<PAGE> 1
As filed with the Securities and Exchange Commission on
January 7, 1998
Registration No. 333-41175
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
(Check appropriate box or boxes)
--------------------
Nationwide Investing Foundation III
(Exact Name of Registrant as Specified in Charter)
Three Nationwide Plaza, Columbus, Ohio 43215
(Address of Principal Executive Offices)
(800) 848-0920
(Area Code and Telephone Number)
--------------------
David E. Simaitis, Esq.
One Nationwide Plaza, Columbus, Ohio 43215
(Name and address of Agent for Service)
Copy to:
Charles H. Hire, Esq., Baker & Hostetler LLP
65 East State Street, Columbus, Ohio 43215
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), shall determine.
Title of Securities Being Registered:
Shares of beneficial interest, without par value.
An indefinite amount of the Registrant's securities has been registered
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. In reliance upon such Rule, no filing fee is being paid at
this time.
<PAGE> 2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 SUMMARY -- Comparative Expense Information; SUMMARY; SPECIAL
CONSIDERATIONS AND RISK FACTORS
4 THE PROPOSED TRANSACTION
5 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
6 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
7 Front Cover; SUMMARY -- Approval and Consummation of the
Proposed Transaction; SUMMARY -- Comparison of Voting Rights;
THE PROPOSED TRANSACTION; and MISCELLANEOUS -- Solicitation of
Proxies and Payment of Expenses; MISCELLANEOUS -- Substantial
Shareholders
8 SUMMARY -- Proposed Reorganization; SUMMARY -- Comparative
Expense Information; SUMMARY -- Fees and Expenses; THE PROPOSED
TRANSACTION -- Reasons for the Proposed Transaction; ADDITIONAL
COMPARATIVE INFORMATION
9 Not Applicable
</TABLE>
<PAGE> 3
Dear Nationwide Investing Foundation Shareholder:
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998 to consider an important proposal affecting your funds. After
careful consideration, the Trustees unanimously approved this proposal because
they believe it is in the best interests of the funds and the shareholders, and
they recommend you vote FOR the proposal.
The proposal would reorganize the Nationwide Investing Foundation (Trust) funds,
along with several other Nationwide-managed funds, into a new Ohio business
trust. The main reasons for the reorganization are:
- To create a single, modern business trust to improve operating
efficiencies,
- To take advantage of Ohio business trust laws, which are more favorable
to shareholders than Michigan laws,
- To eliminate outdated investment restrictions, which will expand the
investments available to the portfolio managers while keeping similar
investment objectives and risk profiles,
- To increase the number of funds available within the Nationwide family of
funds, and
- To offer more choices to shareholders through the introduction of
additional share classes.
In addition, the proposal would change the investment advisory fees of the
funds, establish a separate fee for fund administration and implement a sliding
fee schedule so that certain fees, as a percentage of net assets, decrease as
assets increase to certain levels. The proposed fee structure is more fully
explained in the attached "Proxy Statement Summary" and detailed in the attached
Combined Prospectus/Proxy Statement.
Most features of the funds in the new trust will be the same as those of the
current funds. For instance, the portfolio managers will remain the same, and
purchase and redemption procedures generally will not change, although
shareholders will be able to purchase different share classes in the future. If
the reorganization is approved, you will receive Class D shares of the funds in
the new trust (except for shares in the new Money Market Fund which will offer
only one class of shares without any class designation) in exchange for your
current shares. The shares received will be equal in value to the shares
exchanged, and there will be no charges, fees, or federal income tax
consequences as a result.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE TAKE A
FEW MINUTES TO READ THE COMBINED PROSPECTUS/PROXY STATEMENT AND CAST YOUR VOTE.
IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED BY NO LATER THAN FEBRUARY 13, 1998.
HOWEVER, PLEASE CONSIDER VOTING EARLY, SO THAT THE FUNDS CAN AVOID THE ADDED
COSTS ASSOCIATED WITH FOLLOW-UP SOLICITATIONS.
The Trust is using Shareholder Communications Corporation, a professional proxy
firm, to assist shareholders in the voting process. As the date of the meeting
approaches, if we have not already heard from you, you may receive a telephone
call from Shareholder Communications reminding you to exercise your right to
vote.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
Dimon R. McFerson, Chairman
<PAGE> 4
PROXY STATEMENT SUMMARY
The following Q & A is a brief summary of the proposal to be considered at the
special meeting. The information below is qualified by the more detailed
information included elsewhere in the attached Combined Prospectus/Proxy
Statement. Accordingly, please read all the enclosed materials before voting.
PLEASE REMEMBER TO VOTE YOUR SHARES AS SOON AS POSSIBLE.
Q: Why are the Trustees recommending the reorganization?
A: The Nationwide Investing Foundation (NIF) Trust was established in 1933 as a
Michigan business trust. As you might imagine, over the past 64 years many
changes have occurred in the mutual fund and investment industries. The NIF
Trust is not up-to-date with current industry practices, which results in
unnecessary investment limitations and some inefficiencies in day-to-day
operations. Also, Nationwide manages six mutual funds in two other trusts,
Nationwide Investing Foundation II (NIF II) and Financial Horizons Investment
Trust (FHIT), which, if the reorganization is approved, will be combined with
the NIF funds in the new Ohio business trust. The reorganization and
consolidation of all these Nationwide-managed funds into a new trust will
streamline operations, expand the number of funds available in the Nationwide
Family, eliminate unnecessary investment restrictions, and permit the funds
to offer multiple share classes to their shareholders.
Q: How will the reorganization affect the value of my account?
A: The value of your account will not change. If the reorganization is approved,
you will receive Class D shares of the funds in the new trust (except for the
new Money Market Fund which offers only one class of shares) in exchange for
your current shares. The shares received will be equal in value to the shares
exchanged, and there will be no charges, fees, or federal income tax
consequences to you as a result of the reorganization.
Q: Will the proposal significantly affect the way the funds are managed?
A: No. The portfolio managers, investment objectives, and risk profiles of the
funds will not significantly change. The proposal will eliminate certain
investment restrictions that are no longer necessary, which will expand the
range of underlying investments that the portfolio managers can choose from.
Q: Why are fund expenses changing?
A: Under the current fee structure which has been in place since 1981, NIF fund
fees and expenses are well below industry averages. However, Nationwide
Advisory Services ("NAS"), as investment adviser and fund administrator for
the funds of NIF, believes the changes are necessary to maintain high quality
services to the funds. Therefore, the Board of Trustees of NIF has approved a
new proposed fee structure for the funds. The following schedule shows the
current fees, as well as the proposed fees:
<TABLE>
<CAPTION>
GROWTH FUND BOND MONEY MARKET
------ ----- ----- ------------
<S> <C> <C> <C> <C>
Advisory fee:(1)
Current................................... 0.50% 0.50% 0.50% 0.50%
Proposed--maximum(2)...................... 0.60% 0.60% 0.50% 0.40%
Administration fees:(1)
Current................................... None None None None
Proposed--maximum(2)...................... 0.07% 0.07% 0.07% 0.07%
</TABLE>
- ---------
(1) 0.01% equals 1/100 of 1% or 1 basis point.
(2) The proposed advisory and administration fees as a percentage of net
assets will decline as assets increase, as explained more fully in the
Combined Prospectus/Proxy Statement.
If the reorganization is approved by shareholders, NAS will increase its
investment in top-quality portfolio managers and support staff, and in
systems and technology to help ensure continued high levels of investment
performance and shareholder service. The following table lists the estimated
expense ratios of the funds
<PAGE> 5
under the proposal and compares the current and proposed expenses to the
average expense ratios for comparable mutual funds.
<TABLE>
<CAPTION>
GROWTH FUND BOND MONEY MARKET
------ ---- ---- ------------
<S> <C> <C> <C> <C>
Expense ratio:(1)
Current...................................... 0.64% 0.60% 0.72% 0.59%
Proposed..................................... 0.78% 0.72% 0.79% 0.60%
Industry average(2).......................... 1.49% 1.29% 1.01% 0.81%
% Proposed below average..................... (48%) (44% ) (23% ) (27%)
</TABLE>
- ---------
(1) 0.01% equals 1/100 of 1% or 1 basis point.
(2) From Lipper Analytical Services, Inc., September 30, 1997.
Even after the proposed changes, expense ratios for each of the NIF funds
continue to be well below industry averages.
Q: Why am I receiving Class D shares in the exchange?
A: All of the funds in the new trust, except for the Nationwide Money Market
Fund, will begin issuing Class A, Class B, and Class D shares in March 1998.
Multiple class structures are very common in the mutual fund industry,
providing investors with optional methods of purchasing shares.
Class A shares will have a front-end sales charge and 12b-1 fee. Class B
shares will carry a contingent deferred sales charge ("CDSC") instead of a
front-end charge, and will also have a 12b-1 fee.
Class D shares are offered with a front-end sales charge similar to current
NIF fund shares and Class A shares; however, Class D shareholders will not be
subject to 12b-1 fees or CDSC's.
The Nationwide Money Market Fund has no sales charges or 12b-1 fees, and
therefore will issue only a single share class.
Q: How do I vote my shares?
A: You can vote by mail or in person at the special meeting. To vote by mail,
sign and send us the enclosed proxy voting card in the envelope provided. Or
you can vote in person at the special meeting set for February 16, 1998.
<PAGE> 6
NATIONWIDE INVESTING FOUNDATION
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
TELEPHONE: (800) 848-0920
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE BOND FUND
NATIONWIDE MONEY MARKET FUND
TO BE HELD ON FEBRUARY 16, 1998
To The Shareholders Of Nationwide
Investing Foundation:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of all of the funds of Nationwide Investing Foundation (the "Trust")
will be held on Monday, February 16, 1998, at 2:00 P.M. (Eastern Time)
concurrently with special meetings of two other trusts of the Nationwide family
of funds, in Jeffers Auditorium, One Nationwide Plaza, Columbus, Ohio 43215. The
Meeting is being called for the following purposes:
(1) To approve an Agreement and Plan of Reorganization dated as of
November 24, 1997 (the "Plan"), between the Trust and Nationwide Investing
Foundation III (the "New Trust"), and the transactions contemplated
thereby, which include:
(a) the transfer of all of the assets of the Trust's Nationwide
Growth Fund to a series of the New Trust which bears the same name (the
"New Growth Fund"), in exchange for Class D shares of the New Growth
Fund, and the assumption by the New Growth Fund of all of the
liabilities of the Trust's Nationwide Growth Fund, followed by the
distribution to shareholders of the Trust's Nationwide Growth Fund of
such Class D shares of the New Growth Fund so received;
(b) the transfer of all of the assets of the Trust's Nationwide
Fund to a series of the New Trust which bears the same name (the "New
Nationwide Fund"), in exchange for Class D shares of the New Nationwide
Fund, and the assumption by the New Nationwide Fund of all of the
liabilities of the Trust's Nationwide Fund, followed by the distribution
to shareholders of the Trust's Nationwide Fund of such Class D shares of
the New Nationwide Fund so received;
(c) the transfer of all of the assets of the Trust's Nationwide
Bond Fund to a series of the New Trust which bears the same name (the
"New Bond Fund"), in exchange for Class D shares of the New Bond Fund,
and the assumption by the New Bond Fund of all of the liabilities of the
Trust's Nationwide Bond Fund, followed by the distribution to
shareholders of the Trust's Nationwide Bond Fund of such Class D shares
of the New Bond Fund so received; and
(d) the transfer of all of the assets of the Trust's Nationwide
Money Market Fund to a series of the New Trust which bears the same name
(the "New Money Market Fund"), in exchange for shares of the New Money
Market Fund, and the assumption by the New Money Market Fund of all of
the liabilities of the Trust's Nationwide Money Market Fund, followed by
the distribution to shareholders of the Trust's Nationwide Money Market
Fund of such shares of the New Money Market Fund so received; and
(2) To transact such other business as may properly come before the
Meeting, or any adjournment(s) thereof, including any adjournment(s)
necessary to obtain requisite quorums and/or approvals.
<PAGE> 7
The Board of Trustees of the Trust has fixed the close of business on
December 18, 1997, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or any
adjournments thereof. The enclosed Combined Prospectus/Proxy Statement contains
further information regarding the Meeting and the proposals to be considered.
The enclosed Proxy Card is intended to permit you to vote even if you do not
attend the Meeting in person.
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT
LEAST A MAJORITY OF EACH FUND'S SHARES OUTSTANDING AND ENTITLED TO VOTE MUST BE
PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED
BUT UNMARKED PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS
PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees,
James F. Laird, Jr., Treasurer
January , 1998
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
<PAGE> 8
COMBINED PROSPECTUS/PROXY STATEMENT
JANUARY , 1998
<TABLE>
<S> <C>
Acquisition and Assumption of All of the Acquisition and Assumption of All of the
Assets and Assets and
Liabilities of Nationwide Growth Fund of Liabilities of Nationwide Fund of
Nationwide Investing Foundation Nationwide Investing Foundation
In Exchange for In Exchange for
Class D Shares of Nationwide Growth Fund of Class D Shares of Nationwide Fund of
Nationwide Investing Foundation III Nationwide Investing Foundation III
Acquisition and Assumption of All of the Acquisition and Assumption of All of the
Assets and Assets and
Liabilities of Nationwide Bond Fund of Liabilities of Nationwide Money Market Fund of
Nationwide Investing Foundation Nationwide Investing Foundation
In Exchange for In Exchange for
Class D Shares of Nationwide Bond Fund of Shares of Nationwide Money Market Fund of
Nationwide Investing Foundation III Nationwide Investing Foundation III
Nationwide Investing Foundation Nationwide Investing Foundation III
Three Nationwide Plaza Three Nationwide Plaza
Columbus, Ohio 43215 Columbus, Ohio 43215
(800) 848-0920 (800) 848-0920
</TABLE>
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund and Nationwide
Money Market Fund (collectively, the "Acquired Funds," and individually, an
"Acquired Fund") of Nationwide Investing Foundation, a Michigan trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at a Special Meeting of Shareholders of the
Trust (the "Meeting"), to be held in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio 43215, on Monday, February 16, 1998, beginning at 2:00 P.M.
