609,266
Nationwide Fund             Nationwide Fund of NIF     2,037,896          1,089,371           520,812
Bond                        Bond of NIF                  123,036            202,206           131,140
</TABLE>

From such fees, NAS paid to its own representatives $1,699,148, $1,273,701 
and $645,131.
    

DISTRIBUTION PLAN

   
The Funds, other than the Money Market Fund, (the "12b-1 Funds"), have adopted a
Distribution Plan (the "Plan") under Rule 12b-1 of the 1940 Act which permits
the 12b-1 Funds to compensate NAS as such Funds' Distributor, for expenses
associated with distribution of the shares. Although actual distribution
expenses may be more or less, under the Plan the Funds shall pay an annual fee
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 .07% of the average daily net assets of the Local Fund
Shares of the Nationwide S&P 500 Index Fund to NAS. 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 fiscal years ended October 31, 1997, 1996 and 1995, NAS received 
the following distribution fees:


<TABLE>
<CAPTION>
   

                              ACQUIRED                             YEARS ENDED OCTOBER 31,            
          FUNDS                 FUNDS                     1997               1996              1995
          -----               --------                    ----               ----              ----
<S>                           <C>                         <C>                <C>               <C>                    
Mid Cap Growth             Growth of FHIT             $   1,012             $ 41,580          $36,069
Tax-Free                   Tax-Free of NIF II            521,060             526,480          502,108
LT U.S. Govt.              Govt. Bond of FHIT                 --                  --               --
Intermediate U.S. Govt.    U.S. Govt. of NIF II           78,778              78,507           76,543
</TABLE>
    

NAS also receives the proceeds of contingent deferred sales charges imposed on
certain redemptions of shares. During the fiscal years ended October 31, 1997,
1996, and 1995, NAS received the following amounts.

   
<TABLE>
<CAPTION>

                              ACQUIRED                             YEARS ENDED OCTOBER 31,            
          FUNDS                 FUNDS                     1997               1996              1995
          -----               --------                    ----               ----              ----
<S>                           <C>                       <C>                 <C>              <C>                    
Mid Cap Growth             Growth of FHIT               $ 10,832            $ 12,788         $ 28,961
Tax-Free                   Tax-Free of NIF II            161,441             169,310          234,339
LT U.S. Govt.              Govt. of FHIT                  23,417              36,566           75,240
Intermediate U.S. Govt.    U.S. Govt. of NIF II           31,232              58,918           72,664
</TABLE>
    

   
As required by Rule 12b-1, the Plan was approved by the initial Shareholder of
the Funds and 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 for the S&P 500 Index Fund on
November 7, 1997 and for the other 12b-1 Funds on February    , 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 vote of the Trustees including a majority of the
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
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 Funds.
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 as to a Fund must determine that there is a reasonable likelihood that
the Plan will benefit such Fund and its Shareholders.
    

   
The Board of Trustees of the Trust believes that 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 a Fund's Shares including, but not limited
to, those discussed above.

OTHER SERVICES FOR ALL THE FUNDS

   
Under a separate Fund Administration Agreement dated ____________ 1997, NAS also
provides various administrative and accounting services, including daily
valuation of each Fund's shares and preparation of financial statements, tax
returns and regulatory reports. For these services, each Fund (except the S&P
500 Index Fund) pays NAS an annual fee in the amount of 0.07% on assets up to
$250 million of average daily net assets, 0.05% on the next $750 million and
0.04% on assets of $1 billion and more. The S&P 500 Index Fund pays NAS an
annual fee in the amount of 0.05% on assets up to $1 billion and 0.04% on assets
of $1 billion and more. 
    

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 in Class D shares per annum; $18 per Bond Fund account
in Class D shares per annum; $27 per Money Market Fund account per annum and
 .01% annually of average daily net assets of the S&P 500 Index Fund. Management 
believes the charges for the services performed are comparable to fees charged
by other companies performing similar services.

The Fifth Third Bank ("Fifth Third"), 38 Fountain Square Plaza, Cincinnati, OH
45263, is the custodian for the Funds and makes all receipts and disbursements
under a 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 



                                       27
<PAGE>   69

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 fiscal year ended October 31, 1997, 1996 and 1995, the following 
brokerage commissions were paid by the Funds, all to firms rendering 
statistical services as described above: 

   
<TABLE>
<CAPTION>

                              ACQUIRED                             YEARS ENDED OCTOBER 31,            
     FUNDS                      FUNDS                     1997               1996              1995
     -----                    --------                    ----               ----              ----
<S>                           <C>                         <C>                <C>               <C>                    
Mid Cap Growth             Growth of FHIT               $  8,480            $  1,928         $  5,943
  Growth                   Growth of NIF                 742,579             376,916          290,230
Nationwide Fund            Nationwide Fund of NIF        664,395             436,679          310,027
</TABLE>
    

CALCULATION OF NET ASSET VALUE OF THE
MONEY MARKET FUND

         The Nationwide Money Market Fund's net asset value per share is
calculated by adding the value of all securities and other assets of the Fund,
deducting its liabilities, and dividing by the number of shares outstanding.

         The value of portfolio securities is determined on the basis of the
amortized cost, method of valuation in accordance with Rule 2a-7 of the 1940
Act. This involves valuing a security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.

         The Trustees have adopted procedures whereby the extent of deviation,
if any, of the current net asset value per share calculated using available
market quotations from the Money Market Fund's amortized cost price per share,
will be determined at such intervals as the Trustees deem appropriate and are
reasonable in light of current market conditions. In the event such deviation
from the Money Market Fund's amortized cost price per share exceeds 1/2 of 1
percent, the Trustees will consider appropriate action which might include a
revaluation of all or an appropriate portion of the Money Market Fund's assets
based upon current market factors.

         The Trustees, in supervising the Fund's operations and delegating
special responsibilities involving portfolio management to NAS, have undertaken
as a particular responsibility within their overall duty of care owed to the
Fund's shareholders to assure to the extent reasonably practicable, taking into
account current market conditions affecting the Fund's investment objectives,
that the Fund's net asset value per share, rounded to the nearest one cent, will
not deviate from $1.

         Pursuant to its objective of maintaining a stable net asset value per
share, the Money Market Fund will only purchase investments with a remaining
maturity of 397 days or less and will maintain a dollar weighted average
portfolio maturity of 90 days or less.

CALCULATING MONEY MARKET FUND YIELD

Any current Money Market Fund yield quotations, subject to Rule 482 under the
Securities Act, shall consist of a seven calendar day historical yield, 
carried at least to the nearest hundredth of a percent. The yield shall be
calculated by determining the change, excluding realized and unrealized gains
and losses, in  the value of a  

                                       28
<PAGE>   70
   
hypothetical pre-existing account having a balance of one share at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by 365/7 (or 366/7 during a leap year).
For 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. As of October 31, 1997, the Money Market Funds seven day current 
and effective yields were 5.00% and 5.15%, respectively.
    

         The Money Market Fund's yield will fluctuate daily. Actual yields will
depend on factors such as the type of instruments in the Money Market Fund's
portfolio, portfolio quality and average maturity, changes in interest rates,
and the Money Market Fund's expenses.

         Although the Fund determines its yield on the basis of a seven calendar
day period, it may use a different time span on occasion.

         There is no assurance that the yields quoted on any given occasion will
remain in effect for any period of time and there is no guarantee that the net
asset values will remain constant. It should be noted that a shareholder's
investment in the Fund is not guaranteed or insured. Yields of other money
market funds may not be comparable if a different base period or another method
of calculation is used.

CALCULATING YIELD AND TOTAL RETURN--
NON-MONEY MARKET FUNDS

The Funds may from time to time advertise historical performance, subject to
Rule 482 under the Securities Act. 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 the fees and/or expenses
borne by Class A, B and D shares of the Funds, 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 October 31, 1997 were as follows:

   
<TABLE>
<CAPTION>

                              ACQUIRED                                 
          FUNDS                 FUNDS                   1 YEAR              5 YEAR        10 YEAR OR LIFE
          -----               --------                  ------              ------        ---------------
<S>                        <C>                        <C>                <C>               <C>                    
Mid Cap Growth             Growth of FHIT               18.66%              16.86%             13.36%* 
Growth                     Growth of NIF                26.17%              16.07%             14.74%
Nationwide Fund            Nationwide Fund of NIF       33.87%              17.51%             16.48%
Bond                       Bond of NIF                   3.46%               6.04%              8.32% 
Tax-Free                   Tax-Free of NIF II            2.72%               6.63%              8.18%
LT U.S. Govt.              Govt. Bond of FHIT            3.84%               6.76%              9.12%*
Intermediate U.S. Govt.    U.S. Govt. of NIF II          3.86%               6.94%              7.17%**
</TABLE>

*  The life of the funds is 8.8 years.
    

** The life of the fund is 5.7 years.

NONSTANDARD RETURNS

The Funds may also choose to show nonstandard returns including total return,
and simple average total return. Nonstandard returns may or may not reflect
reinvestment of all dividends and capital gains; in addition, sales charge
assumptions will vary. Sales charge percentages decrease as amounts invested
increase as outlined in the prospectus; therefore, returns increase as sales
charges decrease.

Total return represents the cumulative percentage change in the value of an
investment over time, calculated by subtracting the initial investment from the
redeemable value and dividing the result by the amount of the initial
investment. The simple average total return is calculated by dividing total
return by the number of 


                                       29
<PAGE>   71

years in the period, and unlike average annual (compound) total return, does not
reflect compounding.

The Nationwide Bond Fund, Nationwide Tax-Free Income Fund, Nationwide
Intermediate U.S. Government Bond Fund and Nationwide Long-Term U.S. Government
Bond Fund may also from time to time advertise a uniformly calculated yield
quotation. This yield is calculated by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per share
on the last day of the period, assuming reinvestment of all dividends and
distributions. This yield formula uses the average number of shares entitled to
receive dividends, provides for semi-annual compounding of interest, and
includes a modified market value method for determining amortization. The yield
will fluctuate, and there is no assurance that the yield quoted on any given
occasion will remain in effect for any period of time.

The following are the yields for the 30-day period ended October 31, 1997:

   
<TABLE>
<CAPTION>

                                  ACQUIRED                           
          FUNDS                     FUNDS                     YIELD
          -----                   --------                    -----
<S>                              <C>                         <C>  
Bond                           Bond of NIF                    5.56%        
Tax-Free                       Tax-Free of NIF II             4.26%        
LT U.S. Govt.                  Govt. Bond of FHIT             5.93%       
Intermediate U.S. Govt.        U.S. Govt. of NIF II           5.76%       
</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 2.8%, the 
tax equivalent yield for the Tax-Free Income Fund for the 30-day period ended
October 31, 1997 was 5.92%.
    

ADDITIONAL INFORMATION

   
DESCRIPTION OF SHARES--The Trust presently offers nine series of shares of
beneficial interest, without par value; eight of these series are the Funds (not
including the Nationwide S&P 500 Index Fund). 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 you have an interest only in the assets of
the shares of the class 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. The Money Market
Fund offers shares without class designation and its shareholders have an equal
proportionate interest in the shares of that Fund. 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
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 or Class B 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 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.
    

                                       30
<PAGE>   72
   
    



ADDITIONAL GENERAL TAX INFORMATION

         Each of the nine Funds of the Trust is treated as a separate entity for
Federal income tax purposes and intends to qualify as a "regulated investment
company" under the Code, for so long as such qualification is in the best
interest of that Fund's shareholders. In order to qualify as a regulated
investment company, a Fund must, among other things: diversify its investments
within certain prescribed limits; derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and, in taxable years beginning on or before August
5, 1997, derive less than 30% of its gross income from the sale or other
disposition of stock, securities, options, future contracts or foreign
currencies held less than three months. In addition, to utilize the tax 
provisions specially applicable to regulated investment companies, a Fund must
distribute to its shareholders at least 90% of its investment company taxable
income for the year. In general, the Fund's investment company taxable income
will be its taxable income subject to certain adjustments and excluding the
excess of any net mid-term or net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year.

         A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.

         Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its shareholders). In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.

         It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital


                                       31
<PAGE>   73

gains will be taxable income to shareholders for federal income tax purposes,
even if paid in additional shares of that Fund and not in cash.

         Distribution by a Fund of the excess of net mid-term or net long-term
capital gain over net short-term capital loss, if any, is taxable to
shareholders as mid-term or long-term capital gain, respectively, in the year in
which it is received, regardless of how long the shareholder has held the
shares. Such distributions are not eligible for the dividends-received
deduction.

         Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the effective marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.

         Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
and deducted in future years. The holding period for mid-term capital gains is
more than one year but not more than eighteen months; the holding period for
long-term capital gains is more than eighteen months.

         Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.

         Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.

         Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Money Market Fund's and each of the Bond Fund's net
investment income is expected to be derived from earned interest and short term
capital gains, it is anticipated that no distributions from such Funds will
qualify for the 70% dividends received deduction.

         Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
any Fund's total assets at the end of its fiscal year are expected to be
invested in stocks or securities of foreign corporations, such Fund will not be
entitled under the Code to pass through to its Shareholders their pro rata share
of the foreign taxes paid by that Fund. These taxes will be taken as a deduction
by the Fund.


                                       32
<PAGE>   74

         Under Section 1256 of the Code, gain or loss realized by a Fund from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss will arise upon exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures and options remaining
unexercised at the end of a Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to such Fund
characterized in the manner described above.

         Offsetting positions held by a Fund involving certain futures contracts
or options transactions may be considered, for tax purposes, to constitute
"straddles." Straddles are defined to include "offsetting positions" in actively
traded personal property. The tax treatment of straddles is governed by Sections
1092 and 1258 of the Code, which, in certain circumstances, overrides or
modifies the provisions of Section 1256. As such, all or a portion of any short
or long-term capital gain from certain straddle and/or conversion transactions
may be recharacterized as ordinary income.

         If a Fund were treated as entering into straddles by reason of its
engaging in futures or options transactions, such straddles would be
characterized as "mixed straddles" if the futures or options comprising a part
of such straddles were governed by Section 1256 of the Code. A Fund may make one
or more elections with respect to mixed straddles. If no election is made, to
the extent the straddle rules apply to positions established by a Fund, losses
realized by such Fund will be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and conversion
transaction rules, short-term capital losses on straddle positions may be
recharacterized as long-term capital losses and long-term capital gains may be
recharacterized as short-term capital gain or ordinary income.

         Investment by a Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to Shareholders. For example, a Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion in
order to maintain its qualification as a regulated investment company. In that
case, that Fund may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.

         Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of the Fund, if such Shareholder (1) fails to furnish the
Fund with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.

   
         Information set forth in the Prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of the Funds or their
shareholders and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential purchasers of shares of a Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the
    


                                       33
<PAGE>   75

prospectuses and this Statement of Additional Information is based on tax laws
and regulations which are in effect on the date of the prospectuses and this
Statement of Additional Information; such laws and regulations may be changed by
legislative or administrative action.