(Eastern Time).
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Funds
(as defined below) that a prospective investor, including shareholders of the
Trust, should know before investing. Additional information about the
Reorganization (as defined below) and the Acquiring Funds is contained in a
separate Statement of Additional Information which has been filed with the
Securities and Exchange Commission (the "Commission") and is available upon
request without charge by calling the New Trust at (800) 848-0920 or writing to
the New Trust (as defined below) at the address set forth above. The Statement
of Additional Information bears the same date as this Combined Prospectus/Proxy
Statement and is incorporated by reference herein.
AN INVESTMENT IN THE NEW MONEY MARKET FUND (AS DEFINED BELOW) IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT
THE NEW MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 9
The Trustees of the Trust are seeking your approval of an Agreement and
Plan of Reorganization (the "Plan"), which contemplates that:
(i) Nationwide Growth Fund of Nationwide Investing Foundation III (the
"New Growth Fund") will acquire all of the assets and assume all of the
liabilities of Nationwide Growth Fund of the Trust in exchange for Class D
shares of the New Growth Fund;
(ii) Nationwide Fund of Nationwide Investing Foundation III (the "New
Nationwide Fund") will acquire all of the assets and assume all of the
liabilities of Nationwide Fund of the Trust in exchange for Class D shares
of the New Nationwide Fund;
(iii) Nationwide Bond Fund of Nationwide Investing Foundation III (the
"New Bond Fund") will acquire all of the assets and assume all of the
liabilities of Nationwide Bond Fund of the Trust in exchange for Class D
shares of the New Bond Fund; and
(iv) Nationwide Money Market Fund of Nationwide Investing Foundation
III (the "New Money Market Fund") will acquire all of the assets and assume
all of the liabilities of Nationwide Money Market Fund of the Trust in
exchange for shares of the New Money Market Fund.
The New Growth Fund, the New Nationwide Fund, the New Bond Fund and the New
Money Market Fund of Nationwide Investing Foundation III (the "New Trust") are
sometimes collectively referred to herein as the "Acquiring Funds," and
individually as an "Acquiring Fund." Following such exchange, the shares of the
corresponding Acquiring Funds received by each Acquired Fund will be distributed
to the Acquired Funds' shareholders and the Acquired Funds and the Trust will be
liquidated and dissolved. Shareholders of Nationwide Growth Fund, Nationwide
Fund and Nationwide Bond Fund will receive Class D shares of the corresponding
Acquiring Fund, and shareholders of Nationwide Money Market Fund will receive
shares, with no class designation, of the New Money Market Fund. Each of these
exchange and distribution transactions is sometimes referred to herein as the
"Reorganization," and the shares of the Acquiring Funds to be received by the
respective Acquired Fund are sometimes referred to herein as "Acquiring Fund
Shares."
Upon completion of the Reorganization, you will receive full and fractional
Acquiring Fund Shares of the corresponding Acquiring Fund equal in value when
issued to the shares of the Acquired Fund owned by you immediately prior to the
Reorganization. No commissions or sales loads will be charged in connection with
the Reorganization and there will be no adverse federal income tax consequences.
You should separately consider any other tax consequences in consultation with
your tax advisers.
As discussed in detail herein, the investment objectives and strategy of
each Acquiring Fund are substantially the same as those of the corresponding
Acquired Fund. There are some differences between investment policies and
restrictions, as well as differences in fee levels and expenses, which are
described in detail below.
The Prospectus of the Acquiring Funds, dated January 6, 1998, is
incorporated by reference into this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
The Acquired Funds' Prospectus dated February 28, 1997, as supplemented
December 8, 1997, and December 23, 1997, contains additional information about
the Acquired Funds, has been filed with the Commission, is incorporated by
reference herein and is available without charge by writing the Trust at Three
Nationwide Plaza, Columbus, Ohio 43215, or by calling the Trust at (800)
848-0920. Copies of documents requested will be sent by first-class mail to the
requesting shareholder within one business day of the request.
2
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................... 4
SPECIAL CONSIDERATIONS AND RISK FACTORS............................................... 13
THE PROPOSED TRANSACTION.............................................................. 20
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................ 24
ADDITIONAL COMPARATIVE INFORMATION.................................................... 32
MISCELLANEOUS......................................................................... 43
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION..................................... A-1
</TABLE>
3
<PAGE> 11
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Combined Prospectus/Proxy Statement, in
the Plan, a copy of which is attached to this Combined Prospectus/Proxy
Statement as Exhibit A, in the accompanying Prospectus of the Acquiring Funds
dated January 6, 1998, and in the Prospectus of the Acquired Funds dated
February 28, 1997, as supplemented December 8, 1997, and December 23, 1997.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of each Acquired Fund to the corresponding Acquiring Fund in exchange for
shares of such Acquiring Fund and the assumption by the New Trust on behalf of
the Acquiring Funds of all of the liabilities of the corresponding Acquired
Fund. The New Growth Fund, the New Nationwide Fund and the New Bond Fund will
issue their Class D shares in connection with the Reorganization. The New Money
Market Fund will issue its shares, which are without class designation, in
connection with the Reorganization. The Plan also calls for the distribution of
such Acquiring Fund Shares to the corresponding Acquired Fund's shareholders in
complete liquidation of the Trust and that Acquired Fund. As a result of the
Reorganization, each shareholder of an Acquired Fund will become the owner of
that number of full and fractional Acquiring Fund Shares of the corresponding
Acquiring Fund having an aggregate value equal to the aggregate value of the
shareholder's shares of the Acquired Fund as of the close of business on the day
preceding the date that the Acquired Fund's assets are exchanged for Acquiring
Fund Shares.
Proposals for similar reorganizations are simultaneously being made to
shareholders of Nationwide Investing Foundation II and Financial Horizons
Investment Trust ("FHIT"), two other trusts within the Nationwide family of
funds.
Management of the Trust and the New Trust believes that the Reorganization
is necessary in order to be more efficient in the operation of the Nationwide
family of funds, including providing for more consistent investment policies and
restrictions and removing those restrictions which are out-dated or no longer
required by Federal or state law, and providing shareholders with more options
in purchasing shares of the Nationwide family of funds through the introduction
of multiple classes of shares. While the annual operating expenses for the
Acquiring Funds are expected to be higher than the current expenses of the
Acquired Funds (as described in greater detail below), management believes that
the increased investment advisory fees for the Nationwide Growth Fund and the
Nationwide Fund are necessary for Nationwide Advisory Services, Inc. ("NAS"), as
the Acquired and Acquiring Funds' investment adviser, to maintain high-quality
services to those Funds. The Board and management recognize that, especially in
today's competitive environment, there are increasing pressures to attract and
retain qualified professionals and to dedicate greater and more sophisticated
resources to the management of mutual funds that invest in equity securities. In
determining to break out the administrative services provided to each of the
Acquiring Funds and to charge a separate fee for such services, management of
the Trust and the New Trust believes that such fees are needed to cover the
increased costs of improved technology and the need to maintain high quality
compliance and administrative services in light of the ever-increasing
sophistication and competitiveness of the mutual fund industry.
For these reasons (which are discussed in greater detail below under "THE
PROPOSED TRANSACTION -- REASONS FOR THE REORGANIZATION") and based upon
management's representation that the level of the Acquiring Funds' expenses will
remain substantially below the median for such Funds' respective peer groups of
mutual funds, the Board of Trustees of the Trust, including the Trustees of the
Trust who are not "interested persons" (the "Independent Trustees"), as that
term is defined in the Investment Company Act of 1940, as amended (the "1940
Act"), at a meeting held on November 7, 1997, unanimously concluded that the
Reorganization would be in the best interests of the Trust, the Acquired Funds
and their shareholders and that the interests of the Acquired Funds' existing
shareholders will not be diluted as a result of the transactions contemplated by
the Reorganization and therefore has submitted the Plan for approval by the
Acquired Funds' shareholders. The Board of Trustees of the New Trust has reached
similar conclusions with respect to the Acquiring Funds and with respect to
their shareholders subsequent to the Reorganization and has also approved the
Reorganization with respect to the Acquiring Funds.
4
<PAGE> 12
Approval of the Reorganization with respect to an Acquired Fund will
require the affirmative vote of a majority of the outstanding shares of the
Acquired Fund. See "APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION"
below.
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Acquired Funds in understanding the costs and
expenses that a holder of Acquiring Fund shares would bear directly or
indirectly. The shareholder transaction expenses for the Acquired Funds are
based upon such Funds' actual expenses for the fiscal year ended October 31,
1997. The expenses for each of the Acquiring Funds are estimated for the fiscal
period following the Reorganization and ending October 31, 1998. Because each
Acquiring Fund will have no operations prior to completion of the
Reorganization, the information below for the Acquiring Funds on a pro forma
basis reflects each Acquiring Fund's expected operating expenses for the fiscal
year ending October 31, 1998.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
GROWTH FUND ON
NATIONWIDE A PRO FORMA
GROWTH FUND BASIS*
----------- --------------
<S> <C> <C>
Sales Charge (as a percentage of offering price)................ 4.50% 4.50%
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees........................................ 0.50% 0.58%
12b-1 Fees...................................................... None None
Other Expenses.................................................. 0.14 0.20(1)
----- -----
Total Fund Operating Expenses................................... 0.64% 0.78%
===== =====
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
GROWTH FUND ON
NATIONWIDE A PRO FORMA
GROWTH FUND BASIS*
----------- --------------
<S> <C> <C>
One Year........................................................ $ 51 $ 53
Three Years..................................................... $ 65 $ 69
Five Years...................................................... $ 79 $ 86
Ten Years....................................................... $ 121 $137
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE> 13
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW NATIONWIDE
FUND ON A
NATIONWIDE PRO FORMA
FUND BASIS*
---------- --------------
<S> <C> <C>
Sales Charge (as a percentage of offering price)................ 4.50% 4.50%
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees........................................ 0.50% 0.57%
12b-1 Fees...................................................... None None
Other Expenses.................................................. 0.10 0.15(1)
----- -----
Total Fund Operating Expenses................................... 0.60% 0.72%
===== =====
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW NATIONWIDE
FUND ON A
NATIONWIDE PRO FORMA
FUND BASIS*
---------- --------------
<S> <C> <C>
One Year........................................................ $ 51 $ 52
Three Years..................................................... $ 63 $ 67
Five Years...................................................... $ 77 $ 83
Ten Years....................................................... $117 $130
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW BOND
FUND ON A
NATIONWIDE PRO FORMA
BOND FUND BASIS*
--------- -------------
<S> <C> <C>
Sales Charge (as a percentage of offering price)................... 4.50% 4.50%
Annual Fund Expenses (as a percentage of
average net assets)
Investment Advisory Fees........................................... 0.50% 0.50%
12b-1 Fees......................................................... None None
Other Expenses..................................................... 0.22 0.29(1)
----- -----
Total Fund Operating Expenses...................................... 0.72% 0.79%
===== =====
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
6
<PAGE> 14
<TABLE>
<CAPTION>
CLASS D
SHARES OF THE
NEW BOND
FUND ON A
NATIONWIDE PRO FORMA
BOND FUND BASIS*
--------- -------------
<S> <C> <C>
One Year........................................................... $ 52 $ 53
Three Years........................................................ $ 67 $ 69
Five Years......................................................... $ 83 $ 87
Ten Years.......................................................... $ 130 $ 138
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
NEW MONEY
MARKET FUND
NATIONWIDE ON A PRO
MONEY FORMA
MARKET FUND BASIS*
----------- -----------
<S> <C> <C>
Sales Charge (as a percentage of offering price)................. None None
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees After Fee Waiver........................ 0.45%(2) 0.40%
12b-1 Fees....................................................... None None
Other Expenses................................................... 0.14 0.20(1)
----------- -----------
Total Fund Operating Expenses After Fee Waiver................... 0.59% 0.60%
========== ==========
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
NEW MONEY
NATIONWIDE MARKET FUND
MONEY ON A PRO
MARKET FUND FORMA BASIS*
----------- ------------
<S> <C> <C>
One Year......................................................... $ 6 $ 6
Three Years...................................................... $ 19 $ 19
Five Years....................................................... $ 33 $ 33
Ten Years........................................................ $ 74 $ 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.
- ---------------
(1) "Other Expenses" are based upon estimated amounts for the current fiscal
year.
(2) For the fiscal year ended October 31, 1997, NAS agreed to reduce its
investment advisory for Nationwide Money Market Fund to 0.45%. Without such
reduction, investment advisory fees would have been 0.50%.
* These calculations reflect the expense information for the relevant
Acquiring Fund after giving effect to the Reorganization.
** The Commission requires use of a 5% annual return figure for purposes of the
example. Actual return for a Fund may be greater or less than 5%.
The one, three, five and ten year figures in the Examples above for the
Class D shares of the New Growth Fund, the New Nationwide Fund and the New Bond
Fund reflect the deduction of the 4.5% maximum front-end sales charge. However,
Class D shares of those Acquiring Funds received by a shareholder of an Acquired
Fund pursuant to the Reorganization will not be subject to any such charge.
Absent such front-end sales charge, the one, three, five and ten year figures
for the Class D shares of the New Growth Fund, on a pro forma basis, would be
$8, $25, $43 and $97, respectively, the one, three, five and ten year figures
for the Class D shares of the New
7
<PAGE> 15
Nationwide Fund, on a pro forma basis, would be $7, $23, $40 and $89
respectively, and the one, three, five and ten year figures for the Class D
shares of the New Bond Fund, on a pro forma basis, would be $8, $25, $44 and
$98, respectively.
Any Class D shares of the New Growth Fund, the New Nationwide Fund or the
New Bond Fund purchased after the Reorganization, other than pursuant to
dividend reinvestments, will be subject to the 4.5% sales load unless the
shareholder otherwise qualifies for a waiver or reduction of the sales load. See
the accompanying Prospectus of the Acquiring Funds for further information
regarding sales load reductions and waivers.
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of and as a condition
to the Reorganization, the Acquired Funds and the Trust will have received
opinions of counsel that, upon the consummation of the Reorganization and the
transfer of the assets of the Acquired Funds, no gain or loss will be recognized
by an Acquired Fund or its shareholders for federal income tax purposes; the
holding period and aggregate tax basis for the Acquiring Fund Shares that are
received by an Acquired Fund shareholder will be the same as the holding period
and aggregate tax basis of the shares of the Acquired Fund previously held by
such shareholder; and the holding period and tax basis of the assets of an
Acquired Fund in the hands of the corresponding Acquiring Fund as a result of
the Reorganization will be the same as the holding period and tax basis of the
assets in the hands of the Acquired Fund immediately prior to the
Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Trustees of the Trust, at a special meeting held on November 7, 1997, determined
unanimously that the Reorganization is in the best interests of each of the
Acquired Funds and the Trust and that the interests of the existing shareholders
of the Acquired Funds will not be diluted as a result of the Reorganization.
Similarly, on such date the Board of Trustees of the New Trust unanimously
determined that the Reorganization is in the best interests of the New Trust and
the Acquiring Funds. The proposed Reorganization of each of the Acquired Funds
of the Trust with and into the corresponding Acquiring Funds of the New Trust is
part of a larger plan to reorganize each of the Trust, Nationwide Investing
Foundation II (which consists of two separate funds) and FHIT (which consists of
four separate funds), each a separate stand-alone investment company, into
separate corresponding funds of the New Trust. Two smaller funds of FHIT which
have similar investment objectives and styles to two other Nationwide funds will
be combined with such other funds in the New Trust. One such smaller fund of
FHIT is the Cash Reserve Fund which will combine with the Trust's Nationwide
Money Market Fund in the New Money Market Fund.
Other than the New Money Market Fund, it is anticipated that the Acquiring
Funds will also offer two other classes of shares beginning in March 1998. The
New Money Market Fund offers only one class of shares which is without any class
designation.
To be approved, the Plan will require the affirmative vote of a majority of
the outstanding shares of each Acquired Fund. The Reorganization with respect to
each Acquired Fund is contingent on the approval of the Reorganization with
respect to each of the other Acquired Funds, but not upon the approval of
similar reorganizations by shareholders of Nationwide Investing Foundation II or
FHIT. If an Acquired Fund's shareholders do not approve the proposed
Reorganization, the Trust's and the New Trust's Boards of Trustees will consider
what other alternatives would be in the shareholders' best interests. If the
Plan is approved at the Meeting by the shareholders of each Acquired Fund, the
effective date of the Reorganization (the "Closing Date") is expected to be on
or about March 1, 1998, subject, however, to the receipt by the Trust and the
New Trust of an order of exemption from the Commission with respect to the
Reorganization. There can be no assurance that such an order will be granted.
However, the Closing Date may be such earlier or later date as may be determined
by the Trust and the New Trust.
8
<PAGE> 16
Shareholders of record of the Acquired Funds at the close of business on
December 18, 1997 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting or any adjournment thereof. As of the Record Date, there were
924,072,437.003 outstanding shares of all four series of the Trust. Of those
shares, the following constituted the issued and outstanding shares of each
Acquired Fund on the Record Date:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FUND SHARES OUTSTANDING
--------------------------------------------------------- ------------------
<S> <C>
Nationwide Growth Fund................................... 50,105,984.285
---------------
Nationwide Fund.......................................... 55,123,971.771
---------------
Nationwide Bond Fund..................................... 13,168,845.646
---------------
Nationwide Money Market Fund............................. 805,673,635.301
---------------
</TABLE>
As of the Record Date, there were no outstanding shares of any of the nine
series of the New Trust, including the Acquiring Funds. Each of the Acquiring
Funds has been created specifically for the purpose of acquiring the assets and
assuming the liabilities of its corresponding Acquired Fund. The Acquiring
Funds, prior to the effective date of the Reorganization, will not have
commenced operations.
Each shareholder of the Acquired Fund will be entitled to one vote for each
share, and a fractional vote for each fractional share, held by such
shareholder. Holders of a majority of the shares of the Trust at the close of
business on the Record Date will be deemed to constitute a quorum for the
transaction of business at the Meeting.
Any proxy which is properly executed and received in time to be voted at
the Meeting will be counted in determining whether a quorum is present and will
be voted in accordance with the instructions marked thereon. In the absence of
any instruction, such proxy will be voted in favor of the approval of the Plan.
Abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a particular matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will not be counted for or against any proposal to which they relate.
Abstentions will be counted for purposes of determining whether a quorum is
present. Broker non-votes will not be counted for purposes of determining
whether a quorum is present. Because approval of the Plan requires the vote of a
majority of each Acquired Fund's issued and outstanding shares as of the Record
Date, abstentions and broker non-votes will have the effect of a vote against
the proposal to approve the Plan.
The duly appointed Proxies may, in their discretion, vote upon such other
matters as properly may come before the Meeting or any adjournment(s) thereof,
including any proposal to adjourn a meeting, whether or not a quorum is present,
to permit the continued solicitation of proxies in favor of the Reorganization.
In case any such adjournment is proposed with respect to the Plan, the duly
appointed Proxies will vote those proxies required to be voted against the Plan
against adjournment. A shareholder of an Acquired Fund may revoke his or her
proxy at any time prior to its exercise by delivering written notice of
revocation or by executing and delivering a later-dated proxy to the Secretary
of the Trust, at Three Nationwide Plaza, Columbus, Ohio 43215, or by attending
the Meeting in person to vote the shares of the Acquired Funds held by such
shareholder. The date of the first mailing of this Combined Prospectus/Proxy
Statement to shareholders is on or about January 12, 1998.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Funds and the
corresponding Acquiring Funds have substantially similar investment objectives,
and generally have the same investment policies and restrictions, although there
are some differences shareholders should consider.
The Nationwide Growth Fund seeks long-term capital appreciation without
emphasis on current return, and the New Growth Fund seeks long-term capital
appreciation. In order to achieve its objectives, the Nationwide Growth Fund
invests in a common stock portfolio of companies of all sizes.
The Nationwide Growth Fund, in its portfolio selections, seeks to benefit
from both the underlying economic growth of the companies it invests in, plus
improvement in the valuation of the stock. Under normal market conditions, the
New Growth Fund will invest at least 65% of its total assets in equity
securities of companies of
9
<PAGE> 17
all sizes. Equity securities in which the New Growth Fund will invest generally
are common stocks and convertible securities. The Nationwide Growth Fund does
not have such a 65% policy.
For both the Nationwide Growth Fund and the New Growth Fund, major emphasis
in the selection of securities is placed on companies which have capable
management, and are in fields where social and economic trends, technological
developments, and new processes or products indicate a potential for greater
than average growth. Investments may be made in equity securities of many
different companies and industries which provide diversification to help
minimize risk.
Both Nationwide Fund and the New Nationwide Fund seek total return from a
flexible combination of current income and capital appreciation.
In order to achieve this objective, Nationwide Fund invests in securities
which provide a combination of current income and the possibility of capital
gains and seeks to maximize shareholder returns through a diversified portfolio
where the primary emphasis is given to common stocks. Although not limited to
these investments, in the past the majority of Nationwide Fund's portfolio
assets have normally contained the common stocks of well known, larger
companies.
The New Nationwide Fund seeks to maximize shareholder returns through a
diversified portfolio where the primary emphasis is given to common stocks.
Although not limited to these investments, it is anticipated that the majority
of the New Nationwide Fund's portfolio will contain the common stocks of
well-known, larger companies.
Nationwide Bond Fund seeks to generate a high level of income, consistent
with capital preservation, through investment in high-quality bonds and other
fixed-income securities. This is accomplished by retaining maximum flexibility
in the management of its portfolio consisting mainly of corporate debt
instruments. The New Bond Fund seeks as high a level of income as is consistent
with preservation of capital. The New Bond Fund will invest primarily in
fixed-income securities and currently intends to focus on corporate debt
investments and U.S. Government mortgage-backed securities. Under normal market
conditions the dollar-weighted average portfolio maturity of the New Bond Fund
will be intermediate, which is defined by the New Bond Fund as being between six
and ten years.
For Nationwide Bond Fund, major emphasis is placed on a diversified
portfolio of high quality taxable debt securities including corporate debt
securities rated within the three highest rating categories by Standard & Poor's
Corporation ("S&P") (AAA, AA or A) or Moody's Investors Service, Inc.
("Moody's") (Aaa, Aa or A), U.S. and Canadian Government obligations,
mortgage-backed securities, and the highest investment grade commercial paper
rated by Moody's (Prime-1 or Prime-2) or by S&P (A-1 or A-2). The Nationwide
Bond Fund may invest up to 10% of its portfolio in securities rated in the
fourth highest rating category by S&P or Moody's and in unrated securities
determined by NAS to be of comparable quality to rated securities which such
Fund could otherwise acquire.
Under normal market conditions, the New Bond Fund will invest at least 65%
of its total assets in bonds. For purposes of this policy, bonds consist of debt
obligations of all types, including bonds of varying maturities, debentures and
notes. For the New Bond Fund, major emphasis is placed on investment grade
taxable debt securities of the same type as described above for Nationwide Bond
Fund, as well as asset-backed securities and zero coupon securities, except that
the New Bond Fund may also invest without limit in corporate debt securities
rated within the fourth highest rating category by a nationally recognized
statistical rating organization ("NRSRO") (e.g., S&P or Moody's). The ability of
the New Bond Fund to invest in securities within the fourth highest rating
category without limit is much broader than that of the Nationwide Bond Fund and
therefore may increase the New Bond Fund's exposure to the risks of investing in
medium-grade securities. For further information regarding medium-grade
securities see "SPECIAL CONSIDERATIONS AND RISK FACTORS -- Medium-Grade
Securities" below.
Nationwide Money Market Fund seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity,
through investment in a diversified portfolio of high-quality money market
instruments maturing in 397 days or less. The New Money Market Fund seeks as
high a level of current income as is consistent with the preservation of capital
and maintenance of liquidity. Each Fund invests in
10
<PAGE> 18
high-quality money market instruments maturing in 397 days or less. Although
principal is not intended to fluctuate, there can be no assurance that either
Nationwide Money Market Fund or the New Money Market Fund will be able to
maintain a stable net asset value of $1.00 per share.
For a more in-depth discussion of the differences between the investment
policies and restrictions of the Acquired Funds and the corresponding Acquiring
Funds, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS"
below.
FEES AND EXPENSES. Each of the Acquired Funds pays an investment advisory
and management fee, computed daily and paid monthly, at the annual rate of 0.50%
of the value of its average daily net assets to NAS, the Trust's investment
adviser. NAS has in the past and may from time to time in the future waive all
or a portion of the investment advisory fees payable to it by an Acquired Fund.
Currently with respect to Nationwide Money Market Fund, NAS has voluntarily
reduced its investment advisory fees to 0.45%. In addition, for fund accounting
services, the Acquired Funds pay NAS a total annual fee of $48,000. Nationwide
Investors Services, Inc., a wholly owned subsidiary of NAS ("NISI"), serves as
transfer agent for each of the Acquired Funds and receives a fee from those
Funds equal to: $16 per account for the Growth Fund and the Nationwide Fund; $18
per account for the Bond Fund; and $27 per account for the Money Market Fund.