         Information as to the federal income tax status of all distributions
will be mailed annually to each shareholder.


ADDITIONAL TAX INFORMATION WITH RESPECT TO THE TAX-FREE INCOME FUND

         The Tax-Free Income Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Free Income Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans, and individual retirement
accounts, since such plans and accounts are generally tax-exempt and, therefore,
would not gain any additional benefit from all or a portion of the Tax-Free
Income Fund's dividends being tax-exempt and such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the Tax-Free
Income Fund may not be an appropriate investment for entities which are
"substantial users," or "related persons" thereof, of facilities financed by
private activity bonds held by the Tax-Free Income Fund.

         The Code permits a regulated investment company which invests in
municipal securities to pay to its shareholders "exempt-interest dividends,"
which are excluded from gross income for federal income tax purposes, if at the
close of each quarter of its taxable year at least 50% of its total assets
consist of municipal securities.

         An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by the Tax-Free Income Fund that is derived from
interest received by the Tax-Free Income Fund that is excluded from gross
income for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice
mailed to shareholders not later than sixty days after the close of the
Tax-Free Income Fund's taxable year. The percentage of the total dividends paid
by the Tax-Free Income Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders of the Tax-Free
Income Fund receiving dividends during such year. Exempt-interest dividends
shall be treated by the Tax-Free Income Fund's shareholders as items of
interest excludable from their gross income for Federal income tax purposes
under Section 103(a) of the Code. However, a shareholder is advised to consult
his 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


                                       34
<PAGE>   76

continued to purchase or carry shares of the Tax-Free Income Fund if the
Tax-Free Income Fund distributes exempt-interest dividends during the
shareholder's taxable year. Certain federal income tax deductions of property
and casualty insurance companies holding shares of the Tax-Free Income Fund and
receiving exempt-interest dividends may also be adversely affected. In certain
limited instances, the portion of Social Security benefits received by a
shareholder which may be subject to federal income tax may be affected by the
amount of tax-exempt interest income, including exempt-interest dividends
received by shareholders of the Tax-Free Income Fund.

         In the event the Tax-Free Income Fund realizes mid-term or long-term
capital gains, the Tax-Free Income Fund intends to distribute any realized net
mid-term or net long-term capital gains annually. If the Tax-Free Income Fund
distributes such gains, the Tax-Free Income Fund will have no tax liability with
respect to such gains, and the distributions will be taxable to shareholders as
mid-term or long-term capital gains, respectively, regardless of how long the
shareholders have held their shares. Any such distributions will be designated
as a capital gain dividend in a written notice mailed by the Tax-Free Income
Fund to the shareholders not later than sixty days after the close of the
Tax-Free Income Fund's taxable year. It should be noted, however, that long-term
capital gains of individuals are subject to a maximum tax rate of 20% (or 10%
for individuals in the 15% ordinary income tax bracket) and mid-term capital
gains are taxed like ordinary income except that net capital gains of
individuals are subject to a maximum federal income tax rate of 28%. Any net
short-term capital gains are taxed at ordinary income tax rates. If a
shareholder receives a capital gain dividend with respect to any share and then
sells the share before he has held it for more than six months, any loss on the
sale of the share is treated as long-term capital loss to the extent of the
capital gain dividend received.

         Interest earned on certain municipal obligations issued on or after
August 8, 1986, to finance certain private activities will be treated as a tax
preference item in computing the alternative minimum tax. Since the Tax-Free
Income Fund may invest up to 20% of its net assets in municipal securities the
interest on which may be treated as a tax preference item, a portion of the
exempt-interest dividends received by shareholders from the Tax-Free Income Fund
may be treated as tax preference items in computing the alternative minimum tax
to the extent that distributions by the Tax-Free Income Fund are attributable to
such obligations. Also, a portion of all other interest excluded from gross
income for federal income tax purposes earned by a corporation may be subject to
the alternative minimum tax as a result of the inclusion in alternative minimum
taxable income of 75% of the excess of adjusted current earnings and profits
over pre-book alternative minimum taxable income. Adjusted current earnings and
profits would include exempt-interest dividends distributed by the Tax-Free
Income Fund to corporate shareholders. For individuals the alternative minimum
tax rate is 26% on alternative minimum taxable income up to $175,000 and 28% on
the excess of $175,000; for corporations the alternative minimum tax rate is
20%.

         For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income", which would include a portion of the exempt-interest dividends
distributed by the Tax-Free Income Fund to such corporation. In addition,
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.


                                       35
<PAGE>   77

         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% long-term capital gain or loss and 40% short-term capital gain or
loss. Gain or loss will arise upon exercise or lapse of such futures and options
as well as from closing transactions. In addition, any such futures and options
remaining unexercised at the end of the Tax-Free Income Fund's taxable year will
be treated as sold for their then fair market value, resulting in additional
gain or loss to the Tax-Free Income Fund characterized in the manner described
above.

         Offsetting positions held by the Tax-Free Income Fund involving certain
futures contracts or options transactions may be considered, for tax purposes,
to constitute "straddles." Straddles are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of straddles
is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Section 1256. As such,
all or a portion of any short or long-term capital gain from certain straddle
and/or conversion transactions may be recharacterized as ordinary income.

         If the Tax-Free Income Fund were treated as entering into straddles by
reason of its engaging in futures or options transactions, such straddles would
be characterized as "mixed straddles" if the futures or options comprising a
part of such straddles were governed by Section 1256 of the Code. The Tax-Free
Income Fund may make one or more elections with respect to mixed straddles. If
no election is made, to the extent the straddle rules apply to positions
established by the Tax-Free Income Fund, losses realized by the Tax-Free Income
Fund will be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and conversion transaction
rules, short-term capital losses on straddle positions may be recharacterized as
long-term capital losses and long-term capital gains may be recharacterized as
short-term capital gain or ordinary income.


                                       36
<PAGE>   78

         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 December 18, 1997, Nationwide Life Insurance Company had sole voting and
investment power over 5.31% of the outstanding shares of the Mid Cap Growth Fund
(Growth Fund of FHIT). As of December 18, 1997, Nationwide Life Insurance
Company and its affiliate directly or indirectly owned, controlled or held power
to vote 31.0% of the outstanding shares of the Growth Fund (Growth Fund of NIF),
24.1% of the Nationwide Fund (Nationwide Fund of NIF), 16.8% of the Bond Fund
(Bond Fund of NIF), 15.8% of the Intermediate Term U.S. Government Bond Fund
(U.S. Government Fund of NIFII) and 54.4% of the Money Market Fund (Money Market
Fund of NIF).
    




                                       37
<PAGE>   79
                       NATIONWIDE INVESTING FOUNDATION III
                          NATIONWIDE S&P 500 INDEX FUND
                       STATEMENT OF ASSETS AND LIABILITIES
                                DECEMBER 23, 1997


<TABLE>
<CAPTION>
<S>                                                                    <C>
ASSETS
Cash                                                                   $ 100,000

                                                                       ---------
NET ASSETS                                                             $ 100,000
                                                                       =========


REPRESENTED BY:
Capital                                                                $ 100,000
                                                                       ---------

NET ASSETS                                                             $ 100,000
                                                                       =========


Shares outstanding (unlimited number of
   shares outstanding)                                                    10,000
                                                                       =========

Net asset value per share                                              $   10.00
                                                                       =========
</TABLE>



See accompanying notes to financial statements.


                                       38
<PAGE>   80


NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER  23, 1997

1. ORGANIZATION

The Nationwide S&P 500 Index Fund (the "Fund") is a non-diversified portfolio of
Nationwide Investing Foundation III (the "Trust"). The Trust is an open-end
management investment company organized as a business trust under the laws of
the State of Ohio, by a Declaration of Trust dated as of October 30, 1997. The
Trust offers nine separate portfolios or series, each with its own investment
objectives and each are registered under the Investment Company Act of 1940, as
amended. The accompanying financial statements relate only to the Nationwide S&P
500 Index Fund. The Fund had no operations other than those actions relating to
organizational matters and the initial purchase of 10,000 units of beneficial
interest in the Fund. As of December 23, 1997, all outstanding shares of the
Fund are owned by Nationwide Advisory Services, Inc. (NAS), an Ohio corporation.

2.  RELATED PARTY TRANSACTIONS

Nationwide Advisory Services, Inc., an affiliated company, serves as the Fund's
investment advisor. Under the terms of the Investment Advisory Agreement, NAS
oversees the investment of the assets for the Fund and supervises its daily
business affairs. As the Fund's adviser, NAS receives fees at an annual rate of
 .13% of the Fund's average daily net assets.

The Dreyfus Corporation ("Dreyfus") serves as investment sub-adviser. For its
services, Dreyfus receives an annual fee from NAS in the following amounts:
         .07% on average daily net assets up to $250 million
         .06% on average daily net assets of $250 million up to $500 million
         .05% on average daily net assets of $500 million up to $1 billion
         .04% on average daily net assets of $1 billion and more

NAS also receives fees for distribution pursuant to a Rule 12b-1 Distribution
Plan approved by the Board of Trustees. The Fund pays NAS an annual rate of .07%
of the Fund's average daily net assets, accrued daily and paid monthly. NAS will
use these fees for the distribution and marketing of the Fund.

Under the terms of the Fund Administration Agreement, NAS also provides various
administrative and accounting services. For these services, the Fund pays NAS
based on the Fund's average daily net assets in the amount of .05% on assets up
to $1 billion and .04% on assets of $1 billion and more.

Nationwide Investors Services, Inc. (NISI) acts as transfer and dividend
disbursing agent for the funds. For these services, the Fund pays NISI at an
annual rate of .01% of the Fund's average daily net assets. NISI is a wholly
owned subsidiary of NAS.

Except as otherwise provided below, all fees and expenses incurred by a party in
connection with the Agreement and Plan of Reorganization will be paid by the
party directly incurring such costs. NAS will pay 50% of the costs associated
with the Reorganization. Each Acquiring Fund will bear its own organizational
costs.



                                       39
<PAGE>   81
                          Independent Auditors' Report


The Shareholder and Trustees
     of Nationwide Investing Foundation III:


We have audited the accompanying statement of assets and liabilities of the
Nationwide Investing Foundation III Nationwide S&P 500 Index Fund (the Fund) as
of December 23, 1997. This financial statement is the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of December 23,
1997 in conformity with generally accepted accounting principles.


                                                    KPMG Peat Marwick LLP

Columbus, Ohio
December 23, 1997



                                       40
<PAGE>   82


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 



                                       41
<PAGE>   83

such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

        BB - Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

        B - Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'BB' or 'BB-' rating.

        CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The 'CCC' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'B' or 'B-' rating.

        CC - Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.

        C - Debt rated 'C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

        CI - The rating 'CI' is reserved for income bonds on which no interest
is being paid.

        D - Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grade period. The 'D'
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.

MOODY'S LONG-TERM DEBT RATINGS

        Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

        Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.


                                       42
<PAGE>   84

        A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

        Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

        Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

        B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

        Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

        Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

        C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

MUNICIPAL BOND

Excerpts from Moody's Investors Service Inc., description of its three highest
bond ratings: Aaa--judged to be the best quality. They carry the smallest degree
of investment risk; Aa--judged to be of high quality by all standards;
A--possess favorable attributes and are considered "upper medium" grade
obligations. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbol Aa 1, A 1, Ba 1 and B 1.

Excerpts from Standard & Poor's Corporation description of its three highest
bond ratings: AAA--highest grade obligations; AA--also qualify as highgrade
obligations, and, in the majority of instances, differ from AAA issues only in
small degree; A--strong ability to pay interest and repay principle although
more susceptible to change in circumstances.

STATE AND MUNICIPAL NOTES

Excerpts from Moody's Investors Service, Inc., description of state and
municipal note ratings:

MIG-1--Notes bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing from
established and board-based access to the market for refinancing, or both.


                                       43
<PAGE>   85


MIG-2--Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.

MIG-3--Notes bearing this designation are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding grade.
Market access for refinancing, in particular, is likely to be less well
established.

  FITCH INVESTORS SERVICE, INC. BOND RATINGS

        Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

        The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.

        Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

        Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

        Fitch ratings are not recommendations to buy, sell, or hold any
security. ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.

        Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA      Bonds considered to be investment grade and of the highest credit
         quality. The obligor has an exceptionally strong ability to pay
         interest and repay principal, which is unlikely to be affected by
         reasonably foreseeable events.

AA       Bonds considered to be investment grade and of very high credit
         quality. The obligor's ability to pay interest and repay principal is
         very strong, although not quite as strong as bonds rated 'AAA'. Because
         bonds rated in the 'AAA' and 'AA' categories are not significantly
         vulnerable to foreseeable future developments, short-term debt of the
         issuers is generally rated 'F-1+'.

A        Bonds considered to be investment grade and of high credit quality. The
         obligor's ability to pay interest and repay principal is considered to
         be strong, but may be more vulnerable to adverse changes in economic
         conditions and circumstances than bonds with higher ratings.

BBB      Bonds considered to be investment grade and of satisfactory credit
         quality. The obligor's ability to pay interest and repay principal is
         considered to be adequate. Adverse changes in economic conditions and
         circumstances, however, are 


                                       44
<PAGE>   86

         more likely to have adverse impact on these bonds, and therefore,
         impair timely payment. The likelihood that the ratings of these bonds
         will fall below investment grade is higher than for bonds with higher
         ratings.

        Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or liquidation.

        The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.

        Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.

BB       Bonds are considered speculative. The obligor's ability to pay interest
         and repay principal may be affected over time by adverse economic
         changes. However, business and financial alternatives can be identified
         which could assist the obligor in satisfying its debt service
         requirements.

B        Bonds are considered highly speculative. While bonds in this class are
         currently meeting debt service requirements, the probability of
         continued timely payment of principal and interest reflects the
         obligor's limited margin of safety and the need for reasonable business
         and economic activity throughout the life of the issue.

CCC      Bonds have certain identifiable characteristics which, if not remedied,
         may lead to default. The ability to meet obligations requires an
         advantageous business and economic environment.

CC       Bonds are minimally protected. Default in payment of interest and/or
         principal seems probable over time.

C        Bonds are in imminent default in payment of interest or principal.

DDD      Bonds are in default on interest and/or principal payments. Such bonds
         are extremely speculative,

DD       and should be valued on the basis of their ultimate recovery value in
         liquidation or reorganization of &D the obligor. `DDD' represents the
         highest potential for recovery of these bonds, and 'D' represents the
         lowest potential for recovery.


DUFF & PHELPS, INC.  LONG-TERM DEBT RATINGS

        These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, 


                                       45
<PAGE>   87

regulation, technological obsolescence, demand shifts, cost structure, and
management depth and expertise. The projected viability of the obligor at the
trough of the cycle is a critical determination.