With respect to the Acquiring Funds, NAS also provides investment advisory
services to those Funds for a fee computed daily and paid monthly at the
following annual rates: for each of the New Growth Fund and the New Nationwide
Fund, 0.60% of such Fund's average net assets up to $250 million, 0.575% of such
Fund's average net assets of $250 million up to $1 billion, 0.55% of such Fund's
average net assets of $1 billion up to $2 billion, 0.525% of such Fund's average
net assets of $2 billion up to $5 billion, and 0.50% of such Fund's average net
assets of $5 billion or more; for the New Bond Fund, 0.50% of such Fund's
average net assets up to $250 million, 0.475% of such Fund's average net assets
of $250 million up to $1 billion, 0.45% of such Fund's average net assets of $1
billion up to $2 billion, 0.425% of such Fund's average net assets of $2 billion
up to $5 billion, and 0.40% of such Fund's average net assets of $5 billion or
more; and for the New Money Market Fund, 0.40% of such Fund's average net assets
up to $1 billion, 0.38% of such Fund's average net assets of $1 billion up to $2
billion, 0.36% of such Fund's average net assets of $2 billion up to $5 billion,
and 0.34% of such Fund's average net assets of $5 billion or more. Each of the
Acquiring Funds also pays NAS an administration and fund accounting fee of 0.07%
of such Fund's average net assets up to $250 million; 0.05% of such Fund's
average net assets of $250 million up to $1 billion; and 0.04% of such Fund's
average net assets of $1 billion or more. Finally, the Acquiring Funds pay an
annual fee to NISI for transfer agency services equal to: $16 per account for
the New Growth Fund and the New Nationwide Fund; $18 per account for the New
Bond Fund; and $27 per account for the New Money Market Fund.
Shares of each of the Acquired Funds and the Acquiring Funds are
distributed by NAS, a registered broker-dealer. None of the Acquired Funds, the
New Money Market Fund or the Class D shares of the other Acquiring Funds pays
any distribution fees or expenses.
The expense ratios of the Acquiring Funds subsequent to the Reorganization
are expected to be higher than that of the corresponding Acquired Fund. See "THE
PROPOSED TRANSACTION -- Reasons for the Proposed Transaction." The chart below
compares the total annual operating expenses (as a percent of average net
assets) of each Acquired Fund for the fiscal year ended October 31, 1997, to the
estimated total annual operating
11
<PAGE> 19
expenses (as a percent of average net assets) of the corresponding Acquiring
Fund for the fiscal year ending October 31, 1998, assuming the same level of net
assets for such Acquiring Fund after the Reorganization:
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Nationwide Growth Fund New Growth Fund
0.64% 0.78%
Nationwide Fund New Nationwide Fund
0.60% 0.72%
Nationwide Bond Fund New Bond Fund
0.72% 0.79%
Nationwide Money Market Fund New Money Market Fund
0.59%* 0.60%
</TABLE>
- ---------------
* Reflects NAS' current investment advisory fee waiver from 0.50% to 0.45% of
Nationwide Money Market Fund's average daily net assets.
For further information regarding the expense ratios of each of the
Acquiring and Acquired Funds, see "SUMMARY -- Comparative Expense Information"
above.
COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES. Shares of each
of the Acquired and Acquiring Funds are offered through NAS as principal
underwriter. Net asset value of each Fund is determined as of the close of
regular trading on the New York Stock Exchange (usually 4 p.m. Eastern Time)
each day that the exchange is open and on such other days as the Board of
Trustees determines and on days in which there is sufficient trading in the
portfolio securities of a Fund to affect materially the net asset value of that
Fund. The minimum initial investment in Nationwide Growth Fund, Nationwide Fund
and Nationwide Bond Fund and, for shareholders who receive Acquiring Fund Shares
in connection with the Reorganization, in the New Growth Fund, the New
Nationwide Fund and the New Bond Fund is $250 (although such minimum is lowered
for investments made through certain plans) and the minimum subsequent
investment is $25. The minimum initial investment in Nationwide Money Market
Fund and the New Money Market Fund and, for shareholders who did not receive
Acquiring Fund Shares in connection with the Reorganization, in any other
Acquiring Fund is $1,000 (although such minimum is lowered for investments made
through certain plans) and the minimum subsequent investment is $100.
Shares of the Nationwide Money Market Fund and the New Money Market Fund
are offered at net asset value without any sales charge. A sales charge is
imposed upon the sale of both the shares of the other Acquired Funds and the
Class D shares of the New Growth Fund, the New Nationwide Fund and the New Bond
Fund equal to 4.5% of the public offering price (4.71% of the net amount
invested). The sales charge for such Acquired Funds is reduced on investments of
$50,000 or more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF THE AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION NET AMOUNT INVESTED OF OFFERING PRICE
- --------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Less than $50,000........................................ 4.71% 4.5%
$50,000 but less than $100,000........................... 4.17 4.0
$100,000 but less than $250,000.......................... 3.09 3.0
$250,000 but less than $500,000.......................... 2.04 2.0
$500,000 but less than $1,000,000........................ 1.01 1.0
$1,000,000 but less than $5,000,000...................... 0.25 0.25
$5,000,000 or more....................................... 0.00 0.0
</TABLE>
12
<PAGE> 20
The sales charge on sales of Class D shares of the New Growth Fund, the New
Nationwide Fund and the New Bond Fund is reduced on investments of $100,000 or
more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF THE AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION NET AMOUNT INVESTED OF OFFERING PRICE
- --------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Less than $100,000....................................... 4.71% 4.5%
$100,000 but less than $250,000.......................... 3.63 3.5
$250,000 but less than $500,000.......................... 2.56 2.5
$500,000 but less than $1,000,000........................ 1.52 1.5
$1,000,000 or more....................................... 0.5 0.5
</TABLE>
NO FRONT END SALES CHARGE WILL BE IMPOSED ON ACQUIRING FUND SHARES RECEIVED IN
CONNECTION WITH THE REORGANIZATION.
With respect to the shares of each of the Acquired Funds and the Acquiring
Fund Shares of the Acquiring Funds, there is no sales charge imposed upon the
reinvestment of dividends and distributions. The front end sales charge on
shares of the Nationwide Growth Fund, the Nationwide Fund and the Nationwide
Bond Fund and on Class D shares of the New Growth Fund, the New Nationwide Fund
and the New Bond Fund may be waived under certain specified conditions.
Redemption orders for shares of both the Acquired Funds and the Acquiring
Funds must be placed with NAS. Investors may redeem shares of the Acquired Funds
or the Acquiring Funds at the net asset value per share next determined
following the receipt by NAS of a properly completed redemption request. Such
requests may either be made by telephone, by mail or by fax. For the Nationwide
Money Market Fund and the New Money Market Fund, redemptions may also be made by
check.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of the Nationwide Growth Fund,
the Nationwide Fund and the Nationwide Bond Fund may be exchanged among any of
the Nationwide's Family of Funds without sales charge. Shares of the Nationwide
Money Market Fund may be exchanged for shares of any Acquired Fund upon payment
of the applicable sales charge, unless a sales charge has already been paid for
shares subsequently exchanged for Money Market Fund shares.
Class D shares of an Acquiring Fund may generally be exchangeable without a
sales charge for Class D shares of any other Acquiring Fund or other fund of the
New Trust which offers Class D shares or for shares of the New Money Market
Fund. Shares of the New Money Market Fund may be exchanged for shares of any
other fund of the New Trust, including the Acquiring Funds, upon payment of the
applicable sales charge, unless a sales charge has already been paid for shares
subsequently exchanged for New Money Market Fund shares.
COMPARISON OF DIVIDEND POLICIES. Each of the Nationwide Growth Fund, the
New Growth Fund, the Nationwide Fund and the New Nationwide Fund declare
dividends of net investment income quarterly and pay such dividends quarterly.
Each of the Nationwide Bond Fund, the New Bond Fund, the Nationwide Money Market
Fund and the New Money Market Fund declare dividends of net investment income
daily and pay such dividends monthly. Each of the Acquired Funds and Acquiring
Funds will distribute any capital gains at least annually. In addition,
shareholders of the Acquired Funds and the Acquiring Funds receive dividends and
distributions in the form of additional shares and not in cash unless otherwise
requested by the shareholder and such dividends and distributions are of $5 or
more each.
COMPARISON OF VOTING RIGHTS. Each shareholder of an Acquired Fund and of
an Acquiring Fund is entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held on each matter
submitted to the vote of such Fund's shareholders, regardless of the net asset
value of such share.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies and strategies of each Acquired
Fund and the corresponding Acquiring Fund are substantially similar, the overall
level of investment risk should not materially change as a
13
<PAGE> 21
result of the Reorganization. However, in some cases an Acquiring Fund may
invest in certain securities or instruments in which the corresponding Acquired
Fund may not invest. There can be no assurance that any Acquired Fund or
Acquiring Fund will achieve its investment objectives.
The following discussion is qualified in its entirety by the disclosure set
forth in the Acquiring Funds' Prospectus accompanying this Combined
Prospectus/Proxy Statement and the Acquired Funds' Prospectus. For additional
information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
An investment in any of the Acquired Funds or the Acquiring Funds (except
for Nationwide Money Market Fund and the New Money Market Fund) involves the
risk that the net asset value of such Fund's shares will fluctuate in response
to changes in economic conditions, interest rates, and the market's perception
of the securities held by such Fund. An investment in Nationwide Growth Fund,
the New Growth Fund, Nationwide Fund and the New Nationwide Fund is subject to
stock market risk, which means that such an investment is subject to the risk
that stock prices in general will decline over short or extended periods of
time. Equity securities of companies with smaller capitalizations generally are
more volatile in price and may be less liquid than similar equity securities of
larger capitalized companies.
An investment in Nationwide Bond Fund and the New Bond Fund is subject to
bond market risk, i.e., the risk that the market price of bonds in general will
fluctuate. Bond prices fluctuate largely in response to changes in the level of
interest rate. When interest rates rise, bond prices generally fall; conversely,
when interest rates fall, bond prices generally rise. Although the fluctuation
in the price of bonds is normally less than that of common stocks, in the past
there have been extended periods of cyclical increases in interest rates 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 the shares of the Nationwide
Bond Fund and the New Bond Fund may also be affected by the market's perception
of changes in an issuer's credit risk. As perceived credit risk increases, the
value of a specific security generally decreases, and the converse is also true.
Warrants. Each of the New Growth Fund and the New Nationwide Fund may
invest in warrants. A warrant is an instrument which gives the holder the right
to subscribe to a specified amount of the issuer's securities at a set price for
a specified period of time or on a specified date. Warrants do not carry the
right to dividends or voting rights with respect to their underlying securities
and do not represent any rights in assets of the issuer. An investment in
warrants may be considered speculative. In addition, the value of a warrant does
not necessarily change with the value of the underlying securities, and a
warrant ceases to have value if it is not exercised prior to its expiration
date.
Convertible Securities. Each of the Nationwide Growth Fund, the New Growth
Fund, the Nationwide Fund and the New Nationwide Fund may invest in convertible
securities, which are bonds, debentures, notes, preferred stocks or other
securities that may be converted into or exchanged for a specified amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities have general
characteristics similar to both debt obligations and equity securities. Although
to a lesser extent than with debt obligations generally, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock and
therefore will 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 investment in common
stock of the same issuer.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all debt obligations, there can be no assurance
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of current income because the issuers of the convertible securities may default
on their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of similar quality
because of the potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to benefit
from increases in the market price of the underlying common stock. There can be
no assurance of capital appreciation, however, because the market value of
securities will fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically are rated below investment grade or are not rated. Each of
the New Growth Fund and the New Nationwide Fund will limit its investment in
convertible securities rated below investment grade to less than 5% of its net
assets.
Repurchase Agreements. Each of the Acquired Funds and the Acquiring Funds
may engage in repurchase agreement transactions as long as the underlying
securities are of the type that the Fund would be permitted to purchase
directly. Under the terms of a typical repurchase agreement, a Fund would
acquire an underlying security for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and the
Fund to resell, the obligation at an agreed upon price and time, thereby
determining the yield during the Fund's holding period. The Funds will enter
into repurchase agreements with member banks of the Federal Reserve System or
certain non-bank dealers. Under each repurchase agreement the selling
institution will be required to maintain the value of the securities subject to
the repurchase agreement at not less than their repurchase price (including
interest). Repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon a Fund's ability to dispose of the underlying securities. NAS,
acting under the supervision of such Trust's Board of Trustees, reviews the
creditworthiness of those banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate these risks.
Investment Companies. As permitted by the 1940 Act, each Acquiring Fund
may invest up to 10% of its total assets, calculated at the time of investment,
in the securities of other investment companies. No more than 5% of an Acquiring
Fund's total assets may be invested in the securities of any one investment
company nor may it acquire more than 3% of the voting securities of any other
investment company. Each Acquiring Fund will indirectly bear its proportionate
share of any management fees paid by an investment company in which it invests
in addition to the advisory fee paid by such Acquiring Fund.
When-Issued Securities. Each of the Acquiring Funds may invest without
limitation in securities purchased on a when-issued or delayed delivery basis.
Although the payment and terms of these securities are established at the time
the Acquiring Fund enters into the commitment, these securities may be delivered
and paid for at a future date, generally within 45 days; for mortgage-backed
securities, the delivery date may extend as long as 120 days. Purchasing
when-issued securities allows an Acquiring Fund to lock in a fixed price or
yield on a security it intends to purchase. However, when the Acquiring Fund
purchases a when-issued security, it immediately assumes the risk of ownership,
including the risk of price fluctuation until the settlement date.
The greater an Acquiring Fund's outstanding commitments for these
securities, the greater the exposure to potential fluctuations in the net asset
value of that Acquiring Fund. Purchasing securities on a when-issued basis may
involve the additional risk that the yield available in the market when the
delivery occurs may be higher or the market price lower than that obtained at
the time of commitment. Although an Acquiring Fund may be able to sell these
securities prior to the delivery date, it will purchase when-issued securities
for the purpose of actually acquiring the securities, unless after entering into
the commitment a sale appears desirable for investment reasons. The Acquiring
Funds will set aside liquid assets in a segregated account to secure its
outstanding commitments for when-issued securities.
Floating and Variable Rate Obligations. The New Bond Fund and the New
Money Market Fund may each invest in floating and variable rate obligations.
Variable or floating rate obligations bear interest at rates that are not fixed,
but vary with changes in specified market rates or indices, such as the prime
rate, and at specified intervals. Interest rates on floating rate obligations
vary with changes in an underlying index whenever such index
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changes, 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 such 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 credit risks, like other debt
instruments, but because the issuer may call the obligations, such 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 such 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 New Bond Fund and the New Money Market
Fund will each limit its purchase of floating and variable rate obligations to
those of the same quality as it otherwise is allowed to purchase. NAS will
monitor on an ongoing basis the ability of an issuer of a demand instrument to
pay principal and interest on demand.
Although there may be no active secondary market with respect to a
particular variable or floating rate obligation purchased by these Funds, such
Funds may attempt to resell the obligation at any time to a third party. The
absence of an active secondary market, however, could make it difficult for the
Fund to dispose of a variable or floating rate obligation in the event the
issuer of the obligation defaulted on its payment obligation, and the Fund
would, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate obligations may be secured by bank letters of
credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value or amortized cost, as the case may be.
Variable and floating rate obligations for which no readily available
market exists and which are not subject to a demand feature that will permit
such a Fund to receive payment of the principal within seven days after demand
by that Fund, will be considered illiquid and therefore, together with other
illiquid securities held by such Fund, will not exceed such Fund's limitation on
investments in illiquid securities.
Medium-Grade Securities. Each of the Nationwide Bond Fund and the New Bond
Fund may invest in medium-grade 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, such Fund should take consistent with its investment objective; there is
no requirement that such a Fund sell such downgraded securities.
U.S. Government Securities. As discussed above, each of the Acquiring and
the Acquired Funds may invest in securities which are issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. Securities issued by
the U.S. Government include U.S. Treasury obligations, such as Treasury bills,
notes, and bonds. Securities issued by 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"); and 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. Each of the New Money Market Fund and the
New Bond Fund may invest in Treasury securities that have been stripped of their
unmatured interest coupons (which typically provide for
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interest payments semi-annually); interest coupons that have been stripped from
such U.S. Treasury securities; and 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 securities and does not receive any
rights to periodic interest payments on the security.
Mortgage- and Asset-Backed Securities. Nationwide Bond Fund and the New
Bond Fund may purchase mortgage-backed securities. The New Bond Fund may also
invest in asset-backed securities. Mortgage-backed securities represent direct
or indirect participation in, or are secured by and payable from, mortgage loans
secured by real property, and include single- and multi-class pass-through
securities and collateralized mortgage-backed obligations ("CMOs"). Such
securities may be issued or guaranteed by the U.S. Government, and its agencies
or instrumentalities or by private issuers, generally originators of or
investors in mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, investment banks, and special purpose entities
(collectively, "private lenders"). The underlying mortgage assets may have fixed
rates or adjustable rates of interest. Mortgage-backed securities in which these
Funds may invest include both fixed-rate and adjustable-rate mortgage-backed
securities.
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- 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 and other assets generally may be
prepaid at any time. As a result, if a Fund purchases these securities at a
premium, a prepayment rate that is higher than expected will reduce yield, while
a prepayment rate that is lower than expected will have the opposite effect of
increasing the yield. Conversely, if a Fund purchases these securities at a
discount, a prepayment rate that is faster than expected will increase yield,
while a prepayment rate that is slower than expected will reduce yield.
Accelerated prepayments on securities purchased by the Bond Fund at a premium
also impose a risk of loss of principal because the premium may not have been
fully amortized by the time the principal is prepaid in full.
Unlike fixed rate mortgage-backed securities, adjustable rate
mortgage-backed securities are collateralized by or represent interests in
mortgage loans with variable rates of interest. These variable rates of interest
reset periodically to align themselves with market rates. The New Bond Fund will
not benefit from increases in interest rates to the extent that interest rates
rise to the point where they cause the current coupon of the underlying
adjustable rate mortgages to exceed any maximum allowable annual or lifetime
reset limits (or "cap rates") for a particular mortgage. In this event, the
value of the adjustable rate mortgage-backed securities in the Fund would likely
decrease. Also, the New Bond Fund's net asset value could vary to the extent
that current yields on adjustable rate mortgage-backed securities are different
than market yields during interim periods between coupon reset dates or if the
timing of changes to the index upon which the rate for the underlying mortgage
is based lags behind changes in market rates. During periods of declining
interest rates, income to the New Bond Fund derived from adjustable rate
mortgages which remain in a mortgage pool will decrease in contrast to the
income on fixed rate mortgages, which will remain constant. Adjustable rate
mortgages also have less potential for appreciation in value as interest rates
decline than do fixed rate investments.
The New Bond Fund may purchase mortgage-backed securities issued by private
issuers, and therefore, the purchase of such securities may entail greater risk
than mortgage-backed securities that are guaranteed by the
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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 New Bond Fund may also acquire
CMOs and stripped mortgage-backed securities. CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively referred to as "Mortgage Assets"). Payments of principal
or interest on the Mortgage Assets, and any reinvestment income thereon, provide
the income to pay debt service on the CMOs. CMOs purchased by the New Bond Fund
will be issued by agencies or instrumentalities of the U.S. Government 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
"POs" (principal only securities) receive the principal portion. Stripped
mortgage-backed securities in which the New Bond Fund may invest are issued by
U.S. Government agencies or by private 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.
The New Bond Fund may purchase stripped mortgage-backed securities for
hedging purposes to protect that Fund against interest rate fluctuations. For
example, since an IO will tend to increase in value as interest rates
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rise, it may be utilized to hedge against a decrease in value of other
fixed-income securities in a rising interest rate environment. If the New Bond
Fund purchases a mortgage-related security at a premium, all or part of the
premium may be lost if there is a decline in the market value of the security,
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. With respect to IOs, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the New
Bond Fund may fail to recoup fully its initial investment in these securities
even if the securities are rated in the highest rating category by an NRSRO.
Stripped mortgage-backed securities may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The market value of the class consisting
entirely of principal payments can be extremely volatile in response to changes
in interest rates. The yields on stripped mortgage-backed securities that
receive all or most of the interest are generally higher than prevailing market
yields on other mortgage-backed obligations because their cash flow patterns are
also volatile and there is a greater risk that the initial investment will not
be fully recouped. No more than 10% of the New Bond Fund's total assets will be
invested in IOs and in POs. The market for CMOs and other stripped
mortgage-backed securities may be less liquid if these securities lose value as
a result of changes in interest rates; in such instance, the New Bond Fund may
have difficulty selling such securities.
Zero Coupon Securities. The New Bond Fund may invest in zero coupon
securities. Zero coupon securities are debt securities that pay no cash income
but are sold at substantial discounts from their value at maturity. When a zero
coupon security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Certain
zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. Zero coupon securities may have conversion features.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.
Current federal income tax law requires the holder of a zero coupon
security to accrue income with respect to these securities prior to the receipt
of cash payments. Accordingly, to avoid liability for federal income and excise
taxes, the New Bond Fund may be required to distribute income accrued with
respect tot these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Canadian and Provincial Obligations. Nationwide Money Market Fund and the
New Money Market Fund may each invest in Canadian and Provincial obligations.
Such obligations are unsecured, discounted bills and notes that are issued in
U.S. currency. Obligations have a final maturity of 270 days or less from date
of issue and are exempt from registration under Section 3(a)(3) of the
Securities Act of 1933, as amended. Canada Bills constitute direct,
unconditional obligations or Her Majesty in right of Canada and are a direct
charge on and payable out of the Consolidated Revenue Fund of Canada. Export
Development Company and Canadian Wheat Board are crown corporations and agents
of Her Majesty in right of Canada. Provincial obligations are backed by the full
faith and credit of the provincial governments.
Lending Portfolio Securities. From time to time, each of the Acquiring
Funds may lend their portfolio securities to brokers, dealers and other
financial institutions who need to borrow securities to complete certain
transactions. In connection with such loans, an Acquiring Fund will receive
collateral consisting of cash, U.S. Government securities or irrevocable letters
of credit. Such collateral will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. An Acquiring
Fund can increase its income through the investment of such collateral and
continues to be entitled to payments in amounts equal to the interest, dividends
or other distributions payable on the loaned security and receives interest on
the
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amount of the loan. Such loans will be terminable at any time upon specified
notice. An Acquiring Fund might experience risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement with
the Acquiring Fund.
Derivative Instruments. NAS may use a variety of derivative instruments,
including options, futures contracts ("futures"), options on futures, stock
index options and forward currency contracts to hedge the New Growth Fund's and
the New Nationwide Fund's portfolio or for risk management. Derivatives are
financial instruments whose value and performance are based on the value and
performance of another security, financial instrument or index.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION. The Plan provides that all of the
assets of each Acquired Fund as of the Exchange Date (as defined in the Plan)
will be transferred to the corresponding Acquiring Fund in exchange for
Acquiring Fund Shares of the Acquiring Fund and the assumption by the Acquiring
Fund of all of the liabilities of the Acquired Fund. The Exchange Date is
expected to be on or about March 1, 1998; subject, however, to the receipt by
the Trust and the New Trust of any necessary order of exemption from the
Commission with respect to the Reorganization. A copy of the Plan is attached as
Exhibit A to this Combined Prospectus/Proxy Statement. Although portions of the
Plan are summarized below, this summary is qualified in its entirety by
reference to the Plan.
Promptly after the Exchange Date, each Acquired Fund will distribute the
Acquiring Fund Shares of the corresponding Acquiring Fund to the Acquired Fund's
shareholders of record as of 9:00 a.m. on the Exchange Date. The Acquiring Fund
Shares which will be issued for distribution to each Acquired Fund's
shareholders will be equal in aggregate value to the shares of the corresponding
Acquired Fund held as of the Valuation Time (as defined in the Plan). All issued
and outstanding shares of the Acquired Funds will be cancelled on the Trust's
books and any certificates representing such shares will no longer be valid.
Acquiring Fund Shares will be represented only by book entries; no share
certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of each of the Acquired Funds. The Plan also may be terminated and the
Reorganization abandoned by the Acquired Funds and the Acquiring Funds by mutual
consent of their respective trustees.
The Reorganization will not be completed unless the Trust and the New Trust
obtain opinions of counsel to the effect that the Reorganization constitutes a
tax-free reorganization for Federal income tax purposes and any necessary
written order of exemption from the Commission exempting the Reorganization from
the provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a
party in connection with the Plan will be paid by the party directly incurring
such costs. NAS will pay 50% of the costs associated with the Reorganization,
including 50% of the costs associated with this proxy solicitation. Each
Acquiring Fund will bear its own organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders and the Reorganization is
consummated, all shareholders of the Acquired Funds (as of 9:00 a.m. on the
Exchange Date) including those that voted against the approval of the Plan, will
receive Acquiring Fund Shares of the corresponding Acquiring Funds. All
shareholders of the Acquired Funds have the right at any time up to the next
business day preceding the Exchange Date to redeem their shares at net asset
value according to the procedures set forth in the Acquired Funds' Prospectus.
This summary does not purport to be a complete description of the Plan and
is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in 1933. The New Trust was organized as
a series investment company as of October 30, 1997, and on November 7, 1997, its
Board of Trustees created the Acquiring Funds with substantially similar
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investment objectives and policies and generally similar restrictions to those
of the Acquired Funds. Because of the similarity between the Acquired Funds and
the Acquiring Funds, the considerations and risks involved with an investment in
an Acquiring Fund are expected to be comparable to those associated with an
investment in the corresponding Acquired Fund. Each Acquiring Fund has been
established for purposes of effecting the Reorganization and will not commence
operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for its consideration at a meeting held on November 7,
1997. The Board of Trustees of the Trust concluded unanimously that the
Reorganization is in the best interests of the Trust, the Acquired Funds and
their shareholders and that the interests of the existing shareholders of the
Acquired Funds will not be diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Acquired Funds and the
Trust and the proposed costs of the Acquiring Funds and the New Trust, as
provided by NAS, in light of their substantially similar investment objectives,
policies, restrictions, Boards of Trustees, officers and service providers. The
Trust's Board also considered the operating and compliance efficiencies that
could result from moving the operation of the Acquired Funds from the Trust to
corresponding separate portfolios of the New Trust, which has been organized
under a more flexible and modern declaration of trust. The investment
restrictions of the Acquiring Funds which were approved by the Board of Trustees
of the New Trust vary somewhat from the investment restrictions of the Acquired
Funds; however, such differences reflect a more uniform and flexible set of
investment restrictions that will be in place for each of the other series or
portfolios of the New Trust. Such restrictions were approved to help achieve
greater compliance efficiencies by having each series of the New Trust have the
same or substantially similar investment restrictions.
One of the operating efficiencies expected is that certain fixed costs
associated with the operation of the Acquired Funds and the Trust when incurred
by the New Trust and the Acquiring Funds would decrease on a per share basis
since such costs would be spread over a larger pool of assets, e.g., certain
professional and regulatory fees and printing costs.