        Each rating also takes into account the legal form of the security,
(e.g., first mortgage bonds, subordinated debt, preferred stock, etc.). The
extent of rating dispersion among the various classes of securities is
determined by several factors including relative weightings of the different
security classes in the capital structure, the overall credit strength of the
issuer, and the nature of covenant protection. Review of indenture restrictions
is important to the analysis of a company's operating and financial constraints.

        The Credit Rating Committee formally reviews all ratings once per
quarter (more frequently, if necessary). Ratings of 'BBB-' and higher fall
within the definition of investment grade securities, as defined by bank and
insurance supervisory authorities.

RATING
SCALE           DEFINITION
- -----           ----------

AAA             Highest credit quality. The risk factors are negligible, being
                only slightly more than for risk-free U.S. Treasury debt.

AA+             High credit quality. Protection factors are
AA              strong. Risk is modest, but may vary slightly
AA-             from time to time because of economic conditions.

A+              Protection factors are average but adequate.
A               However, risk factors are more variable and
A-              greater in periods of economic stress.

BBB+            Below average protection factors but still considered sufficient
BBB             for prudent investment. Considerable variability in risk during
BBB-            economic cycles.

BB+             Below investment grade but deemed likely to meet
BB              obligations when due. Present or prospective
BB-             financial protection factors fluctuate according to
                industry conditions or company fortunes. Overall
                quality may move up or down frequently within this category.

B+              Below investment grade and possessing risk that
B               obligations will not be met when due. Financial
B-              protection factors will fluctuate widely according to
                economic cycles, industry conditions and/or company fortunes.
                Potential exists for frequent Changes in the rating within this
                category or into a higher or lower rating grade.

CCC             Well below investment grade securities. Considerable
                uncertainty exists as to timely payment of principal, interest
                or preferred dividends. Protection factors are narrow and
                risk can be substantial with unfavorable economic/industry 
                conditions, and/or with unfavorable company developments.

DD              Defaulted debt obligations. Issuer failed to meet scheduled
                principal and/or interest payments.

DP              Preferred stock with dividend arrearages.



                                       46
<PAGE>   88

SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

        A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market.

        Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:

        A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

        A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.

        A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

        B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.

        C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.

        D Debt rated 'D' is in payment default. the 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grade period.

STANDARD & POOR'S NOTE RATINGS

        An S&P note rating reflects the liquidity factors and market-access
risks unique to notes. Notes maturing in three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.

        The following criteria will be used in making the assessment:

        1.     Amortization schedule - the larger the final maturity relative to
               other maturities, the more likely the issue is to be treated as a
               note.

        2.     Source of payment - the more the issue depends on the market for
               its refinancing, the more likely it is to be considered a note.

        Note rating symbols and definitions are as follows:

        SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

        SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

        SP-3 Speculative capacity to pay principal and interest.

                                       47
<PAGE>   89


MOODY'S SHORT-TERM RATINGS

        Moody's short-term debt ratings are opinions on the ability of issuers
to repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:

        Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (I)
leading market positions in well established industries, (II) high rates of
return on funds employed, (III) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (IV) broad margins in
earnings coverage of fixed financial charges and high internal cash generation,
and (V) well established access to a range of financial markets and assured
sources of alternative liquidity.

        Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

        Issuers rated Prime-3 (or supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

        Issuers rated Not Prime do not fall within any of the prime rating
categories.

MOODY'S NOTE RATINGS

         MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.

         MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

         MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.

         MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

         SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.



                                       48
<PAGE>   90




FITCH'S SHORT-TERM RATINGS

        Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

        The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

                     F-1+ Exceptionally strong credit quality. Issues assigned
               this rating are regarded as having the strongest degree of
               assurance for timely payment.

                     F-1 Very strong credit quality. Issues assigned this rating
               reflect an assurance of timely payment only slightly less in
               degree than issues rated 'f-1+'.

                     F-2 Good credit quality. Issues assigned this rating have a
               satisfactory degree of assurance for timely payment but the
               margin of safety is not as great as for issues assigned 'F-1+'
               and 'F-1' ratings.

                     F-3 Fair credit quality. Issues assigned this rating have
               characteristics suggesting that the degree of assurance for
               timely payment is adequate, however, near-term adverse changes
               could cause these securities to be rated below investment grade.

                     F-S Weak credit quality. Issues assigned this rating have
               characteristics suggesting a minimal degree of assurance for
               timely payment and are vulnerable to near-term adverse changes in
               financial and economic conditions.

                     D Default. Issues assigned this rating are in actual or
               imminent payment default.


                     LOC The symbol LOC indicates that the rating is based on a
               letter of credit issued by a commercial bank.


DUFF & PHELPS SHORT-TERM DEBT RATINGS

        Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to all
obligations with maturities under one year, including commercial paper, the
uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt.
Asset-backed commercial paper is also rated according to this scale.

        Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.



                                       49
<PAGE>   91




RATING SCALE   DEFINITION
- ------------   ----------

               HIGH GRADE
               ----------

        D-1+       Highest certainty of timely payment. short-term liquidity,
               including internal operating factors and/or access to alternative
               sources of funds, is outstanding, and safety is just below
               risk-free U.S. Treasury short-term obligations.

        D-1        Very high certainty of timely payment. Liquidity factors are
               excellent and supported by good fundamental protection factors.
               Risk factors are minor.

        D-1-       High certainty of timely payment. Liquidity factors are
               strong and supported by good fundamental protection factors. Risk
               factors are very small.

                   GOOD GRADE
                   ----------

        D-2        Good certainty of timely payment. Liquidity factors and
               company fundamentals are sound. Although ongoing funding needs
               may enlarge total financing requirements, access to capital
               markets is good. Risk factors are small.

                   SATISFACTORY GRADE
                   ------------------

        D-3        Satisfactory liquidity and other protection factors qualify
               issue as to investment grade. Risk factors are larger and subject
               to more variation. Nevertheless, timely payment is expected.

                   NON-INVESTMENT GRADE
                   --------------------

        D-4        Speculative investment characteristics. Liquidity is not
               sufficient to insure against disruption in debt service.
               Operating factors and market access may be subject to a high
               degree of variation.

                   DEFAULT
                   -------

        D-5        Issuer failed to meet scheduled principal and/or interest
               payments.


THOMSON'S SHORT-TERM RATINGS

        The Thomson Short-Term Ratings apply, unless otherwise noted, to
specific debt instruments of the rated entities with a maturity of one year or
less. Thomson short-term ratings are intended to assess the likelihood of an
untimely or incomplete payments of principal or interest.

        TBW-1 the highest category, indicates a very high likelihood that
principal and interest will be paid on a timely basis.

        TBW-2 the second highest category, while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
 
        TBW-3 the lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.


                                       50
<PAGE>   92

        TBW-4 the lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

IBCA SHORT-TERM RATINGS

        IBCA short-term ratings assess the borrowing characteristics of banks
and corporations, and the capacity for timely repayment of debt obligations. The
short-term ratings relate to debt which has a maturity of less than one year.

        IBCA issues ratings and reports on the largest U.S. and international
bank holding companies, as well as major investment banks. IBCA's short-term
rating system utilizes a dual system--Individual Ratings and Legal Ratings. The
Individual Rating addresses 1) the current strength of consolidated banking
companies and their principal bank subsidiaries. A consolidated bank holding
company/bank with an "A" rating has a strong balance sheet, and a favorable
credit profile without significant problems. A "B" rating indicates sound credit
profile without significant problems. Performance is generally in line with or
better than that of its peers. The legal rating addresses the question of
whether an institution would receive support if it ran into difficulties. Issues
rated "A-1" are obligations supported by a very strong capacity for timely
repayment. Issues rated "A-2" have a very strong capacity for timely repayment
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.

                A1+  Obligations supported by the highest capacity for timely
                     repayment and possess a particularly strong credit feature.

                A1   Obligations supported by the highest capacity for timely
                     repayment.

                A2   Obligations supported by a good capacity for timely
                     repayment.

                A3   Obligations supported by a satisfactory capacity for timely
                     repayment.

                B    Obligations for which there is an uncertainty as to the
                     capacity to ensure timely repayment.

                C    Obligations for which there is a high risk of default or
                     which are currently in default.

                D    Obligations which are currently in default.

BOND RATINGS

Bonds rated AA or AAA by D&P are deemed to be high quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

Bonds rated AA or AAA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong.

Moody's three highest bond ratings are: Aaa - judged to be the best quality -
carry the smallest degree of investment risk; Aa - judged to be high quality by
all standards; A possess favorable attributes and are considered "upper medium"
grade obligations.

S&P's three highest bond ratings are: AAA - highest grade obligations - possess
the ultimate degree of protection and indicates an extremely strong capacity to
pay 


                                       51
<PAGE>   93

principal and interest; AA - also qualify as high grade obligations, and in
the majority of instances differ only in small degrees from issues rated AAA; A
- - strong ability to pay interest and repay principal although more susceptible
to change in circumstances.

Bonds rated AA or AAA by IBCA indicates a very strong capacity for timely
repayment of debt. Margins of protection may not be as large as for AAA issues.

Bonds rated AA or AAA by Thomson indicates ability to repay principal and
interest on a timely basis. Bonds rated AA may have limited incremental risk
versus AAA issues.

Bonds BBB are regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to repay principal for debt in this category than in higher
rated categories.


                                       52
<PAGE>   94
                                     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) (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 Prospectuses (Part A).

      (i)  Audited Financials: (except the S&P 500 Index 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 S&P 500 Index Fund:

           Statement of Assets & Liabilities at December 23, 1997.

           Notes to Financial Statements

           Independent Auditors' Report

(b)   Exhibits

         (1)          Declaration of Trust previously filed in the Trust's
                      original Registration Statement on November 18, 1997, and
                      is hereby incorporated by reference. 
         (2)          Bylaws previously filed in the Trust's original
                      Registration Statement on November 18, 1997, 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)   Proposed Investment Advisory Agreement previously
                            filed in the Trust's original Registration Statement
                            on November 18, 1997 and is hereby incorporated by
                            reference. 
                      (b)   Subadvisory Agreements.

                            (1)     Proposed Subadvisory Agreement with The
                                    Dreyfus Corporation for S&P 500 Index Fund
                                    previously filed in the Trust's original
                                    Registration Statement on November 18, 1997
                                    and is hereby incorporated by reference.

         (6)          Proposed Underwriting Agreement previously filed in the
                      Trust's original Registration Statement on November 18,
                      1997 and is hereby incorporated by reference.
         (7)          Not applicable.
         (8)          Proposed Custody Agreement previously filed in the Trust's
                      original Registration Statement on November 18, 1997 and
                      is hereby incorporated by reference.
         (9)          (a)     Proposed Fund Administration Agreement previously
                              filed in the Trust's original Registration
                              Statement on November 18, 1997 and is hereby
                              incorporated by reference.
                      (b)     Proposed Transfer and Dividend Disbursing Agent
                              Agreement previously filed in the Trust's original
                              Registration Statement on November 18, 1997 and is
                              hereby incorporated by reference.
         (9)          (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.
         (9)         (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.
          (9)         (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.
    


         (10)         Opinion of counsel previously filed in the Trust's
                      original Registration Statement and is hereby incorporated
                      by reference.
         (11)         Consent of KPMG Peat Marwick LLP
         (12)         Not applicable.
         (13)         Purchase Agreement previously filed in the Trust's 
                      pre-effective amendment and is hereby incorporated by
                      reference.
         (14)         Not applicable.
         (15)         Proposed Distribution Plan.
         (16)         Schedule for Computation of Performance Quotations.
   
         (17)         Financial Data Schedule for S&P 500 Index Fund.
    
         (18)         Proposed 18f-3 Plan.
         (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 NOVEMBER 30, 1997      
          SERIES                 CLASS A                  CLASS B          CLASS D           NO CLASS
          ------                 -------                  -------          -------           --------
<S>                           <C>                         <C>                <C>               <C>                    
Mid Cap Growth Fund                --                       --               675                -- 
Growth Fund                        --                       --             46,377               --   
Nationwide Fund                    --                       --             53,837               --  
Bond Fund                          --                       --              7,832               -- 
Tax-Free Income Fund               --                       --              7,844               --
Intermediate U.S. Govt. Bond       --                       --              2,077               --
Long-Term U.S. Govt. Bond          --                       --              2,030               --  
Money Market Fund                  --                       --                --              25,852
S&P 500 Index Fund                 --                       --                --                --
</TABLE>
    

ITEM 27.   INDEMNIFICATION
           Indemnification provisions for officers, directors and employees of
           Registrant are set forth in Article V, Section 2 of the Declaration
           of Trust. In addition, Section 1743.13 of the Ohio Revised Code
           provides that no liability to third persons for any act, omission or
           obligation shall attach to the trustees, officers, employees or
           agents of a business trust organized under Ohio statutes. The
           trustees are also covered by an errors and omissions policy provided
           by the Trust for undertaken by the trustees in their capacity as
           trustee. See Item 24(b)1 above.

ITEM 28.   BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

          (a)   Nationwide Advisory Services, Inc. (NAS), the investment adviser
                of the Trust, also serves as investment adviser to the
                Nationwide Investing Foundation, Nationwide Investing Foundation
                II, Nationwide Separate Account Trust, Financial Horizons
                Investment Trust, and Nationwide Asset Allocation Trust and
                serves as general distributor to the Nationwide Multi-Flex
                Variable Account, Nationwide Variable Account-II, Nationwide
                Variable Account-5, Nationwide Variable Account-8, Nationwide
                Variable Account-9, Nationwide DC Variable Account, Nationwide
                DCVA II,

                                      C-1


<PAGE>   95

      Nationwide VA Separate Account-A, Nationwide VA Separate
      Account-C, NACo Variable Account, Nationwide VLI Separate
      Account-2, Nationwide VLI Separate Account-3, Nationwide VL
      Separate Account-A, Nationwide VL Separate Account-B, Nationwide
      VA Separate Account-B and Nationwide Variable Account, separate
      accounts of Nationwide Life Insurance Company, or its subsidiary
      Nationwide Life and Annuity Insurance Company, registered as
      unit investment trusts under the Investment Company Act of 1940.

      Joseph J. Gasper       DIRECTOR AND PRESIDENT AND CHIEF OPERATING OFFICER 
                             Nationwide Life Insurance Company
                             Nationwide Life and Annuity Insurance Company
                             Nationwide Financial Services, Inc.

                             DIRECTOR AND CHAIRMAN OF THE BOARD
                             Nationwide Investment Services Corporation

                             DIRECTOR AND VICE CHAIRMAN 
                             Nationwide Financial Institution
                             Distributors Agency, Inc. 
                             Nationwide Global Holdings, Inc.
                             NEA Valuebuilder Investor Services, Inc.
                             NEA Valuebuilder Investor Services of Arizona, Inc.
                             Public Employees Benefit Services Corporation

                             DIRECTOR AND PRESIDENT
                             Nationwide Advisory Services, Inc.
                             Nationwide Investor Services, Inc.