In particular, the Trust's Board considered the anticipated expense ratios
of the Acquiring Funds, the structure of the New Trust, including the provision
for multiple classes of shares, the experience of the service providers of the
Acquiring Funds and the level of service to be provided to the shareholders of
the Acquiring Funds, as represented by NAS, including the greater resources that
could be dedicated to managing the Acquiring Funds and providing administrative
and compliance services.
The Trust's Board also considered the higher fees charged to the Acquiring
Funds compared to those of the Acquired Funds. During its review of the fees for
the Acquiring Funds, the Trust's Board considered the following factors, among
others: (1) the nature, scope and quality of the services provided by NAS, (2)
the costs incurred and revenues generated by NAS in rendering such services, (3)
NAS' profitability from its mutual fund activities, (4) the compensation paid to
investment advisers of mutual funds with similar investment objectives and
policies and asset sizes, (5) the quality of personnel at NAS, (6) comparative
expense and performance information, (7) pro forma expense ratios based upon the
proposed level of investment advisory and administration fees, (8) the need to
provide NAS with adequate financial incentives to maintain and improve its
services, and (9) NAS' planned and proposed additional expenditures in the area
of fund administration and investment advisory services.
More specifically, the Trust's Board considered the significant increases
in expenses that NAS will experience in connection with the management of the
New Growth Fund and the New Nationwide Fund and in the general administration
and fund accounting for each of the Acquiring Funds and the fact that the total
expense ratios for each of the Acquiring Funds would continue to be at least 23%
lower than the average for comparable mutual funds according to data from Lipper
Analytical Services, Inc. as of September 30, 1997. The Board of the Trust and
the New Trust also determined that the proposed breakpoints in the Acquiring
Funds' fees would allow shareholders of the Acquiring Funds to benefit from
certain economies of scale as a Fund's assets grow.
In reaching its conclusion to approve the higher investment advisory fees
for the New Growth Fund and the New Nationwide Fund, the Board determined that
the increased fees were necessary for NAS to maintain high-quality services to
those Funds, especially in today's competitive environment where there are
strong pressures to
21
<PAGE> 29
attract and retain qualified professionals and to dedicate greater resources to
the management of funds that invest in equity securities. In determining to
break out the administrative services provided to each of the Funds and to
charge a separate fee for such services, the Board specifically considered the
increased costs of improved technology and the need to maintain high quality
compliance and administrative services.
With respect to the New Bond Fund and the New Money Market Fund, while the
administrative and fund accounting services for those Funds will be performed
under a separate fund administration agreement, for which NAS will receive a
separate fee, the investment advisory fees to be paid to NAS, (i) for the New
Bond Fund at the initial level are the same as those paid by Nationwide Bond
Fund, and (ii) for the New Money Market Fund, are lower that those paid by the
Nationwide Money Market Fund. In addition, each Acquiring Fund will receive the
benefit of breakpoints in its investment advisory fees at certain asset levels
which will cause that Acquiring Fund's overall investment advisory expenses, as
a percentage of such Fund's assets, to decline as such Acquiring Fund's assets
grow. And with respect to each Fund, the Board of the Trust and the New Trust
determined that based on the Acquiring Funds' performance and the level of the
proposed fees and total expense ratios relative to comparable funds, the
proposed changes were reasonable and in the best interests of each Acquiring
Fund and of its shareholders subsequent to the Reorganization.
The Board of Trustees of the Trust based its decision to approve the
proposed transaction upon its consideration of a number of factors, including,
among other things:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
(2) the similarity of the Acquired Funds' investment objectives,
strategies and policies with those of the corresponding Acquiring Funds, as
well as the views of NAS that any differences between the investment
policies and restrictions of the Acquired Funds and their corresponding
Acquiring Fund should not materially increase investment risks;
(3) the experience and resources of NAS with respect to providing
investment management services, and the experience of and quality of
services to be provided by the Acquiring Funds' other service providers;
(4) the projected expense ratios and information regarding fees and
expenses of each Acquiring Fund, each Acquired Fund and other similar funds
and the services being offered to shareholders and the fact that the
overall expense ratio for each Acquired Fund will be as least 23% lower
than the median expense ratio of its peer group of mutual funds;
(5) the increased fees being necessary to maintain high-quality
services, especially in today's competitive environment where there are
strong pressures to attract and retain qualified professionals and to
dedicate greater resources to the management of funds that invest in equity
securities and to improved technology;
(6) the continuity of the portfolio managers for the Acquired Funds;
(7) the conditioning of the Reorganization on the receipt of legal
opinions confirming the absence of any adverse federal tax consequences to
the Acquired Funds or their shareholders resulting from the Reorganization;
and
(8) other factors as it deemed relevant.
In particular, the Board considered the per share operating expense ratios
(total annual operating expenses expressed as a percentage of average net
assets) for shares of the Acquired Funds and as estimated for the Acquiring
Funds. The following are the per share operating expense ratios for shares of
the Acquired Funds for the year ended October 31, 1997, and as estimated for the
Acquiring Fund Shares of the corresponding Acquiring
22
<PAGE> 30
Funds for the period following the effective date of the Reorganization and
ending October 31, 1998, after giving effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<S> <C>
ACQUIRED FUND ACQUIRING FUND
Nationwide Growth Fund New Growth Fund
0.64% 0.78%
Nationwide Fund New Nationwide Fund
0.60% 0.72%
Nationwide Bond Fund New Bond Fund
0.72% 0.79%
Nationwide Money Market Fund New Money Market Fund
0.59%* 0.60%
</TABLE>
- ---------------
* Reflects the current investment advisory fee waiver of NAS from an annual
rate of 0.50% to 0.45% of Nationwide Money Market Fund's average daily
net assets.
For further information regarding the expense ratios of each of the
Acquiring and Acquired Funds, see "SUMMARY-- Comparative Expense Information"
above.
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in each Acquiring
Fund is represented by units of beneficial interest, without par value, of
Nationwide Investing Foundation III, which is an open-end investment company of
the management type, organized as an Ohio business trust as of October 30, 1997.
The Acquiring Funds are currently four of nine separate series of the New Trust.
Like the Acquired Funds, each Acquiring Fund is diversified, as that term is
defined in the 1940 Act. There is only one class of shares for the Acquired
Funds. The New Money Market Fund of the New Trust offers only one class of
shares, which is without designation. However, each of the Acquiring Funds,
other than the New Money Market Fund, is expected to offer at least three
classes of shares -- Class A, Class B and Class D shares. Class A shares of the
New Trust will be sold with a front-end sales load and pay expenses pursuant to
a Rule 12b-1 plan. Class B shares of the New Trust will be subject to a
contingent deferred sales charge, will be sold without imposition of a front-end
sales load and will pay expenses pursuant to a Rule 12b-1 plan. Class D shares
will be sold with a front-end sales load but will not be subject to a Rule 12b-1
Plan. Except for Rule 12b-1 fees, Class A, Class B and Class D shares of the New
Trust will generally bear the same expenses.
All shareholders of an Acquiring Fund, regardless of class, will generally
vote on the same issues and in the aggregate with respect to matters submitted
to the shareholders of that Fund for their approval as a Fund. However, holders
of one class of shares of an Acquiring Fund will vote as a class and not with
holders of any other class of shares with respect to its respective Rule 12b-1
Plan, if any. The Acquiring Fund Shares which shareholders of the Acquired Funds
will receive pursuant to the Reorganization do not have a Rule 12b-1 Plan.
Shareholders of an Acquiring Fund are entitled to one vote for each share held
and a proportionate fractional vote for any fraction of a share held. See
"ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the New Trust must receive favorable opinions from
Baker & Hostetler LLP substantially to the effect that, for Federal income tax
purposes: (a) the Reorganization will constitute a "tax-free" reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) no gain or loss will be recognized by the Acquiring
Funds or the Acquired Funds as a result of the Reorganization; (c) no gain or
loss will be recognized by shareholders of the Acquired Funds upon the exchange
of their shares of the Acquired
23
<PAGE> 31
Funds for Acquiring Fund Shares of the corresponding Acquiring Funds; (d) the
tax basis of the Acquiring Fund Shares received by shareholders of the Acquired
Funds pursuant to the Reorganization will be the same as the basis of the shares
of the corresponding Acquired Fund held immediately prior to the Reorganization;
(e) the holding period of the Acquiring Funds Shares so received will include
the period during which the Acquired Fund shareholder held shares of the
Acquired Fund, provided such shares were held as a capital asset; (f) the tax
basis of each Acquired Fund's assets acquired by the corresponding Acquiring
Fund will be the same as the basis of such assets immediately prior to the
Reorganization; and (g) the holding period of such assets will include the
period during which those assets were held by the Acquired Fund.
Such opinions are not the equivalent of a ruling from the Internal Revenue
Service and may, upon audit, be challenged by the Internal Revenue Service. The
Acquiring Funds and the Acquired Funds do not intend to seek a private letter
ruling with respect to the tax effects of the Reorganization.
CAPITALIZATION. The following table shows the capitalization both of the
Acquired Funds as of October 31, 1997, and of the corresponding Acquiring Fund
on a pro forma basis. The pro forma financial information giving effect to the
Reorganization provided below is the same as the corresponding Acquired Fund
because, except for certain organizational activities, the Acquiring Funds have
no and will have no assets or liabilities, and will not commence operations,
prior to the consummation of the Reorganization.
<TABLE>
<S> <C>
NATIONWIDE GROWTH FUND/NEW GROWTH FUND*
Net assets................................................................. $ 818,124,115
Shares outstanding......................................................... 50,125,860
Net asset value per share.................................................. $ 16.32
NATIONWIDE FUND/NEW NATIONWIDE FUND*
Net assets................................................................. $1,448,421,904
Shares outstanding......................................................... 54,513,873
Net asset value per share.................................................. $ 26.57
THE NATIONWIDE BOND FUND/NEW BOND FUND*
Net assets................................................................. $ 124,404,412
Shares outstanding......................................................... 13,109,316
Net asset value per share.................................................. $ 9.49
NATIONWIDE MONEY MARKET FUND/NEW MONEY MARKET FUND*
Net assets................................................................. $ 820,657,405
Shares outstanding......................................................... 820,657,237
Net asset value per share.................................................. $ 1.00
</TABLE>
- ---------------
* The capitalization information for each of the Acquiring Funds is
provided on a pro forma basis; that is, what the capitalization of the
Acquiring Funds would have been at October 31, 1997 had the
Reorganization been completed. The information above for the New Money
Market Fund does not include the effect of the combination of FHIT Cash
Reserve Fund with such Fund.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of each Acquired Fund are substantially similar to those of the corresponding
Acquiring Fund. The investment objectives and certain investment restrictions of
each Acquired Fund and Acquiring Fund are "fundamental," which means that they
may not be changed without the consent of a majority of such Fund's outstanding
shares, as defined in the 1940 Act. The investment policies and certain
investment restrictions of the Acquired Funds and the Acquiring Funds are,
however, "non-fundamental." A "non-fundamental" policy may be changed upon the
vote of the Trustees without shareholder approval.
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<PAGE> 32
The investment policies and strategies of each Acquired Fund are generally
the same as those of the corresponding Acquiring Fund, although there are some
differences in the investment policies and restrictions that shareholders should
consider.
NATIONWIDE GROWTH FUND/NEW GROWTH FUND
The investment objective of the Nationwide Growth Fund is to achieve
long-term capital appreciation without emphasis on current return. The
investment objective of New Growth Fund is to achieve long-term capital
appreciation.
Nationwide Growth Fund seeks to benefit from both the underlying economic
growth of the companies in which it invests and improvement in the valuation of
the stock. In selecting securities, Nationwide Growth Fund and New Growth Fund
emphasize companies that have capable management and that are in fields in which
social and economic trends, technological developments, and new processes or
products indicate potential for greater-than-average growth. Although Nationwide
Growth Fund generally intends to invest in common stocks or securities
convertible into common stock, it is not restricted in regard to the proportion
of one or another class of securities it may hold. As a result, management of
Nationwide Growth Fund is not in any way inhibited in selecting appropriate
investments in seeking to achieve Nationwide Growth Fund's investment
objectives. However, certain other restrictions exist to protect investors.
Nationwide Growth Fund diversifies its investments to minimize risk by investing
in different types of securities among many companies and industries.
Under normal market conditions, the New Growth Fund will invest at least
65% of its total assets in equity securities of companies of all sizes. The
equity securities in which the New Growth Fund may invest include common stock,
preferred stock, convertible securities and warrants of both domestic and
foreign issuers. Foreign securities may be acquired directly or though
depository receipts. In addition to equity securities, the New Growth Fund may
invest in index futures, options and other derivatives, and securities which are
not readily marketable or are restricted as to disposition. The New Growth Fund
may also purchase shares of other investment companies, enter into repurchase
agreements, lend portfolio securities and purchase securities on a when-issued
or delayed-delivery basis. As a temporary defensive position, the New Growth
Fund may invest up to 100% of its total assets in cash and/or U.S. Government
securities, short-term fixed income securities and money market obligations
("Money Market Obligations").
THE NATIONWIDE FUND/NEW NATIONWIDE FUND
The investment objective of the Nationwide Fund is to obtain a total return
from a flexible combination of current income and capital appreciation. The New
Nationwide Fund has the same investment objective. The Nationwide Fund seeks to
accomplish its investment objective by retaining maximum flexibility in the
management of its portfolio.
Each Fund's portfolio consists or will consist primarily of common stocks
but also may include convertible securities, other equity securities, bonds, and
money market instruments. Major emphasis is placed on investing in securities
that provide a combination of current income and capital gains. Each such Fund
seeks to maximize shareholder returns through a diversified portfolio in which
the primary emphasis is given to common stocks and diversify its investments to
minimize risk by investing in securities of many different companies and
industries. In the past the majority of the Nationwide Fund's portfolio assets
normally consisted of the common stocks of well-known, larger companies,
although the Nationwide Fund is not limited to these investments.
Although the Nationwide Fund generally intends to invest in common stocks
or in securities convertible to common stock, the Nationwide Fund is not
restricted in regard to the proportion of one or another class of securities it
may hold. As a result, management of the Nationwide Fund is not in any way
inhibited in selecting appropriate investments in seeking to achieve the
Nationwide Fund's investment objectives. However, certain other restrictions
exist to protect investors.
The equity securities in which the New Nationwide Fund may invest include
common stock, preferred stock, convertible securities and warrants of both
domestic and foreign issuers. Foreign securities may be acquired directly or
though depository receipts. In addition to equity securities, the New Nationwide
Fund may invest in
25
<PAGE> 33
index futures, options and other derivatives, and securities which are not
readily marketable or are restricted as to disposition. The New Nationwide Fund
may also purchase shares of other investment companies, enter into repurchase
obligations, lend portfolio securities and purchase securities on a when-issued
or delayed-delivery basis. As a temporary defensive position, the New Nationwide
Fund may invest up to 100% of its total assets in cash and/or Money Market
Obligations.
THE NATIONWIDE BOND FUND/NEW BOND FUND
The investment objective of the Nationwide Bond Fund is to generate a high
level of income, consistent with capital preservation, through investment in
high-quality bonds and other fixed-income securities. The investment objective
of the New Bond Fund is to seek as high a level of income as is consistent with
preservation of capital.
The Nationwide Bond Fund seeks to accomplish its investment objective by
retaining maximum flexibility in the management of its portfolio. The Nationwide
Bond Fund's portfolio consists mainly of corporate debt instruments. Major
emphasis is placed on maintaining a diversified portfolio of high-quality
taxable debt securities. Such securities include corporate debt securities rated
within the three highest rating categories by S&P or Moody's, obligations of the
governments of the United States and Canada, mortgage-backed securities, and
investment grade commercial paper rated by Moody's (Prime-1 or Prime-2) or by
S&P (A-1 or A-2). The Nationwide Bond Fund may invest up to 10% of its portfolio
in securities rated in the fourth highest rating category by S&P or Moody's or
which are of comparable quality.
The New Bond Fund invests primarily in fixed-income securities and
currently focuses on corporate debt securities and U.S. Government
mortgage-backed securities. Under normal market conditions, the dollar-weighted
average portfolio maturity of the New Bond Fund will be intermediate, defined by
the New Bond Fund to mean between six and ten years. Under normal market
conditions, the New Bond Fund will invest at least 65% of its total assets in
bonds. For purposes of this policy, bonds consist of debt obligations of all
types, including bonds of varying maturities, debentures and notes.
For the New Bond Fund, major emphasis is placed on investment grade taxable
debt securities, including corporate debt securities rated within the four
highest rating categories by an NRSRO, 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 New Bond Fund may
invest in zero coupon securities and in unrated securities if NAS determines
that such securities are of comparable quality. The New Bond Fund may also enter
into repurchase agreements, purchase restricted or illiquid securities that are
not readily marketable or that are restricted as to disposition, and engage in
securities lending transactions. The New Bond Fund may also purchase securities
on a when-issued or delayed-delivery basis and securities of other investment
companies.
Securities that are 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 a medium-grade security to fall, NAS will consider this
event in determining whether the New Bond Fund should continue to hold the
security. In no event, however, would the New Bond Fund be required to liquidate
any portfolio security if the New Bond Fund would suffer a loss on the sale of
such security. As a temporary defensive position, the New Bond Fund may also
invest up to 100% of its total assets in cash and/or Money Market Obligations.
Certain debt securities in which the New Bond 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 New Bond Fund's average weighted portfolio maturity, the
effective maturities of such securities will be used.
THE NATIONWIDE MONEY MARKET FUND/NEW MONEY MARKET FUND
The investment objective of the Nationwide Money Market Fund is to provide
as high a level of current income as is consistent with the preservation of
capital and maintenance of liquidity, through investment in a diversified
portfolio of high-quality money market instruments maturing in 397 days or less.
The investment
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<PAGE> 34
objective of the New Money Market Fund is to seek as high a level of current
income as is consistent with the preservation of capital and maintenance of
liquidity.
The emphasis for the Nationwide Money Market Fund and the New Money Market
Fund is on a diversified portfolio having a dollar weighted average maturity of
90 days or less. Such Funds' portfolio consists or will consist of high-quality
money market instruments with a remaining maturity of 397 days or less
including, but not limited to: securities of the U.S. Government, its agencies
and instrumentalities, 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 that 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 in one of the two highest rating categories by at least two NRSROs;
corporate obligations and asset-backed securities that at the time of purchase
are rated in one of the two highest rating categories assigned by an NRSRO; and
repurchase agreements collateralized by any of the above. In addition, the New
Money Market Fund may invest in variable and floating rate obligations, some of
which may have call features. The New Money Market Fund may also purchase
securities on a when-issued or delayed-delivery basis and securities of other
investment companies and may lend portfolio securities.
FUNDAMENTAL INVESTMENT POLICIES. Each Acquired Fund and corresponding
Acquiring Fund have some fundamental investment policies that are the same and
some that are different. The primary purposes for adopting more flexible
investment restrictions for the Acquiring Funds are to promote standardization
of such restrictions among all of the Nationwide funds and to provide the
portfolio managers with greater flexibility in managing the Acquiring Funds'
portfolios. The similarities and differences are described in the following
table.
<TABLE>
<CAPTION>
ACQUIRED FUNDS ACQUIRING FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C>
DIVERSIFICATION:
The Nationwide Growth Fund, the Nationwide Each of the Acquiring Funds has a fundamental
Fund, and the Nationwide Bond Fund each have policy against purchasing securities of any
a fundamental policy against purchasing one issuer, other than obligations issued or
securities of any one issuer if, immediately guaranteed by the U.S. Government, its
thereafter, it would have more than 5% of its agencies or instrumentalities, if,
assets, taken at value, invested in that immediately after such purchase, more than 5%
issuer. The Nationwide Growth Fund, the of such Fund's total assets would be invested
Nationwide Fund, and the Nationwide Bond Fund in such issuer or such Fund would hold more
each have a fundamental policy against than 10% of the outstanding voting securities
purchasing securities of any one issuer if, of the issuer, except that 25% or less of
immediately thereafter, it would own more such Fund's total assets may be invested
than 10% of any class of voting or non-voting without regard to these limitations. There is
securities of that issuer. This investment no limit to the percentage of assets that may
restriction does not apply to obligations be invested in U.S. Treasury bills, notes, or
issued or guaranteed by the United States other obligations issued or guaranteed by the
Government. In addition, the Nationwide Money U.S. Government, its agencies or
Market Fund may invest up to 10% of its instrumentalities. The New Money Market Fund
assets, taken at value, in First Tier will be deemed to be in compliance with this
Securities, as defined in the 1940 Act, of a investment restriction so long as it is in
single issuer for a period of up to three compliance with Rule 2a-7 under the 1940 Act,
business days after the purchase thereof, as such Rule may be amended from time to
provided that it may not make more than one time.
such investment at any one time.
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
ACQUIRED FUNDS ACQUIRING FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C>
CONCENTRATION:
Each of the Acquired Funds has a fundamental Each of the Acquiring Funds has a fundamental
policy against concentrating its investments policy against purchasing securities of any
in any one industry (never more than 25%). one issuer if, as a result of such purchase,
Rather, each of the Acquired Funds endeavors 25% or more (taken at current value) of an
to maintain wide industry diversification. Acquiring Fund's total assets would be
Electric, natural gas distribution, natural invested in securities of issuers the
gas pipeline, combined electric and natural principal activities of which are in the same
gas, and telephone utilities are considered industry. This investment restriction does
separate industries for this purpose. In not apply to securities issued by the U.S.
addition, with respect to the Nationwide Government, its agencies, or
Money Market Fund, captive borrowing, instrumentalities or to securities issued by
conduit, equipment finance, premium finance, state, county, or municipal governments. The
leasing finance, consumer sales finance and following industries are considered separate
other finance are also considered separate industries for purposes of this investment
industries. Obligations of the United States restriction: electric, natural gas
Government, its agencies and distribution, natural gas pipeline, combined
instrumentalities, and obligations issued by electric and natural gas, telephone
state, county, or municipal governments are utilities, captive borrowing conduit,
not subject to this 25% limitation. The equipment finance, premium finance, leasing
Nationwide Money Market Fund may, if deemed finance, consumer sales finance and other
advisable, invest more than 25% of its assets finance.
in the obligations of commercial banks.
ISSUING SENIOR SECURITIES/BORROWING MONEY:
The Acquired Funds do not have a fundamental Each of the Acquiring Funds has a fundamental
or non-fundamental policy against issuing policy against borrowing money or issuing
senior securities. However, each of the senior securities, except that each Acquiring
Acquired Funds has a fundamental policy Fund may enter into reverse repurchase
against borrowing money, except that each agreements and may otherwise borrow money and
Acquired Fund may borrow an amount not in issue senior securities as and to the extent
excess of 33 1/3% of the value of its total permitted by the 1940 Act or any rule, order
assets (calculated when the loan is made) or interpretation thereunder.
from banks for temporary purposes to
facilitate the orderly sale of portfolio Each of the Acquiring Funds, however,
securities to accommodate unusually heavy currently may only borrow money from banks
redemption requests, if they should occur. and in an amount no greater than 33 1/3% of
This borrowing provision is not intended for its total assets (including the amount
investment purposes, nor will any such fund borrowed). In addition, an Acquiring Fund may
purchase portfolio securities during periods borrow up to an additional 5% of its total
of borrowings outstanding. Each Acquired Fund assets from banks for temporary or emergency
may also borrow an amount equal to no more purposes.
than 5% of its total assets (calculated when
the loan is made) for temporary, emergency
purposes, to clear transactions, to provide
the Investment Manager additional flexibility
in the execution of routine daily
transactions, and to allow for more efficient
cash management. This borrowing provision
will not be used to leverage any such fund or
to borrow for extended periods of time.
</TABLE>
28
<PAGE> 36
<TABLE>
<CAPTION>
ACQUIRED FUNDS ACQUIRING FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C>
LENDING MONEY OR SECURITIES TO OTHERS:
Each of the Acquired Funds has a fundamental Each of the Acquiring Funds has a fundamental
policy against lending securities or money to policy against lending securities or making
others. loans to others, except that each Acquiring
Fund may purchase or hold debt instruments
and lend portfolio securities in accordance
with its investment objective and policies,
make time deposits with financial
institutions, and enter into repurchase
agreements.
PLEDGING ASSETS:
Each of the Acquired Funds has a fundamental Each of the Acquiring Funds has a
policy against pledging its assets for any non-fundamental policy against mortgaging,
purpose, except that the Nationwide Money pledging, or hypothecating more than
Market Fund may pledge up to 10% of its one-third of its total assets.
assets to secure temporary borrowings from
banks.
ACTING AS UNDERWRITER:
Each of the Acquired Funds has a fundamental Each of the Acquiring Funds has a fundamental
policy against acting as an underwriter, policy against acting as an underwriter of
except that the Nationwide Growth Fund, the another issuer's securities, except to the
Nationwide Fund, and the Nationwide Bond Fund extent that an Acquiring Fund may be deemed
may each be deemed to be an underwriter under to be an underwriter under the Securities Act
certain federal securities laws in disposing of 1933, as amended, in connection with the
of certain portfolio securities. purchase and sale of portfolio securities.
PURCHASING SECURITIES ON MARGIN:
The Acquired Funds do not have a fundamental Each of the Acquiring Funds has a
or non-fundamental policy against purchasing non-fundamental policy against purchasing
securities on margin. securities on margin, except that each
Acquiring Fund may obtain whatever short-term
credits are necessary to clear purchases and
sales of securities and to make margin
payments in connection with derivative
securities transactions.
</TABLE>
29
<PAGE> 37
<TABLE>
<CAPTION>
ACQUIRED FUNDS ACQUIRING FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C>
ILLIQUID OR RESTRICTED SECURITIES:
The Nationwide Growth Fund, the Nationwide The Acquiring Funds are not subject to any
Fund, and the Nationwide Bond Fund each have restriction in regard to investing in
a fundamental policy against investing in securities for which market quotations are
securities for which market quotations are not available. Each of the Acquiring Funds,
not readily available and investing in however, has a non- fundamental investment
securities that are restricted as to their policy against purchasing or otherwise
disposition under federal securities laws or acquiring any security if, as a result, more
that may not be publicly sold without than 15% (10% with respect to the New Money
registration under the Securities Act of Market Fund) of its net assets would be
1933, if as a result, more than 5% of their invested in securities that are illiquid.
net assets would be invested in such
securities. Each of the Acquired Funds also
has a fundamental policy against entering
into any repurchase agreement if, as a
result, more than 10% of its total assets
would be subject to repurchase agreements
maturing in more than seven days.