                             DIRECTOR
                             Affiliate Agency, Inc. 
                             Affiliate Agency of Ohio, Inc. 
                             Financial Horizons Distributors Agency of Alabama,
                               Inc.
                             Financial Horizons Distributors Agency of Ohio, 
                               Inc.
                             Financial Horizons Distributors Agency of Oklahoma,
                               Inc.
                             Financial Horizons Securities Corporation
                             Landmark Financial Services of New York, Inc. 
                             Nationwide Indemnity Company

                             TRUSTEE AND CHAIRMAN
                             Nationwide Asset Allocation Trust
                             Nationwide Separate Account Trust

                             TRUSTEE AND PRESIDENT 
                             Nationwide Insurance Golf Charities, Inc.

      Gordon E. McCutchan    EXECUTIVE VICE PRESIDENT-LAW AND
                             CORPORATE SERVICES AND SECRETARY
                             Nationwide Mutual Insurance Company     
                             Nationwide Mutual Fire Insurance Company
                             Nationwide Life Insurance Company       
                             Nationwide General Insurance Company    
                             Nationwide Property and Casualty Insurance Company 
                             Nationwide Life and Annuity Insurance Company      
                             Nationwide Financial Services, Inc.     
                              
                                       C-2
<PAGE>   96
                Nationwide Properties, Ltd.               
                Nationwide Realty Investors, Ltd.         
                NEA Valuebuilder Investor Services, Inc.  
                NEA Valuebuilder Investor Services of Arizona, Inc. 
                Nationwide Financial Institution Distributors Agency, Inc.
                Colonial County Mutual Insurance Company  
                Gates, McDonald & Company of Nevada       
                Gates, McDonald & Company of New York, Inc.         
                Farmland Mutual Insurance Company         
                Lone Star General Agency, Inc.            
                Nationwide Agribusiness Insurance Company 
                Nationwide Communications Inc.            
                Employers Insurance of Wausau A Mutual Company      
                National Premium and Benefit Administration Company 
                Nationwide Corporation                    
                Nationwide Insurance Enterprise Foundation
                Nationwide Investment Services Corporation
                Scottsdale Indemnity Company              
                Scottsdale Insurance Company              
                Scottsdale Surplus Lines Insurance Company
                Wausau Underwriters Insurance Company     
                Wausau Service Corporation                
                Wausau Business Insurance Company         
                Wausau General Insurance Company          
                    
                EXECUTIVE VICE PRESIDENT-LAW AND CORPORATE SERVICES      
                American Marine Underwriters, Inc.          
                Employers Life Insurance Company of Wausau  
                Pension Associations of Wausau, Inc.        
                Public Employees Benefit Services Corporation
                Wausau Preferred Health Insurance Company   
                Companies Agency, Inc.                      
                Companies Agency of Alabama, Inc.           
                Companies Agency Insurance Services of California 
                Companies Agency of Idaho, Inc.             
                Companies Agency of Illinois, Inc.          
                Companies Agency of Kentucky, Inc.          
                Companies Agency of Massachusetts, Inc.     
                Companies Agency of New York, Inc.          
                Companies Agency of Pennsylvania, Inc.      
                Companies Agency of Phoenix, Inc.           
                Countrywide Services Corporation            
                Wausau International Underwriters           
                

                EXECUTIVE VICE PRESIDENT-LAW AND CORPORATE SERVICES 
                AND DIRECTOR
                Nationwide Advisory Services, Inc.
                Nationwide Investor Services, Inc.

                EXECUTIVE VICE PRESIDENT-LAW AND CORPORATE 
                SERVICES, SECRETARY AND DIRECTOR
                California Cash Management Company
                Colonial Insurance Company of Wisconsin
                Gates, McDonald & Company
                GatesMcDonald Health Plus Inc.

                                      C-3
<PAGE>   97

                     Nationwide Global Holdings, Inc.
                     National Casualty Company
                     Nationwide Cash Management Company
                     Nationwide Indemnity Company
                     Nationwide Community Urban Redevelopment Corporation

                     VICE CHAIRMAN AND DIRECTOR
                     Neckura Holding Company
                     Neckura Insurance Company
                     Neckura Life Insurance Company

                     SECRETARY
                     The Beak and Wire Corporation
                     Affiliate Agency, Inc.
                     Affiliate Agency of Ohio, Inc.
                     Financial Horizons Distributors Agency of Alabama, Inc.
                     Financial Horizons Distributors Agency of Ohio, Inc.
                     Financial Horizons Distributors Agency of Oklahoma, Inc.
                     Financial Horizons Securities Corporation
                     Landmark Financial Services of New York, Inc.
                     NEA Valuebuilder Investor Services of Alabama, Inc.
                     NEA Valuebuilder Investor Services of Montana, Inc.
                     NEA Valuebuilder Investor Services of  Nevada, Inc.
                     NEA Valuebuilder Investor Services of Ohio, Inc.
                     NEA Valuebuilder Investor Services of Oklahoma, Inc.
                     NEA Valuebuilder Investor Services of Wyoming, Inc.

                     SECRETARY AND DIRECTOR
                     Nationwide Agency, Inc.
                     Nationwide HMO, Inc.
                     Nationwide Management Systems, Inc.

                     DIRECTOR
                     MRM Investments, Inc.
                     NWE, Inc.

                     CLERK
                     NEA Valuebuilder Services Insurance Agency, Inc.


 Dimon R. McFerson   CHAIRMAN AND CHIEF EXECUTIVE OFFICER- NATIONWIDE INSURANCE 
                     ENTERPRISE AND DIRECTOR
                     Nationwide Mutual Insurance Company
                     Nationwide Mutual Fire Insurance Company
                     Nationwide General Insurance Company
                     Nationwide Property and Casualty Insurance Company
                     Nationwide Life Insurance Company
                     Nationwide Life and Annuity Insurance Company
                     Colonial Insurance Company of Wisconsin
                     Nationwide Communications Inc.
                     Farmland Mutual Insurance Company
                     Nationwide Agribusiness Insurance Company
                     National Casualty Company

                                      C-4
<PAGE>   98

                 Nationwide Financial Services, Inc.
                 Nationwide Global Holdings, Inc.
                 Nationwide Indemnity Company
                 Nationwide Investment Services Corporation
                 California Cash Management Company
                 Nationwide Cash Management Company
                 Employers Insurance of Wausau A Mutual Company
                 Scottsdale Indemnity Company
                 Scottsdale Insurance  Company
                 Scottsdale Surplus Lines Insurance Company
                 Wausau Service Corporation
                 Wausau General Insurance Company
                 Wausau Business Insurance Company
                 Wausau Underwriters Insurance Company

                 CHAIRMAN AND CHIEF EXECUTIVE OFFICER - NATIONWIDE INSURANCE 
                 ENTERPRISE, PRESIDENT AND DIRECTOR
                 Nationwide Corporation

                 CHAIRMAN OF THE BOARD, CHAIRMAN AND CHIEF EXECUTIVE 
                 OFFICER-NATIONWIDE INSURANCE ENTERPRISE AND DIRECTOR
                 American Marine Underwriters, Inc.
                 Gates, McDonald and Company
                 GatesMcDonald Health Plus, Inc.
                 Nationwide Investor Services, Inc.
                 Public Employees Benefit Services Corporation
                 Companies Agency, Inc.
                 Companies Agency of Alabama, Inc.
                 Companies Agency Insurance Services of California
                 Companies Agency of Idaho, Inc.
                 Companies Agency of Illinois, Inc.
                 Companies Agency of Kentucky, Inc.
                 Companies Agency of Massachusetts, Inc.
                 Companies Agency of New York, Inc.
                 Companies Agency of Pennsylvania, Inc.
                 Companies Agency of Phoenix, Inc.
                 Countrywide Services Corporation
                 Employers Life Insurance Company of Wausau
                 Nationwide Advisory Services, Inc.
                 Nationwide Financial Institution Distributors Agency, Inc.
                 Wausau International Underwriters
                 Wausau Preferred Health Insurance Company

                 CHAIRMAN AND DIRECTOR
                 NEA Valuebuilder Investor Services of Arizona, Inc.

                 TRUSTEE AND CHAIRMAN
                 Financial Horizons Investment Trust
                 Nationwide Investing Foundation
                 Nationwide Investing Foundation II

                 CHAIRMAN OF THE BOARD
                 Nationwide Insurance Golf Charities, Inc.

                                      C-5
<PAGE>   99

                     CHAIRMAN OF THE BOARD AND DIRECTOR
                     Lone Star General Agency, Inc.
                     Nationwide Community Urban Redevelopment Corporation
                     NEA Valuebuilder Investor Services, Inc.
                     Colonial County Mutual Insurance Company


                     DIRECTOR
                     Gates, McDonald & Company of Nevada
                     Gates, McDonald & Company of New York

                     CHAIRMAN OF THE BOARD, CHAIRMAN AND CHIEF EXECUTIVE 
                     OFFICER-NATIONWIDE INSURANCE ENTERPRISE AND TRUSTEE
                     Nationwide Insurance Enterprise Foundation

                     MEMBER-BOARD OF MANAGERS, CHAIRMAN OF THE BOARD, 
                     CHAIRMAN AND CHIEF EXECUTIVE OFFICER-NATIONWIDE INSURANCE 
                     ENTERPRISE
                     Nationwide Properties, Ltd.
                     Nationwide Realty Investors, Ltd.


 Robert A. Oakley    EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL OFFICER
                     Nationwide Mutual Insurance Company
                     Nationwide Mutual Fire Insurance Company
                     Nationwide General Insurance Company
                     Nationwide Property and Casualty Insurance Company
                     Nationwide Life Insurance Company
                     Nationwide Life and Annuity Insurance Company
                     American Marine Underwriters, Inc.
                     Companies Agency, Inc.
                     Companies Agency of Alabama, Inc.
                     Companies Agency of Idaho, Inc.
                     Companies Agency of Illinois, Inc.
                     Companies Agency of Kentucky, Inc.
                     Companies Agency of Massachusetts, Inc.
                     Companies Agency of New York, Inc.
                     Companies Agency of Pennsylvania, Inc.
                     Companies Agency of Phoenix, Inc.
                     Countrywide Services Corporation
                     Employers Life Insurance Company of Wausau
                     National Casualty Company
                     National Premium and Benefit Administration Company
                     The Beak and Wire Corporation
                     Employers Insurance of Wausau A Mutual Company
                     Farmland Mutual Insurance Company
                     Nationwide Financial Institution Distributors Agency, Inc.
                     Lone Star General Agency, Inc.
                     Nationwide Agribusiness Insurance Company
                     Nationwide Communications Inc.
                     Nationwide Corporation
                     Nationwide Financial Services, Inc.
                     Nationwide Investment Services Corporation
                     Nationwide Investor Services, Inc.




                                      C-6
<PAGE>   100

                           Nationwide Insurance Enterprise Foundation   
                           Nationwide Properties, Ltd.                  
                           Nationwide Realty Investors, Ltd.            
                           NEA Valuebuilder Investor Services, Inc.     
                           NEA Valuebuilder Investor Services of Arizona, Inc
                           Colonial County Mutual Insurance Company     
                           Pension Associates of Wausau, Inc.           
                           Public Employees Benefit Services Corporation
                           Scottsdale Indemnity Company                 
                           Scottsdale Insurance Company                 
                           Scottsdale Surplus Lines Insurance Company   
                           Wausau Business Insurance Company            
                           Wausau General Insurance Company             
                           Wausau Preferred Health Insurance Company    
                           Wausau Service Corporation                   
                           Wausau Underwriters Insurance Company        
                                                                        
                           DIRECTOR, CHAIRMAN OF THE BOARD              
                           Neckura Holding Company                      
                           Neckura Insurance Company                    
                           Neckura Life Insurance Company               
                                                                        
                           EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL 
                           OFFICER AND DIRECTOR                         
                           California Cash Management Company           
                           Colonial Insurance Company of Wisconsin      
                           Nationwide Cash Management Company           
                           Nationwide Community Urban Redevelopment     
                           Corporation                                  
                           Nationwide Global Holdings, Inc.             
                           MRM Investments, Inc.                        
                           Nationwide Advisory Services, Inc.           
                           Nationwide Indemnity Company                 
                                                                        
                           EXECUTIVE VICE PRESIDENT                     
                           Companies Agency Insurance Services of       
                           California                                   
                           Wausau International Underwriters            
                                                                        
                           DIRECTOR AND VICE CHAIRMAN                   
                           Leben Direkt Insurance Company               
                           Neckura General Insurance Company            
                           Auto Direkt Insurance Company                
                                                                        
                                                                        
                           DIRECTOR                                     
                           NWE, Inc.                                   
                           Gates, McDonald & Company                    
                           GatesMcDonald Health Plus Inc.               
                                                                        
                           
 Robert J. Woodward, Jr.   EXECUTIVE VICE PRESIDENT-CHIEF INVESTMENT OFFICER
                           Nationwide Mutual Insurance Company
                           Nationwide Mutual Fire Insurance Company
                           Nationwide General Insurance Company
                           Nationwide Property and Casualty Insurance 
                            Company
                                              
                                      C-7
<PAGE>   101


                                    Nationwide Life Insurance
                                    Company Nationwide Life and
                                    Annuity Insurance Company
                                    Colonial County Mutual
                                    Insurance Company Colonial
                                    Insurance Company of
                                    Wisconsin Employers
                                    Insurance of Wausau A
                                    Mutual Company Employers
                                    Life Insurance Company of
                                    Wausau Farmland Mutual
                                    Insurance Company Gates,
                                    McDonald & Company
                                    GatesMcDonald Health Plus,
                                    Inc. Lone Star General
                                    Agency, Inc. National
                                    Casualty Company Nationwide
                                    Financial Services, Inc.
                                    Nationwide Agribusiness
                                    Insurance Company
                                    Nationwide Corporation
                                    Nationwide Insurance
                                    Enterprise Foundation
                                    Nationwide Investment
                                    Services Corporation
                                    Pension Associates of
                                    Wausau, Inc. Public
                                    Employees Benefit Services
                                    Corporation Scottsdale
                                    Indemnity Company
                                    Scottsdale Insurance
                                    Company Scottsdale Surplus
                                    Lines Insurance Company
                                    Wausau Business Insurance
                                    Company Wausau General
                                    Insurance Company Wausau
                                    Preferred Health Insurance
                                    Company Wausau Service
                                    Corporation Wausau
                                    Underwriters Insurance
                                    Company

                                    VICE CHAIRMAN AND DIRECTOR
                                    Nationwide Communications Inc.

                                    DIRECTOR
                                    Nationwide Global Holdings, Inc.


                                    MEMBER-BOARD OF MANAGERS AND VICE CHAIRMAN
                                    Nationwide Properties, Ltd.
                                    Nationwide Realty Investors, Ltd.

                                    DIRECTOR AND PRESIDENT
                                    California Cash Management Company
                                    MRM Investments, Inc.
                                    Nationwide Cash Management Company
                                    Nationwide Community Urban Redevelopment 
                                     Corporation
                                    NWE, Inc.

                                    DIRECTOR, EXECUTIVE VICE PRESIDENT-CHIEF 
                                     INVESTMENT OFFICER
                                    Nationwide Indemnity Company
                                    Nationwide Advisory Services, Inc.

                                    VICE CHAIRMAN AND DIRECTOR
                                    Nationwide Communications Inc.

                                    DIRECTOR
                                    Nationwide Global Holdings, Inc.


                                      C-8
<PAGE>   102



                                    TRUSTEE AND VICE CHAIRMAN
                                    Nationwide Asset Allocation Trust
                                    Nationwide Separate Account Trust

      James F. Laird, Jr.           VICE PRESIDENT AND GENERAL MANAGER
                                      AND ACTING TREASURER
                                    Nationwide Advisory Services, Inc.

                                    VICE PRESIDENT AND GENERAL MANAGER
                                     AND ACTING TREASURER AND DIRECTOR
                                    Nationwide Investors Services, Inc.

                                    TREASURER
                                    Nationwide Investing Foundation
                                    Nationwide Separate Account Trust
                                    Nationwide Investing Foundation II
                                    Financial Horizons Investment Trust.
                                    Nationwide Asset Allocation Trust


      Christopher A. Cray           TREASURER
                                    Nationwide Advisory Services, Inc.
                                    Nationwide Investors Services, Inc.

                                    ASSISTANT TREASURER
                                    Nationwide Investing Foundation
                                    Nationwide Separate Account Trust
                                    Nationwide Investing Foundation II
                                    Financial Horizons Investment Trust
                                    Nationwide Asset Allocation Trust


     W. Sidney Druen                SENIOR VICE PRESIDENT AND GENERAL 
                                    COUNSEL AND ASSISTANT SECRETARY
                                    Nationwide Mutual Insurance Company
                                    Nationwide Mutual Fire Insurance 
                                     Company
                                    Nationwide General Insurance Company
                                    Nationwide Property and Casualty 
                                     Insurance Company
                                    Nationwide Life Insurance Company
                                    Nationwide Life and Annuity Insurance
                                     Company
                                    Nationwide Advisory Services, Inc.
                                    Nationwide Investors Services, Inc.
                                    Employers Insurance of Wausau A Mutual
                                     Company
                                    Employers Life Insurance Company of Wausau
                                    Wausau Business Insurance Company
                                    Wausau General Insurance Company
                                    Wausau Underwriters Insurance Company
                                    Wausau Preferred Health Insurance Company
                                    Wausau Service Corporation

                                    SENIOR VICE PRESIDENT AND GENERAL COUNSEL
                                    Affiliate Agency, Inc.
                                    Affiliate Agency of Ohio, Inc.
                                    American Marine Underwriters, Inc.
                                    The Beak and Wire Corporation



                                      C-9
<PAGE>   103

                         California Cash Management Company                  
                         Colonial County Mutual Insurance Company            
                         Colonial Insurance Company of California            
                         Farmland Mutual Insurance Company                   
                         Nationwide Agribusiness Insurance Company           
                         Nationwide Financial Services, Inc.                 
                         Nationwide Financial Institution Distributors       
                         Agency, Inc.                                        
                         Financial Horizons Distributors Agency of           
                          Alabama, Inc.                                      
                         Financial Horizons Distributors Agency of           
                          Ohio, Inc.                                         
                         Financial Horizons Distributors Agency of           
                          Oklahoma, Inc.                                     
                         Financial Horizons Securities Corporation           
                         Gates, McDonald & Company                           
                         Gates, McDonald & Company of Nevada                 
                         Gates, McDonald & Company of New York, Inc.         
                         GatesMcDonald Health Plus, Inc.                     
                         Landmark Financial Services of New York, Inc.       
                         National Casualty Company                           
                         Nationwide Cash Management Company                  
                         Nationwide Communications Inc.                      
                         Nationwide Corporation                              
                         Nationwide Global Holdings, Inc.                    
                         Nationwide Investment Services Corporation          
                         Companies Agency, Inc.                              
                         Companies Agency Insurance Services of California   
                         Companies Agency of Alabama, Inc.                   
                         Companies Agency of Idaho, Inc.                     
                         Companies Agency of Illinois, Inc.                  
                         Companies Agency of Kentucky, Inc.                  
                         Companies Agency of Massachusetts, Inc.             
                         Companies Agency of New York, Inc.                  
                         Companies Agency of Pennsylvania, Inc.              
                         Companies Agency of Phoenix, Inc.                   
                         Countrywide Services Corporation                    
                         Lone Star General Agency Inc.                       
                         Nationwide Insurance Enterprise Foundation          
                         Nationwide Indemnity Company                        
                         Nationwide Properties, Ltd.                         
                         Nationwide Realty Investors, Ltd.                   
                         NEA Valuebuilder Investor Services, Inc.            
                         NEA Valuebuilder Investor Services of Alabama, Inc. 
                         NEA Valuebuilder Investor Services of Arizona, Inc. 
                         NEA Valuebuilder Investor Services of Montana, Inc. 
                         NEA Valuebuilder Investor Services of Nevada, Inc.  
                         NEA Valuebuilder Investor Services of Ohio, Inc.    
                         NEA Valuebuilder Investor Services of Oklahoma, Inc.
                         NEA Valuebuilder Investor Services of Wyoming, Inc. 
                         NEA Valuebuilder Services Insurance Agency, Inc.    
                         MRM Investments, Inc.                               
                         NWE, Inc.                                           
                         PEBSCO of Massachusetts Insurance Agency, Inc.
                         Pension Associates of Wausau, Inc.
                         Public Employees Benefit Services Corporation
                         Public Employees Benefit Services Corporation of 
                          Alabama
                         Public Employees Benefit Services Corporation of 
                          Arkansas

                                      C-10
<PAGE>   104

                         Public Employees Benefit Services Corporation of 
                          Montana                              
                         Public Employees Benefit Services Corporation of 
                          New Mexico Scottsdale Indemnity
                         Company Scottsdale                                  
                         Insurance Company                                   
                         Scottsdale Surplus Lines                            
                         insurance Company Wausau                            
                         International Underwriters                          
                         
                         SENIOR VICE PRESIDENT AND GENERAL COUNSEL AND DIRECTOR
                         Nationwide Community Urban Redevelopment Corporation

                         GENERAL COUNSEL
                         Nationwide Insurance Golf Charities, Inc.

   
    

 Peter J. Neckermann     VICE PRESIDENT - ECONOMIC AND INVESTMENT SERVICES
                         Nationwide Mutual Insurance Company
                         Nationwide Mutual Fire Insurance Company
                         Nationwide General Insurance Company
                         Nationwide Property and Casualty Insurance Company
                         Nationwide Life Insurance Company
                         Nationwide Life and Annuity Insurance Company
                         Nationwide Indemnity Company

                         VICE PRESIDENT
                         Nationwide Advisory Services, Inc.

                         DIRECTOR
                         Leben Direkt Insurance Company
                         Nationwide Investors Services, Inc.
                         Neckura Holding Company

                         ASSISTANT TREASURER
                         Financial Horizons Investment Trust
                         National Casualty Company
                         National Premium and Benefit Administration Company
                         Nationwide Investing Foundation
                         Nationwide Investing Foundation II
                         Nationwide Separate Account Trust
                         Nationwide Asset Allocation Trust


Edwin P. McCausland, Jr. VICE PRESIDENT-FIXED INCOME SECURITIES
                         Nationwide Mutual Insurance Company
                         Nationwide Mutual Fire Insurance Company
                         Nationwide General Insurance Company


                                      C-11
<PAGE>   105

                         Nationwide Property and Casualty Insurance
                                  Company
                         Nationwide Life Insurance
                         Company Nationwide Life and
                         Annuity Insurance Company
                         California Cash Management
                         Company Colonial Insurance
                         Company of Wisconsin
                         Employers Insurance of
                         Wausau A Mutual Company
                         Employers Life Insurance
                         Company of Wausau Farmland
                         Mutual Insurance Company
                         Financial Horizons
                         Investment Trust Gates,
                         McDonald & Company
                         GatesMcDonald Health Plus,
                         Inc. National Casualty
                         Company Nationwide
                         Agribusiness Insurance
                         Company Nationwide Cash
                         Management Company
                         Nationwide Indemnity
                         Company Nationwide
                         Insurance Enterprise
                         Foundation Scottsdale
                         Indemnity Company
                         Scottsdale Insurance
                         Company Scottsdale Surplus
                         Lines Insurance Company
                         Wausau Business Insurance
                         Company Wausau General
                         Insurance Company Wausau
                         Preferred Health Insurance
                         Company Wausau Service
                         Corporation Wausau
                         Underwriters Insurance
                         Company
                         VICE PRESIDENT-FIXED INCOME
                         Nationwide Advisory
                         Services, Inc.

                         ASSISTANT TREASURER
                         Nationwide Asset Allocation Trust
                         Nationwide Investing Foundation
                         Nationwide Investing Foundation II
                         Nationwide Separate Account Trust


Joseph P. Rath           VICE PRESIDENT-PRODUCT AND MARKET COMPLIANCE
                         Nationwide Mutual Insurance Company
                         Nationwide Mutual Fire Insurance Company
                         Nationwide Property and Casualty Insurance Company
                         Nationwide Life Insurance Company
                         Nationwide Life and Annuity Insurance Company

                         VICE PRESIDENT-COMPLIANCE
                         Nationwide Advisory Services, Inc.
                         Nationwide Investment Services Corporation

                         VICE PRESIDENT-CHIEF COMPLIANCE OFFICER
                         Nationwide Financial Services, Inc.


William G. Goslee        VICE PRESIDENT
                         Nationwide Advisory Services, Inc.

                                      C-12
<PAGE>   106

                         ASSISTANT TREASURER
                         Nationwide Asset Allocation Trust


Except as otherwise noted, the principal business address of any company with
which any person specified above is connected in the capacity of director,
officer, employee, partner or trustee is One Nationwide Plaza, Columbus, Ohio
43215, except for the following companies:

      Farmland Mutual Insurance Company
      Nationwide Agribusiness Insurance Company
      1963 Bell Avenue
      Des Moines, Iowa 50315-1000
      Colonial Insurance Company of Wisconsin
      3455 Mill Run Drive, 5th Floor
      Hilliard, Ohio 43026

      Employers Insurance of Wausau A Mutual Company
      2000 Westwood Drive
      Wausau, Wisconsin 54401-7881

      Scottsdale Insurance Company
      8877 North Gainey Center Drive
      P.O. Box 4110
      Scottsdale, Arizona 85261-4110

      National Casualty Company
      8877 North Gainey Center Drive
      P.O. Box 4110
      Scottsdale, Arizona 85261-4110

      Lone Star General Agency, Inc.
      P.O. Box 14700
      Austin, Texas 78761

      Auto Direkt Insurance Company
      Columbus Insurance Brokerage and Service, GMBH
      Leben Direkt Insurance Company
      Neckura General Insurance Company
      Neckura Holding Company
      Neckura Insurance Company
      Neckura Life Insurance Company
      John E. Fisher Str. 1
      61440 Oberursel/Ts.
      Germany

      Public Employees Benefit Services Corporation
      Two Nationwide Plaza
      Columbus, Ohio 43215

      Nationwide Advisory Services, Inc.
      Nationwide Investors Services, Inc.
      Three Nationwide Plaza,  Columbus, Ohio 43215



                                      C-13
<PAGE>   107

(b)   Information for the Subadviser of the S&P 500 Index Fund

      (1)  The Dreyfus Corporation

           The Dreyfus Corporation ("Dreyfus") acts as subadvisor to the S&P 500
           Index Fund and as adviser or subadviser to a number of other
           registered investment companies. The list required by this Item 28 of
           officers and directors of Dreyfus, together with information as to
           their other business, profession, vocation or employment of a
           substantial nature during the past two years, is incorporated by
           reference to Schedule A and D of Form ADV filed by Dreyfus (SEC File
           No. 801-8147).

ITEM 29. PRINCIPAL UNDERWRITERS
         (a)  See Item 28 above.
         (b)  Nationwide Advisory Services, Inc.

<TABLE>
<CAPTION>

                                                                 Position with                  Position
            Name                  Business Address                Underwriter               With Registrant
            ----                  ----------------                -----------               ---------------
<S>                           <C>                        <C>                            <C>
Dimon R. McFerson             One Nationwide Plaza       Chairman and CEO                Chairman of Board of
                              Columbus  OH 43215                                         Trustees

Joseph J. Gasper              One Nationwide Plaza       President and Director          Vice Chairman of Board
                              Columbus  OH 43215                                         of Trustees

Gordon E. McCuthan            One Nationwide Plaza       Exec. VP - Law and              N/A
                              Columbus  OH 43215         Corporate Services and
                                                         Director

Robert A. Oakley              One Nationwide Plaza       Exec. VP - Chief Financial      N/A
                              Columbus  OH 43215         Officer and Director

Robert J. Woodward, Jr.       One Nationwide Plaza       Exec. VP - Chief Investment     Trustee
                              Columbus  OH 43215         Officer and Director

William S. Druen              One Nationwide Plaza       Sr. VP - General Counsel        N/A
                              Columbus  OH 43215         and Assistant Secretary

James F. Laird, Jr.           Three Nationwide Plaza     VP - General Manager            Treasurer
                              Columbus OH 43215

Edwin P. McCausland           One Nationwide Plaza       VP - Fix Income Securities      Assistant Treasurer
                              Columbus  OH 43215

Joseph P. Rath                One Nationwide Plaza       VP - Compliance                 N/A
                              Columbus  OH 43215

Peter J. Neckermann           One Nationwide Plaza       Vice President                  Assistant Treasurer
                              Columbus  OH 43215

William G. Goslee             One Nationwide Plaza       Vice President                  N/A
                              Columbus  OH 43215

Christopher A. Cray           Three Nationwide Plaza     Treasurer                       Assistant Treasurer
                              Columbus OH 43215
</TABLE>

                                      C-14
<PAGE>   108
<TABLE>
<S>                           <C>                        <C>                             <C>
Rae M. Pollina                Three Nationwide Plaza     Secretary                       N/A
                              Columbus OH 43215
</TABLE>




ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
         Christopher A. Cray
         Nationwide Advisory Services, Inc.
         Three Nationwide Plaza
         Columbus, OH 43215

ITEM 31. MANAGEMENT SERVICES
         Not applicable.

ITEM 32. UNDERTAKINGS
   

         (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 holders of at least 10% of the Trust's outstanding 
             shares, to call a meeting of shareholders for the purpose of
             voting upon the 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-15
<PAGE>   109


                                   SIGNATURES

Pursuant to the requirements of the Securities Act 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Columbus, and State of Ohio, on this 2nd day of January 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 2ND DAY OF JANUARY 1998.

<TABLE>
<S>                                                       <C>
Signature & Title
- ------------------

Principal Executive Officer

DIMON R. McFERSON*
- -------------------
Dimon R. McFerson, Trustee and Chairman

Principal Accounting and Financial Officer

JAMES F. LAIRD, JR.                                           DAVID C. WETMORE*
- ------------------                                            --------------------------
James F. Laird, Jr., Treasurer                                David C. Wetmore, Trustee

JOHN C. BRYANT*                                               *By: JAMES F. LAIRD, JR.
- ---------------                                                   -----------------------
John C. Bryant, Trustee                                          James F. Laird, Jr., Attorney-In-Fact

C. BRENT DEVORE
- ---------------
C. Brent Devore, Trustee

SUE A. DOODY*
- -------------
Sue A. Doody, Trustee
                          
ROBERT M. DUNCAN*
- -----------------
Robert M. Duncan, Trustee

CHARLES L. FUELLGRAF, JR.*
- ------------------------
Charles L. Fuellgraf, Jr., Trustee
                   
THOMAS J. KERR, IV*
- -------------------- 
Thomas J. Kerr, IV, Trustee

DOUGLAS F. KRIDLER*
- --------------------
Douglas F. Kridler, Trustee

NANCY C. THOMAS*
- ----------------
Nancy C. Thomas, Trustee

HAROLD W. WEIHL*
- ----------------
Harold W. Weihl, Trustee
</TABLE>


                                      C-16

<PAGE>   1
                                                                      Exhibit 11


                         INDEPENDENT AUDITORS' CONSENT


The Board of Trustees of
   Nationwide Investing Foundation III:



We consent to the use of our reports dated December 5, 1997 for the Financial
Horizons Investment Trust, Nationwide Investing Foundation and Nationwide
Investing Foundation II incorporated by reference herein and December 23, 1997
for the Nationwide Investing Foundation III -- Nationwide S&P 500 Index Fund
included herein and to the references to our firm under the headings "Financial
Highlights" in the Prospectus and "Other Services For All The Funds" in the
Statement of Additional Information.


KPMG Peat Marwick LLP

Columbus, Ohio
January 15, 1998

<PAGE>   1

                                                                     Exhibit 15


            DISTRIBUTION PLAN OF NATIONWIDE INVESTING FOUNDATION III
                          (Effective March ____, 1998)

     Section 1. The Distribution Plan (the "Plan") constitutes the distribution 
plan of Class A and Class B shares of Nationwide Mid Cap Growth Fund,
Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund, Nationwide
Tax-Free Income Fund, Nationwide Intermediate U.S. Government Fund, Nationwide
Long-Term U.S. Government Fund, and the Nationwide S&P 500 Index Fund
(collectively, the "Funds"), each a series of Nationwide Investing Foundation
III (the "Trust"), and is adopted pursuant to Rule 12b-1, as amended, under the
Investment Company Act of 1940 (the "1940 Act").

     Section 2. Subject to the limitations on the payment of asset-based sales
charges set forth in Section 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc., the Funds shall pay amounts not
exceeding a maximum amount of:

          .25% of the daily net assets of Class A Shares of all the Funds except
          the Nationwide S&P 500 Index Fund; and 1.00% of the daily net assets
          of the Class B Shares of the Nationwide Mid Cap Growth Fund,
          Nationwide Growth Fund and Nationwide Fund, and .85% of the daily net
          assets of the Class B Shares of the Nationwide Bond Fund, Nationwide
          Tax-Free Income Fund, Nationwide Intermediate U.S. Government Fund and
          Nationwide Long-Term U.S. Government Fund; and .07% of Local Fund
          Shares of the Nationwide S&P 500 Index Fund

to Nationwide Advisory Services, Inc. (the "Underwriter") for activities or
expenses primarily intended to result in the sale of the classes including, but
not limited to, compensation to registered representatives and other personnel
of the Underwriter, its affiliates, or broker-dealers, incremental costs of
prospectuses and periodic shareholder reports for distribution to other than
existing shareholders, advertising, and preparation and distribution of sales
literature.

     Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding voting
securities of each of the Funds, if adopted after any public offering of such
shares, or by the vote of the Board of Trustees of the Trust, as described in
Section 4 of the Plan.

     Section 4. This plan shall not take effect until it has been approved
together with any related agreements of the Funds (by votes of the majority of
both (a) the Board of Trustees of the Trust and (b) those Trustees of the Trust
who are not "interested persons" (as defined in the 1940 Act) of the Trust and
who have no direct or indirect financial interest in the operation of this Plan
or any agreements of the Funds or any other person related to this Plan (the
"Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.

     Section 5. Unless sooner terminated pursuant to Section 8, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
<PAGE>   2


     Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trustee's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.

     Section 7. This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees, or by vote of a majority of the outstanding shares
of each of the Funds.

     Section 8. Any agreement of the Funds related to this Plan shall be in
writing, and shall provide:

     A.  That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the outstanding shares of each of the Funds on not more than sixty
days written notice to any party to the agreement; and

     B.  That such agreement shall terminate automatically in the event of its
assignment.

     Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof and pursuant to any
specific approval requirements under Rule 12b-1, as applicable. No material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.

     Section 10. The provisions of the Plan are severable for each class of a
series of the Funds and action must be taken separately for each class.

<PAGE>   1
<TABLE>
<CAPTION>

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                          TOTAL RETURNS W/SALES CHARGES

                         NATIONWIDE MID CAP GROWTH FUND

AGGREGATE ANNUAL RETURNS
<S>                   <C>                                        
T= (ERV/P)-1
WHERE:   T=           Total Return
         ERV=         Redeemable value at the end
                      of the period of a hypothetical
                      $1,000 investment made at the
                      beginning of the period.
         P=           A hypothetical initial investment of $1,000.

EXAMPLE:

         Monthly:           9/30/97 to 10/31/97
                      (     897.00/ 1,000) - 1 =            -10.30%


         Quarterly:         7/31/97 to 10/31/97
                      (     940.50/ 1,000) - 1 =             -5.95%


         Year to Date:      12/31/96 to 10/31/97
                      (     1,135.10/ 1,000) - 1 =           13.51%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P) (PW*) (1/N)-1))

WHERE:   T=                 Total Return
         ERV=               Redeemable value at the end
                            of the period of a hypothetical
                            $1,000 investment made at the
                            beginning of the period.
         P=                 A hypothetical initial investment of $1,000.
         N=                 Number of years
<CAPTION>
<S>                   <S>                                <C>                   <C>
EXAMPLE:

         1 YEAR             10/31/96 to 10/31/97
                      (((   1,186.60 /1,000) (PW*)(1/(  365      /365 ))-1))=   18.66%

         3 YEARS            10/31/94 to 10/31/97
                      (((   1,754.99 /1,000) (PW*)(1/(  1096     /365 ))-1))=   20.60%

         5 YEARS            10/31/92 to/10/31/97
                      (((   2,179.10 /1,000) (PW*)(1/(  1826     /365 ))-1))=   16.85%

        SINCE INCEPTION     12/19/88 to 10/31/97
                      (((   3,041.30 /1,000) (PW*)(1/(  3238     /365 ))-1))=   13.36%
<FN>


(PW*)  To the power
</TABLE>
<PAGE>   2
<TABLE>
<CAPTION>
 

                          NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                        TOTAL RETURNS W/OUT SALES CHARGES

                         NATIONWIDE MID CAP GROWTH FUND

AGGREGATE ANNUAL RETURNS
<S>                       <C>
T= (ERV/P)-1
WHERE:   T=               Total Return
         ERV=             Redeemable value at the end
                          of the period of a hypothetical
                          $1,000 investment made at the
                          beginning of the period.
         P=               A hypothetical initial investment of $1,000.

EXAMPLE:

         Monthly:               9/30/97   to   10/31/97
                        (       944.30/ 1,000) - 1 =                   -5.57%

         Quarterly:             7/31/97   to   10/31/97
                        (       990.00/ 1,000) - 1 =                   -1.00%

         Year to Date:          12/31/96  to  10/31/97
                        (       1,185.10/ 1,000) - 1 =                 18.51%


AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P) (PW*) (1/N)-1))

WHERE:   T=             Total Return
         ERV=           Redeemable value at the end
                        of the period of a hypothetical
                        $1,000 investment made at the
                        beginning of the period.
         P=             A hypothetical initial investment of $1,000.
         N=             Number of years
<CAPTION>

EXAMPLE:
         <S>       <C>                                    <C>         <C>            <C>          
         1 YEAR              10/31/96 to 10/31/97
                   (((       1,236.60/1,000)(PW*)(1/(     365         /365))-1)      23.66%

         3 YEARS             10/31/92  to  10/31/97
                   (((       1,794.90 /1,000)(PW*)(1/(    1826        /365))-1)      12.40%

         5 YEARS             10/31/92  to  10/31/97
                   (((       2,199.10 /1,000)(PW*)(1/(    1826        /365))-1)      17.06%

       SINCE INCEPTION       12/19/88  to  10/31/97
                   (((       3,041.30 /1,000)(PW*)(1/(    3238        /365))-1)      13.36%

<FN>

(PW*)      To the power
</TABLE>

                                    Page 1
<PAGE>   3
<TABLE>
<CAPTION>
                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                          TOTAL RETURNS W/SALES CHARGES

                             NATIONWIDE GROWTH FUND

AGGREGATE ANNUAL RETURNS
<S>         <C>            <C>                                   
T= (ERV/P)-1
WHERE:      T=             Total Return
            ERV=           Redeemable value at the end
                           of the period of a hypothetical
                           $1,000 investment made at the
                           beginning of the period.
            P=             A hypothetical initial investment of $1,000.

EXAMPLE:

            Monthly:              9/30/97   to  10/31/97
                         (        916.80/ 1,000) - 1 =                -8.32%

            Quarterly:            7/31/97   to  10/31/97
                         (        934.90/ 1,000) - 1 =                -6.51%

            Year to Date:         12/31/96  to  10/31/97
                         (        1,179.60/ 1,000) - 1 =              17.96%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P)(PW*)(1/N)-1))

WHERE:      T=             Total Return
            ERV=           Redeemable value at the end
                           of the period of a hypothetical
                           $1,000 investment made at the
                           beginning of the period.
            P=             A hypothetical initial investment of $1,000.
            N=             Number of years
<CAPTION>

EXAMPLE:
            <S>          <C>       <C>                                     <C>           <C>
            1 YEAR                 10/31/96   to   10/31/97
                         (((       1,261.70/1,000)(PW*)(1/(      365        /365))-1)    26.17%

            3 YEARS                10/31/94   to   10/31/97
                         (((       1,715.50/1,000)(PW*)(1/(      1096       /365))-1)    19.69%

            5 YEARS                10/31/92   to   10/31/97
                         (((       2,106.90/1,000)(PW*)(1/(      1826       /365))-1)    16.06%

            10 YEARS               10/31/87   to   10/31/97
                         (((       3,958.80/1,000)(PW*)(1/(      3653       /365))-1)    14.74%

      SINCE INCEPTION              2/14/61    to   10/31/97
                         (((       27,175.90/1,000)(PW*)(1/(    13408       /365))-1)     9.41%

<FN>

(PW*)      To the power
</TABLE>

<PAGE>   4
<TABLE>
<CAPTION>


                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                        TOTAL RETURNS W/OUT SALES CHARGES

                             NATIONWIDE GROWTH FUND

AGGREGATE ANNUAL RETURNS
<S>         <C>                <C>
T= (ERV/P)-1
WHERE:      T=                   Total Return
            ERV=                 Redeemable value at the end
                                 of the period of a hypothetical
                                 $1,000 investment made at the
                                 beginning of the period.
            P=                   A hypothetical initial investment of $1,000.

EXAMPLE:

            Monthly:                   9/30/97    to    10/31/97
                               (       960.00/ 1,000) - 1 =            -4.00%

            Quarterly:                 7/31/97    to    10/31/97
                               (       978.95/ 1,000)- 1 =             -2.10%

            Year to Date:              12/31/96   to    10/31/97
                               (       1,235.10/ 1,000) - 1 =          23.51%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P)(PW*)(1/N)-1))

WHERE:      T=                 Total Return
            ERV=               Redeemable value at the end
                               of the period of a hypothetical
                               $1,000 investment made at the
                               beginning of the period.
            P=                 A hypothetical initial investment of $1,000.
            N=                 Number of years
<CAPTION>
EXAMPLE:
       <S>                     <C>                                     <C>          <C>             <C>
            1 YEAR                     10/31/96   to    10/31/97
                               (((     1,321.20/1,000)(PW*)(1/(        365          /365))-1)       32.12%

            3 YEARS                    10/31/94   to    10/31/97
                               (((     1,796.30/1,000)(PW*)(1/(        1096         /365))-1)       21.54%

            5 YEARS                    10/31/92   to    10/31/97
                               (((     2,206.20/1,000) (PW*)(1/(       1826         /365))-1)       17.14%

            10 YEARS                   10/31/87   to    10/31/97
                               (((     4,145.40/1,000)(PW*)(1/(        3653         /365))-1)       15.27%

       SINCE INCEPTION                 2/14/61    to    10/31/97
                               (((     28,456.40/1,000)(PW*)(1/(       13408        /365))-1))       9.54%
<FN>


(PW*)      To the power
</TABLE>


                                    Page 1
<PAGE>   5
<TABLE>
<CAPTION>

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                          TOTAL RETURNS W/SALES CHARGES

                                 NATIONWIDE FUND

AGGREGATE ANNUAL RETURNS
<S>                          <C>
T= (ERV/P)-1
WHERE:       T=              Total Return
             ERV=            Redeemable value at the end
                             of the period of a hypothetical
                             $1,000 investment made at the
                             beginning of the period.
             P=              A hypothetical initial investment of $1,000.

EXAMPLE:
             Monthly:                 9/30/97    to    10/31/97
                            (         949.60/ 1,000) - 1 =           -5.04%

             Quarterly:               7/31/97    to    10/31/97
                            (         956.20/ 1,000) - 1 =           -4.38%

             Year to Date:            12/31/96    to   10/31/97
                            (         1,268.30/ 1,000) - 1 =         26.83%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P)(PW*)(1/N)-1))

WHERE:       T=              Total Return
             ERV=            Redeemable value at the end
                             of the period of a hypothetical
                             $1,000 investment made at the
                             beginning of the period.
             P=              A hypothetical initial investment of $1,000.
             N=              Number of years
<CAPTION>
EXAMPLE:
        <S>                 <C>                                         <C>                    <C>
             1 YEAR                   10/31/96   to    10/31/97
                            (((       1,338.70 /1,000)(PW*)(1/(          365      /365))-1)    33.87%

             3 YEARS                  10/31/94   to    10/31/97
                            (((       2,012.90/1,000)(PW*)(1/(           1096     /365))-1)    26.24%

             5 YEARS                  10/31/92   to    10/31/97
                            (((       2,241.00/1,000)(PW*)(1/(           1826     /365))-1)    17.50%

             10 YEARS                 10/31/87   to    10/31/97
                            (((       4,603.00/1,000)(PW*)(1/(           3653     /365))-1)    16.48%

        SINCE INCEPTION               5/11/33    to    10/31/97
                            (((       708,534.20/1,000)(PW*)(1/(         23549    /365))-1)    10.71%
<FN>

(PW*)        To the power
</TABLE>
<PAGE>   6
<TABLE>
<CAPTION>

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                        TOTAL RETURNS W/OUT SALES CHARGES

                                 NATIONWIDE FUND

AGGREGATE ANNUAL RETURNS
<S>                           <C>
T=(ERV/P)-1
WHERE:      T=                    Total Return
            ERV=                  Redeemable value at the end
                                  of the period of a hypothetical
                                  $1,000 investment made at the
                                  beginning of the period.
            P=                    A hypothetical initial investment of $1,000.

EXAMPLE:

            Monthly:                    9/30/97   to    10/31/97
                                (       994.40/ 1,000) - 1 =          -0.56%

            Quarterly:                7/31/97     to    10/31/97
                                (     1,001.30/ 1,000) - 1 =           0.13%

            Year to Date:             12/31/96    to    10/31/97
                                (     1,328.00/ 1,000) - 1 =          32.80%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P)(PW*)(1/N)-1))

WHERE:      T=                    Total Return
            ERV=                  Redeemable value at the end
                                  of the period of a hypothetical
                                  $1,000 investment made at the
                                  beginning of the period.
            P=                    A hypothetical initial investment of $1,000.
            N=                    Number of years
<CAPTION>

EXAMPLE:
<S>                         <C>                                       <C>        <C>         <C>
            1 YEAR                    10/31/96    to    10/31/97
                            (((       1,401.70/1,000)(PW*)(1/(         365       /365))-1)   40.17%

            3 YEARS                   10/31/94   to     10/31/97
                            (((       2,107.70/1,000)(PW*)(1/(         1096      /365))-1)   28.19%

            5 YEARS                   10/31/92   to     10/31/97
                            (((       2,346.60/1,000)(PW*)(1/(         1826      /365))-1)   18.59%

            10 YEARS                  10/31/87   to      10/31/97
                            (((       4,819.90/1,000)(PW*)(1/(         3653      /365))-1)   17.02%

         SINCE INCEPTION              5/11/33     to     10/31/97
                            (((       741,920.70 /1,000)(PW*)(1/(      23549     /365))-1)   10.79%
<FN>

(PW*)   To the power
</TABLE>


                                    Page 1
<PAGE>   7
<TABLE>
<CAPTION>

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                        TOTAL RETURNS WITH SALES CHARGES

                              NATIONWIDE BOND FUND

AGGREGATE ANNUAL RETURNS
<S>         <C>                 <C>
T=(ERV/P)-1
WHERE:      T=                     Total Return
            ERV=                   Redeemable value at the end
                                   of the period of a hypothetical
                                   $1,000 investment made at the
                                   beginning of the period.
            P=                     A hypothetical initial investment of $1,000.

EXAMPLE:

            Monthly:                 9/30/97     to    10/31/97
                                 (   970.10/   1,000) - 1 =            -2.99%

            Quarterly:               7/31/97     to    10/31/97
                                 (   973.95/   1,000) - 1 =            -2.60%

            Year to Date:            12/31/96    to    10/31/97
                                 (   1,029.00/ 1,000) - 1 =             2.90%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P)(PW*)(1/N)-1))

WHERE:      T=                     Total Return
            ERV=                   Redeemable value at the end
                                   of the period of a hypothetical
                                   $1,000 investment made at the
                                   beginning of the period.
            P=                     A hypothetical initial investment of $1,000.
            N=                     Number of years
<CAPTION>   
EXAMPLE:
         <S>                  <C>                                     <C>        <C>           <C>
            1 YEAR                  10/31/96    to    10/31/97
                             (((    1,034.60/1,000)(PW*)(1/(         365        /365 ))-1)     3.46%
            
            3 YEARS                 10/31/94    to    10/31/97
                             (((    1,308.60/1,000)(PW*)(1/(         1096       /365))-1)      9.37%
            
            5 YEARS                 10/31/92     to   10/31/97
                             (((    1,340.80/1,000)(PW*)(1/(         1826       /365))-1)      6.04%
            
            10 YEARS                10/31/87     to   10/31/97
                              (((    2,224.60/1,000)(PW*)(1/(         3653       /365))-1)      8.32%

         SINCE INCEPTION             2/28/80    to     10/31/97
                              (((    4,573.50/1,000)(PW*)(1/(         6455       /365))-1)      8.98%
<FN>

(PW*)    To the power
</TABLE>

<PAGE>   8
<TABLE>
<CAPTION>

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                        TOTAL RETURNS W/OUT SALES CHARGES

                              NATIONWIDE BOND FUND

AGGREGATE ANNUAL RETURNS
<S>           <C>              <C>
T=(ERV/P)-1
WHERE:        T=                 Total Return
              ERV=               Redeemable value at the end
                                 of the period of a hypothetical
                                 $1,000 investment made at the
                                 beginning of the period.
              P=                 A hypothetical initial investment of $1,000.

EXAMPLE:

              Monthly:                 9/30/97     to    10/31/97
                               (       1,015.80/ 1,000) -1 =          1.58%

              Quarterly:               7/31/97     to    10/31/97
                               (       1,019.90/ 1,000) -1 =          1.99%

              Year to Date:            12/31/96    to    10/31/97
                               (       1,077.50/ 1,000) -1 =          7.75%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P)(PW*)(1/N)-1))

WHERE:        T=               Total Return
              ERV=             Redeemable value at the end
                               of the period of a hypothetical
                               $1,000 investment made at the
                               beginning of the period.
              P=               A hypothetical initial investment of $1,000.
              N=               Number of years
<CAPTION>

EXAMPLE:
<S>                           <C>                                        <C>          <C>         <C>
              1 YEAR                   10/31/96    to    10/31/97
                              (((      1,083.30/1,000)(PW*)(1/(          365          /365))-1)    8.33%

              3 YEARS                  10/31/94    to    10/31/97
                              (((      1,370.30/1,000) (PW*)(1/(         1096         /365))-1)   11.06%

              5 YEARS                  10/31/92    to    10/31/97
                              (((      1,404.00/1,000) (PW*)(1/(         1826         /365))-1)    7.02%

              10 YEARS                 10/31/87    to    10/31/97
                              (((      2,329.40/1,000) (PW*)(1/(         3653         /365))-1)    8.82%

         SINCE INCEPTION               2/28/80     to    10/31/97
                              (((      4,789.00/1,000) (PW*)(1/(         6455         /365))-1)    9.26%
<FN>

(PW*)  To the power
</TABLE>


                                    Page 1
<PAGE>   9
<TABLE>
<CAPTION>
                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                          TOTAL RETURNS W/SALES CHARGES

                         NATIONWIDE TAX-FREE INCOME FUND

AGGREGATE ANNUAL RETURNS
<S>                            <C>
T= (ERV/P)-1
WHERE:     T=                  Total Return
           ERV=                Redeemable value at the end
                               of the period of a hypothetical
                               $1,000 investment made at the
                               beginning of the period.
           P=                  A hypothetical initial investment of $1,000.

EXAMPLE:
           Monthly:                   9/30/97     to    10/31/97
                               (      955.80/ 1,000) - 1 =              -4.42%

           Quarterly:                7/31/97      to    10/31/97
                               (     958.20/ 1,000) - 1 =               -4.18%

           Year to Date:             12/31/96     to    10/31/97
                               (     1,014.40/ 1,000) - 1 =              1.44%
<CAPTION>

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV/P)(PW*)(1/N)-1))
<S>        <C>                <C>                                               <C>              <C>
WHERE:     T=                  Total Return
           ERV=                Redeemable value at the end
                               of the period of a hypothetical
                               $1,000 investment made at the
                               beginning of the period.
           P=                  A hypothetical initial investment of $1,000.
           N=                  Number of years

EXAMPLE:
           1 YEAR                    10/31/96     to    10/31/97
                               (((   1,027.20/1,000)(PW*)(1/(          365        /365 ))-1)      2.72%

           3 YEARS                   10/31/94     to    10/31/97
                               (((   1,270.70/1,000)(PW*)(1/(          1096       /365 ))-1)      8.31%

           5 YEARS                   10/31/92     to    10/31/97
                               (((   1,378.40/1,000)(PW*)(1/(          1826       /365 ))-1)      6.63%

           10 YEARS                  10/31/87     to    10/31/97
                               (((   2,196.90/1,000)(PW*)(1/(          3653       /365 ))-1)      8.18%

          SINCE INCEPTION            3/17/86      to    10/31/97
                               (((   2,087.80/1,000)(PW*)(1/(          4246       /365 ))-1)      6.53%
<FN>

(PW*)    To the power
</TABLE>



<PAGE>   10
<TABLE>
<CAPTION>
                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                        TOTAL RETURNS W/OUT SALES CHARGES

                         NATIONWIDE TAX-FREE INCOME FUND

AGGREGATE ANNUAL RETURNS
<S>                           <C>
T=(ERV/P)-1
WHERE:       T=               Total Return
             ERV=             Redeemable value at the end
                              of the period of a hypothetical
                              $1,000 investment made at the
                              beginning of the period.
             P=               A hypothetical initial investment of $1,000.

EXAMPLE:

             Monthly:              9/30/97    to    10/31/97
                             (     1,005.80/ 1,000) - 1 =             0.58%

             Quarterly:            7/31/97    to    10/31/97
                             (     1,008.00/ 1,000) - 1 =             0.80%

             Year to Date:         12/31/96   to    10/31/97
                             (     1,064.40/ 1,000) - 1 =             6.44%
<CAPTION>

AVERAGE ANNUAL TOTAL RETURN

T=(((ERV/P)(PW*)(1/N)-1))
<S>          <C>             <C>
WHERE:       T=              Total Return
             ERV=            Redeemable value at the end
                             of the period of a hypothetical
                             $1,000 investment made at the
                             beginning of the period.
             P=              A hypothetical initial investment of $1,000.
             N=              Number of years
<CAPTION>
EXAMPLE:
      <S>                    <C>                                      <C>       <C>          <C>
             1 YEAR                10/31/96    to    10/31/97
                             (((   1,077.20/1,000)(PW*)(1/(           365       /365))-1)     7.72%

             3 YEARS               10/31/94    to    10/31/97
                             (((   1,300.70/1,000)(PW*)(1/(           1096      /365))-1)     9.15%

             5 YEARS               10/31/92    to    10/31/97
                             (((   1,388.40/1,000)(PW*)(1/(           1826      /365))-1)     6.78%

             10 YEARS              10/31/87    to    10/31/97
                             (((   2,196.90/1,000)(PW*)(1/(           3653      /365))-1)     8.18%

        SINCE INCEPTION            3/17/86     to    10/31/97
                             (((   2,087.80/1,000)(PW*)(1/(           4246      /365))-1)     6.53%
<FN>

(PW*)    To the power
</TABLE>


                                    Page 1


<PAGE>   11
                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                         TOTAL RETURNS W/SALES CHARGES

                 NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND

AGGREGATE ANNUAL RETURNS

T= (ERV/P) -1
WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.

EXAMPLE:
        Monthly:        9/30/97 to      10/31/97
                      (966.10 / 1,000) - 1 =   -3.39%

        Quarterly:      7/31/97 to      10/31/97
                      (972.40 / 1,000) - 1 =   -2.76%

        Year to Date:  12/31/96 to      10/31/97
                      ( 1,030.40 / 1,000) - 1 =    3.04%

AVERAGE ANNUAL TOTAL RETURN

T =(((ERV / P ) ( PW* ) ( 1 / N ) - 1))

WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.
        N=         Number of years

EXAMPLE:
        1 YEAR     10/31/96 to      10/31/97
             ((( 1,038.40/1,000) (PW*) (1/(365     /365))-1)    3.84%

        3 YEARS    10/31/94 to      10/31/97
             ((( 1,293.50/1,000) (PW*) (1/(1096    /365))-1)    8.95%

        5 YEARS    10/31/92 to      10/31/97
             ((( 1,386.80/1,000) (PW*) (1/(1826    /365))-1)    6.75%

SINCE INCEPTION    12/19/88 to      10/31/97
             ((( 2,168.70/1,000) (PW*) (1/(3238    /365))-1)    9.12%

( PW* ) To the power



<PAGE>   12

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                       TOTAL RETURNS W/OUT SALES CHARGES

                 NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND

AGGREGATE ANNUAL RETURNS

T= (ERV/P) -1
WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.

EXAMPLE:
        Monthly:     9/30/97 to      10/31/97
                  (1,016.10 / 1,000) - 1 =    1.61%

        Quarterly:    7/31/97 to      10/31/97
                  (1,022.40 / 1,000) - 1 =    2.24%

        Year to Date: 12/31/96 to      10/31/97
                  (1,080.40 / 1,000) - 1 =    8.04%

AVERAGE ANNUAL TOTAL RETURN

T =((( ERV / P ) ( PW* ) ( 1 / N ) - 1) )

WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.
        N=         Number of years

EXAMPLE:
        1 YEAR     10/31/96 to      10/31/97
             (((1,088.40/1,000) (PW*) (1/(365     /365))-1)   8.84%

        3 YEARS    10/31/94 to      10/31/97
             (((1,333.50/1,000) (PW*) (1/(1096    /365))-1)  10.06%

        5 YEARS    10/31/92 to      10/31/97
             (((1,406.80/1,000) (PW*) (1/(1826    /365))-1)   7.06%

SINCE INCEPTION    12/19/88 to      10/31/97
             (((2,168.70/1,000) (PW*) (1/(3238    /365))-1)   9.12%

( PW* ) To the power



<PAGE>   13
                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                         TOTAL RETURNS W/SALES CHARGES

                NATIONWIDE INTERMEDIATE U.S.GOVERNMENT BOND FUND

AGGREGATE ANNUAL RETURNS

T= (ERV/P) -1
WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.

EXAMPLE:
        Monthly:       9/30/97 to      10/31/97
                    (965.50 / 1,000) - 1 =   -3.45%

        Quarterly:     7/31/97 to      10/31/97
                    (971.40 / 1,000) - 1 =   -2.86%

        Year to Date: 12/31/96 to      10/31/97
                    (1,032.50 / 1,000) - 1 =    3.25%

AVERAGE ANNUAL TOTAL RETURN

T =((( ERV / P ) ( PW* ) ( 1 / N ) - 1))

WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.
        N=         Number of years

EXAMPLE:
        1 YEAR     10/31/96 to      10/31/97
             ((( 1,038.60/1,000) (PW*) (1/(365     /365))-1)    3.86%

        3 YEARS    10/31/94 to      10/31/97
             (((  1,304.80/1,000) (PW*) (1/(1096   /365))-1)    9.26%

        5 YEARS    10/31/92 to      10/31/97
             ((( 1,398.60/1,000) (PW*) (1/(1826    /365))-1)    6.94%

SINCE INCEPTION     2/29/92 to      10/31/97
             ((( 1,481.00/1,000) (PW*) (1/(2071    /365))-1)    7.17%

( PW* ) To the power




<PAGE>   14

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                       TOTAL RETURNS W/OUT SALES CHARGES

                NATIONWIDE INTERMEDIATE U.S.GOVERNMENT BOND FUND

AGGREGATE ANNUAL RETURNS

T= (ERV/P) -1
WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.

EXAMPLE:
        Monthly:       9/30/97 to      10/31/97
                      (1,015.50 / 1,000) - 1 =    1.55%

        Quarterly:     7/31/97 to      10/31/97
                      (1,021.40 / 1,000) - 1 =    2.14%

        Year to Date: 12/31/96 to      10/31/97
                      (1,082.50 / 1,000) - 1 =    8.25%

AVERAGE ANNUAL TOTAL RETURN

T =((( ERV / P ) ( PW* ) ( 1 / N ) - 1))

WHERE:  T=         Total Return
        ERV=       Redeemable value at the end
                   of the period of a hypothetical
                   $1,000 investment made at the
                   beginning of the period.
        P=         A hypothetical initial investment of $1,000.
        N=         Number of years

EXAMPLE:
        1 YEAR     10/31/96 to      10/31/97
             ((( 1,088.60/1,000) (PW*) (1/(365     /365))-1)    8.86%

        3 YEARS    10/31/94 to      10/31/97
             ((( 1,334.80/1,000) (PW*) (1/(1096    /365))-1)   10.09%

        5 YEARS    10/31/92 to      10/31/97
             ((( 1,408.60/1,000) (PW*) (1/(1826    /365))-1)    7.09%

SINCE INCEPTION     2/29/92 to      10/31/97
             ((( 1,481.00/1,000) (PW*) (1/(2071    /365))-1)    7.17%

( PW* ) To the power


<PAGE>   15

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                                 TOTAL RETURNS

                          NATIONWIDE MONEY MARKET FUND

<TABLE>
<CAPTION>
                                                            7 Day Yield 30 Day Yield
                                                            Calculation  Calculation
                                                            -----------  -----------
BASE PERIOD                                                   7 Days       30 Days  
                                                            -----------  -----------
<S>                                                         <C>          <C>        
BEGINNING ACCOUNT BALANCE (1 SHARE AT $1.00)                1.000000000  1.000000000
                                                            -----------  -----------
Dividend Declaration                                                                
        October    2                                                     0.000136215
        October    3                                                     0.000136831
        October    4                                                     0.000136636
        October    5                                                     0.000136637
        October    6                                                     0.000136637
        October    7                                                     0.000137543
        October    8                                                     0.000136695
        October    9                                                     0.000138221
        October    10                                                    0.000136774
        October    11                                                    0.000136002
        October    12                                                    0.000136002
        October    13                                                    0.000136002
        October    14                                                    0.000136024
        October    15                                                    0.000136547
        October    16                                                    0.000137080
        October    17                                                    0.000137173
        October    18                                                    0.000137314
        October    19                                                    0.000137315
        October    20                                                    0.000137315
        October    21                                                    0.000137293
        October    22                                                    0.000136813
        October    23                                                    0.000137145
        October    24                                                    0.000137130
        October    25                                       0.000136997  0.000136997
        October    26                                       0.000136997  0.000136997
        October    27                                       0.000136998  0.000136998
        October    28                                       0.000139925  0.000139925
        October    29                                       0.000137903  0.000137903
        October    30                                       0.000136868  0.000136868
        October    31                                       0.000136950  0.000136950
                                                            -----------  -----------
Less: Deductions from Shareholder Accounts                  0.000000000  0.000000000
                                                            -----------  -----------
Base period return                                          0.000962638  0.004109982
                                                            ===========  ===========
Ending account balance                                      1.000962638  1.004109982
Less: Beginning Account Balance                             1.000000000  1.000000000
                                                            -----------  -----------
Difference                                                  0.000962638  0.004109982
                                                            ===========  ===========
Base Period Return                                                                  
        (Difference/Beginning Account Return)               0.000962638  0.004109982
                                                            ===========  ===========
Yield Quotation
        (Base Period Return * 365/ Base Period)                   5.02%        5.00%
                                                            ===========  ===========

Effective Yield Quotation
        (Base Period Return + 1) (PW*)(365/ Base Period)-1        5.15%        5.12%
                                                            ===========  ===========
</TABLE>

( PW* ) To the power


<PAGE>   16



                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                                   SEC YIELD

                              NATIONWIDE BOND FUND

                                  ( A - B )
                    YIELD = 2 [((----------- )) + 1 ) ( PW* ) 6 -1
                                  ( C * D )

Where:
             A = Dividends and interest earned during the period 
             B = Expenses accrued for the period (net of reimbursement) 
             C = Average daily number of shares outstanding during the period 
                 that were entitled to receive dividends
             D = Maximum offering price per share on the last day of the period


                                 A=       675,967.78
                                 B=        79,178.05
                                 C=   13,103,312.310
                                 D=           9.9372


                            Period ended 10/31/97

                         SEC YIELD             5.56%



<PAGE>   17

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                                   SEC YIELD

                 NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND

                              ( A - B )
                YIELD = 2 [((----------- )) + 1 ) ( PW* ) 6 -1
                              ( C * D )

Where:
         A = Dividends and interest earned during the period 
         B = Expenses accrued for the period (net of reimbursement) 
         C = Average daily number of shares outstanding during the period that 
             were entitled to receive dividends
         D = Maximum offering price per share on the last day of the period


                             A=         269,368.18
                             B=          30,146.30
                             C=      4,376,190.200
                             D=              11.19


                         Period ended 10/31/97

                     SEC YIELD=              5.93%

<PAGE>   18

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                                   SEC YIELD

                NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND

                              ( A - B )
                YIELD = 2 [((----------- )) + 1 ) ( PW* ) 6 -1
                              ( C * D )

Where:
             A = Dividends and interest earned during the period 
             B = Expenses accrued for the period (net of reimbursement) 
             C = Average daily number of shares outstanding during the period 
                 that were entitled to receive dividends
             D = Maximum offering price per share on the last day of the period


                               A=         232,472.35
                               B=          37,651.88
                               C=      3,985,016.460
                               D=              10.31


                          Period ended 10/31/97

                       SEC YIELD=              5.76%



<PAGE>   19

                           NATIONWIDE FAMILY OF FUNDS
                                   EXHIBIT 16
                                   SEC YIELD

                        NATIONWIDE TAX-FREE INCOME FUND

                              ( A - B )
                YIELD = 2 [((-----------)) + 1 ) ( PW* ) 6 -1
                              ( C * D )

Where:
          A = Dividends and interest earned during the period 
          B = Expenses accrued for the period (net of reimbursement) 
          C = Average daily number of shares outstanding during the period that 
              were entitled to receive dividends
          D = Maximum offering price per share on the last day of the period


                           A=         1,114,617.39
                           B=           208,718.78
                           C=       24,493,931.340
                           D=                10.51


                     Period ended 10/31/97

                   SEC YIELD=                4.26%





<PAGE>   20


                          NATIONWIDE FAMILY OF FUNDS
                                  EXHIBIT 16
                             TAX EQUIVALENT YIELD
                                      
                       NATIONWIDE TAX-FREE INCOME FUND



                            TAX-FREE YIELD
TAX EQUIVALENT YIELD =    -------------------
                            100% - TAX RATE


             October 31, 1997        TAX EQUIVALENT YIELD
             ----------------        --------------------

Where:    TAX-FREE YIELD    4.26%

          TAX RATE            15%           5.01%
                              28%           5.92%
                              33%           6.36%




<PAGE>   1

                                                                     Exhibit 18


                                RULE 18f-3 PLAN

WHEREAS, Nationwide Investing Foundation III, an Ohio business trust (the
"Trust"), is an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act");

WHEREAS, Nationwide Advisory Services, Inc. ("NAS"), an Ohio corporation,
serves as investment adviser and underwriter for the Trust;

WHEREAS, The Trust has adopted a Distribution and Shareholder Service Plan
("12b-1 Plan") under Rule 12b-1 of the 1940 Act providing for, in the case of
Class A shares, fees of not more than .25% per annum of average net assets, and
Class B shares, fees of not more than 1% per annum of average net assets,
comprised of a distribution fee in an amount not to exceed .75% per annum of
average net assets and a service fee not to exceed .25% per annum of average
net assets;

WHEREAS, The Trust has established a Multiple Class Distribution System
enabling the Trust, as described in its prospectus, to offer investors the
option of purchasing shares of its non-money market fund series (a) with a
front-end sales load (which can vary among series and which is subject to
certain reductions and waivers among groups of purchasers) and a 12b-1 plan
providing for a distribution fee and service fee (the "Class A shares"), (b)
without a front-end load, but subject to a contingent deferred sales charge
("CDSC") (which can vary among series) and a 12b-1 plan providing for a
distribution fee and service fee (the "Class B Shares"), and (c) with a
front-end load (which can vary among series and which is subject to certain
reductions and waivers among groups of purchasers), but not subject to a 
12b-1 plan ("Class D shares"); and

WHEREAS, Rule 18f-3 under the 1940 Act permits an open-end management
investment company to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment company adopts a
written plan setting forth the separate arrangements and expense allocation of
each class and any related conversion features or exchange privileges;

NOW, THEREFORE, the Trust, wishing to be governed by Rule 18f-3 under the 1940
Act, hereby adopts this Rule 18f-3 Plan as follows:

1. Each class of shares of a non-money market fund series will represent
interests in the same portfolio of investments of such series of the Trust, and
be identical in all respects to each other class of that series, except as set
forth below. Initially, the only differences among the various classes of
shares of the non-money market fund series of the Trust will relate solely to
different distribution or service fee payments associated with any Rule 12b-1
Plan for a particular class of shares and any other costs relating to
implementing or amending such plan (including obtaining shareholder approval of
such plan or any amendment thereto), which will be borne solely by shareholders
of such classes. In the future, differences among the classes may also relate
to (a) different administrative service fees; (b) different Class Expenses,
which will be limited to the 

                                                                                
<PAGE>   2
following expenses determined by the Trustees to be attributable to a specific
class of shares: (i) transfer agency fees identified as being attributable to 
a specific class; (ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class; (iii) Blue Sky
registration fees incurred by a class of shares; (iv) SEC registration fees
incurred by a class; (v) expenses of a administrative personnel and services as
required to support the shareholders of a specific class; (vi) litigation or
other legal expenses and audit or other accounting expenses relating solely 
to one class; (vii) Trustee's fees or expenses incurred as a result of issues
relating to one class; and (viii) shareholder meeting costs that relate to a
specific class; (c) the voting rights related to any 12b-1 Plan affecting a
specific class of shares; (d) conversion features; (e) exchange privileges; 
and (f) class names or designations. Any additional incremental expenses not
specifically identified above that are subsequently identified and determined 
to be properly applied to one class of shares of a series of the Trust shall be
so applied upon approval by a majority of the Trustees of the Trust, including 
a majority of the Trustees who are not interested persons of the Trust. 

2. Under the Multiple Class Distribution System, certain expenses may be
attributable to the Trust, but not to a particular series or class thereof. All
such expenses will be allocated among series based upon the relative aggregate
net assets of such series. Expenses that are attributable to a particular
series, but not to a particular class thereof, will be borne by each class of
such series on the basis of the relative aggregate net assets of the classes.
Notwithstanding the foregoing, the principal underwriter, the investment
adviser or other provider of services to the Trust may waive or reimburse the
expenses of a specific class or classes to the extent permitted under Rule
18f-3 under the 1940 Act and pursuant to any applicable ruling, procedure or
regulation of the Internal Revenue Service.

A class of shares may be permitted to bear expenses that are directly
attributable to such class including: (a) any distribution/services fees
associated with any Rule 12b-1 plan for a particular class and any other costs
relating to implementing or amending such Plan (including obtaining shareholder
approval of such plan or any amendment thereto);(b) any administrative services
fees attributable to such class; and (c) any Class Expenses determined by the
Trustees to be attributable to such class.

3. To the extent exchanges are permitted, shares of any class of the Trust will
be exchangeable with shares of the same class of another series of the Trust,
or with money market fund shares of the Trust as described in the applicable
prospectus. Exchanges will comply with all applicable provisions of Rule 11a-3
under the 1940 Act.

4. Dividends paid by a series of the Trust as to each class of its shares, to
the extent any dividends are paid, will be calculated in the same manner, at
the same time, on the same day, and will be in the same amount, except that
any distribution/service fees, administrative services fees, and Class Expenses
allocated to a class will be borne exclusively by that class. 

5. Any distribution arrangement of the Trust, including distribution fees 
and front-end and deferred sales loads, will comply with Section 2830 of 
the Conduct Rules of the National Association of Securities Dealers, Inc. 

6. All material amendments to this Plan must be approved by a majority of the
members of the Trust's Trustees, including a majority of the Board members who
are not interested persons of the Trust.

<TABLE> <S> <C>

<ARTICLE> 6
<CIK> 0001048702
<NAME> NATIONWIDE S&P 500 INDEX FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
       
<S>                             <C>
<PERIOD-TYPE>                   OTHER
<FISCAL-YEAR-END>                          OCT-31-1998
<PERIOD-START>                             DEC-23-1997
<PERIOD-END>                               DEC-23-1997
<EXCHANGE-RATE>                                      1
<INVESTMENTS-AT-COST>                                0
<INVESTMENTS-AT-VALUE>                               0
<RECEIVABLES>                                        0
<ASSETS-OTHER>                                 100,000
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                 100,000
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                            0
<TOTAL-LIABILITIES>                                  0
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                       100,000
<SHARES-COMMON-STOCK>                           10,000
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                             0
<NET-ASSETS>                                   100,000
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                                    0
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                       0
<NET-INVESTMENT-INCOME>                              0
<REALIZED-GAINS-CURRENT>                             0
<APPREC-INCREASE-CURRENT>                            0
<NET-CHANGE-FROM-OPS>                                0
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                              0
<NUMBER-OF-SHARES-REDEEMED>                          0
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                               0
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                                0
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                      0
<AVERAGE-NET-ASSETS>                           100,000
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                   0.00
<PER-SHARE-GAIN-APPREC>                           0.00
<PER-SHARE-DIVIDEND>                              0.00
<PER-SHARE-DISTRIBUTIONS>                         0.00
<RETURNS-OF-CAPITAL>                              0.00
<PER-SHARE-NAV-END>                              10.00
<EXPENSE-RATIO>                                   0.00
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                              0.00
        

</TABLE>


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