SELLING SECURITIES SHORT:
Each of the Acquired Funds has a fundamental Each of the Acquiring Funds has a
policy against selling securities short. non-fundamental policy against selling
securities short, unless an Acquiring Fund
owns or has the right to obtain securities
equivalent in kind and amount to the
securities sold short or unless an Acquiring
Fund covers its short sale as required by the
current rules and positions of the Commission
or its staff. Short positions in forward
currency contracts, options, futures
contracts, options on futures contracts, and
other derivative instruments do not
constitute selling securities short.
REAL ESTATE / COMMODITIES / FUTURES CONTRACTS:
Each of the Acquired Funds has a fundamental Each of the Acquiring Funds has a fundamental
policy against purchasing or selling real policy against purchasing or selling real
estate, commodities or futures contracts. estate, except that each Acquiring Fund may
acquire real estate through ownership of
securities or instruments and may purchase or
sell securities issued by entities or
investment vehicles that own or deal in real
estate (including interests therein) or
instruments secured by real estate (including
interests therein). Each of the Acquiring
Funds also has a fundamental policy against
purchasing or selling commodities or
commodities contracts, except to the extent
disclosed in the Acquiring Fund's current
Prospectus.
</TABLE>
30
<PAGE> 38
<TABLE>
<CAPTION>
ACQUIRED FUNDS ACQUIRING FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C>
SECURITIES OF OTHER INVESTMENT COMPANIES:
The Nationwide Growth Fund, the Nationwide Each of the Acquiring Funds has a
Fund and the Nationwide Bond Fund each have a non-fundamental policy against purchasing
fundamental policy against investing in the securities of other investment companies
securities of any other investment company. except (a) in connection with a merger,
The Nationwide Money Market Fund has a consolidation, acquisition, reorganization or
fundamental policy against purchasing or offer of exchange, and (b) to the extent
selling securities of other investment permitted by the 1940 Act or any rules or
companies except in connection with a merger, regulations thereunder or pursuant to any
consolidation, acquisition or reorganization. exemptions therefrom.
COMBINED HOLDINGS OF TRUSTEES AND OFFICERS:
The Nationwide Growth Fund, the Nationwide The Acquiring Funds are not subject to any
Fund or the Nationwide Bond Fund each have a such restriction.
fundamental policy against retaining the
securities of any issuer if the combined
holdings of all Trustees or officers of the
Trust and all directors and officers of NAS
who own more than 1/2 of 1% of the
securities of such issuer total more than 5%
of the securities of the issuer.
INVESTING IN A COMPANY WITH LESS THAN THREE YEARS OF OPERATION:
The Nationwide Growth Fund, the Nationwide The Acquiring Funds are not subject to any
Fund, and the Nationwide Bond Fund each have such restriction.
a fundamental policy against investing more
than 5% of its in companies or their
predecessors that have a record of less than
three years of continuous operation.
INVESTING IN PUTS, CALLS, STRADDLES, AND SPREADS / OIL, GAS, MINERAL LEASES:
Each of the Acquired Funds has a fundamental The Acquiring Funds are not subject to any
policy against investing in puts, calls, such restriction.
straddles, spreads or any combination
thereof. In addition, the Nationwide Growth
Fund, the Nationwide Fund, and the Nationwide
Bond Fund each have a fundamental policy
against investing in oil, gas, or other
mineral leases, rights or royalty contracts.
DEALING WITH TRUSTEES / SHORT-TERM TRADING PROFITS / CONTROL OF MANAGEMENT:
The Nationwide Growth Fund, the Nationwide The Acquiring Funds are not subject to any
Fund, and the Nationwide Bond Fund each have such restriction.
a fundamental policy against dealing with the
Trustees of the Trust in regard to the
purchase and sale of securities and investing
for the purpose of making short-term trading
profits or for exercising control of
management.
</TABLE>
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in each Acquiring Fund. For a more complete description of the
Acquiring Funds' investment policies and restrictions, including relevant risk
factors, see "OBJECTIVES AND MANAGEMENT" in the
31
<PAGE> 39
Acquiring Funds' Prospectus and "INVESTMENT OBJECTIVES AND POLICIES" in the
Acquiring Funds' Statement of Additional Information. For a more complete
description of the Acquired Funds' investment policies and restrictions,
including relevant risk factors, see "OBJECTIVES, MANAGEMENT, PERFORMANCE &
HOLDINGS" in the Acquired Funds' Prospectus and "INVESTMENT OBJECTIVES AND
POLICIES" in the Acquired Funds' Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE ACQUIRED FUNDS AND THE TRUST
Pursuant to the laws of Michigan and the Trust's Amended Trust Indenture,
the responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Indenture of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants, and other professionals to assist and
advise in such management.
Investment Adviser. The Acquired Funds are advised by Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a wholly
owned subsidiary of Nationwide Life Insurance Company, which in turn is wholly
owned by Nationwide Financial Services, Inc., a holding company ("NFS"). NFS has
two classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B common
stock) to control NFS. All of the common stock of Nationwide Corporation is held
by Nationwide Mutual Insurance Company (95.3%) and Nationwide Mutual Fire
Insurance Company (4.7%), each of which is a mutual company owned by its
policyholders. NAS is also the investment adviser, administrator, fund
accountant and distributor of each of the other funds of the Nationwide family
of funds. NAS was established as an Ohio corporation on June 28, 1960, and has
been providing investment advisory services to open-end investment management
companies like the Acquired Funds since 1965.
In its capacity as investment adviser, and subject to the ultimate
authority of the Trust's Board of Trustees, NAS, in accordance with the Acquired
Funds' investment objectives and policies, manages the Acquired Funds, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since June, 1981, John M. Schaffner, MBA, CFA, has been
primarily responsible for the day-to-day management of the Nationwide Growth
Fund's portfolio. Mr. Schaffner has been with Nationwide Insurance Enterprise
since 1977. Mr. Schaffner graduated with a Bachelor of Arts in Economics from
Occidental College. He received his Master of Business Administration degree
from the University of Michigan and is a Chartered Financial Analyst.
Since January, 1985, Charles Bath, MBA, CFA, has been primarily responsible
for the day-to-day management of the Nationwide Fund's portfolio. Mr. Bath
joined Nationwide Insurance Enterprise as a securities analyst in March, 1982.
He graduated with a Bachelor of Science degree in Accounting from Miami
University. He received his Master of Business Administration degree in Finance
from The Ohio State University and is a certified Public Accountant and a
Chartered Financial Analyst.
Since March, 1997, Douglas Kitchen, CFA, has been primarily responsible for
the day-to-day management of the Nationwide Bond Fund's portfolio. Mr. Kitchen
joined Nationwide Insurance Enterprise in 1986 and from 1992 to March 1997,
managed the bond portfolio for the Nationwide Insurance Enterprise Foundation.
Mr. Kitchen received a Bachelor of Arts in Geology from Thiel College and a
Bachelor of Science in Finance from The Ohio State University and is a Chartered
Financial Analyst.
Since July, 1997, Patricia A. Mynster, Director of Short-Term Investments,
has been primarily responsible for the day-to-day management of the Nationwide
Money Market Fund. She has managed short-term investments for over 20 years. She
received a Bachelor of Arts degree in Business Administration from Otterbein
College. She has held her current position as Director of Short-Term Investments
for the Nationwide Insurance Enterprise since 1991.
In addition, pursuant to the Investment Advisory Agreement, NAS generally
assists in all aspects of the Acquired Funds' administration and operation.
32
<PAGE> 40
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Trust, NAS receives a fee from each Acquired Fund,
computed daily and paid monthly, at the annual rate of 0.50% of average net
daily assets of that Fund.
The Acquired Funds also pay to NAS for fund accounting services an annual
fee equal to $48,000.
For a complete description of the Acquired Funds' advisory arrangements,
see the sections in the Acquired Funds' Prospectus entitled "OBJECTIVES,
MANAGEMENT, PERFORMANCE & HOLDINGS" and "MANAGEMENT OF THE TRUSTS."
Distributor. The Trust has entered into an Underwriting Agreement with
NAS, Three Nationwide Plaza, Columbus, Ohio 43215, pursuant to which shares of
the Acquired Funds continuously are offered on a best efforts basis by NAS and
dealers selected by NAS. Dimon Richard McFerson is Chairman of the Board and
Chief Executive Officer of NAS. Joseph J. Gasper, Robert A. Oakley, Gordon E.
McCutchan and Robert J. Woodward, Jr. are President and a director, Executive
Vice President -- Chief Financial Officer and a director, Executive Vice
President -- Law and Corporate Services and a director, and Executive Vice
President -- Chief Investment Officer and a director, respectively, of NAS.
James F. Laird, Jr. is Vice President -- General Manager of NAS. NAS receives no
compensation from the Acquired Funds in connection with its services under such
Underwriting Agreement but may retain some or all of the sales charge, if any,
imposed upon sales of the Acquired Funds' shares.
Dividend and Transfer Agent. Nationwide Investors Service, Inc., a wholly
owned subsidiary of NAS ("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215,
serves as the Acquired Funds' Dividend and Transfer Agent. In consideration of
such services, the Acquired Funds have agreed to pay NISI an annual fee, paid
monthly, equal to: $16 per account for the Nationwide Growth Fund and the
Nationwide Fund; $18 per account for the Nationwide Bond Fund; and $27 per
account for the Nationwide Money Market Fund, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Trust, see the section in the Acquired Funds' Prospectus entitled
"MANAGEMENT OF THE TRUSTS."
Custodian. The Acquired Funds have appointed The Fifth Third Bank ("Fifth
Third"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, as the Acquired
Funds' custodian. In such capacity Fifth Third will hold or arrange for the
holding of all portfolio securities and other assets acquired and owned by each
of the Acquired Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Acquired
Funds, and, as such, has audited the annual financial statements of the Acquired
Funds.
Management Discussion of Fund Performance.
NATIONWIDE GROWTH FUND
For the fiscal year ended October 31, 1997, Nationwide Growth Fund had a
total return of 32.12%, without sales charge, compared to a 32.10% total return
for the S&P 500 Index.
During the second half of the fiscal year, Nationwide Growth Fund continued
to find greater opportunities in growth stocks, and took advantage of them to
shift its portfolio mix in this direction, at the same time reducing the level
of value-oriented holdings. For example, compared to its portfolio as of October
31, 1996, Nationwide Growth Fund's investment in the computer services and
software sector increased from 2.2% to a level of 12.8% as of October 31, 1997.
The main sectors that saw declines in investment were financial stocks, which
went from 17.3% to 14.8%, healthcare, which went from 4.5% to 0%, and food and
beverage, which went from 4.3% to 0%. In the process of buying the growth stocks
which NAS found attractive, and funding those purchases with sales of
less-attractive stocks, NAS also tried to concentrate on the best ideas. As a
result, Nationwide Growth Fund's top 10 holdings as of the fiscal year-ended
October 31, 1997, represented nearly 37% of assets, compared to a figure of
about 30.5% as of October 31, 1996.
33
<PAGE> 41
Although growth stocks have been the current focus, the stock selection
process is essentially unchanged. NAS still wants to own companies that benefit
from strong, long-term growth drivers which are clearly visible. NAS wants to
own companies with both the management and financial resources to take full
advantage of their business opportunities. NAS also favors companies that derive
and/or purvey benefits from advancing technology.
The strongest performance over the 12 months ended October 31, 1997, came
from two of Nationwide Growth Fund's technology holdings: Applied Materials and
EMC Corporation. Both Warner-Lambert and Schering-Plough in the drug group, and
Merrill Lynch and Equitable in the financial sector, also had outstanding gains.
Nationwide Growth Fund's most significant loss came in the computer service
sector, in First Data Corp. This is a company NAS thinks is extremely well
positioned for long-term growth. The stock has come down because its current
growth rate, though still good, has been less than expected.
The positive results for the fiscal year ended October 31, 1997, were
primarily due to gains in stocks Nationwide Growth Fund has held for over a
year, rather than from ones that were added during the fiscal year. As
Nationwide Growth Fund goes forward, NAS expects that the more recent additions
will help sustain this progress.
FUND COMPOSITION
(SUBJECT TO CHANGE)
FUND COMPOSITION PIE CHART
U.S. government agency obligations and other
assets less liabilities 3.0%
Common stock 97.0%
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
- ----------------------------------------------
<S> <C> <C> <C>
1 32.12% 26.80% 26.17%
5 17.15% 19.58% 16.07%
10 15.26% 15.70% 14.74%
</TABLE>
* These returns do not reflect the effects of sales charges.
** Assumes a 4.5% sales charge was paid, which has the most dramatic effect on
one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR
COVERED) FUND S&P 500 CPI
<S> <C> <C> <C>
1987 9550 10000 10000
1988 12260 11475 10425
1989 13628 14498 10903
1990 11705 13415 11598
1991 16779 17898 11925
1992 17943 19679 12319
1993 20843 22608 12658
1994 22038 23481 12997
1995 26668 29683 13353
1996 29964 36812 13753
1997 39588 48596 14014
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Growth Fund,
the S&P 500* and the Consumer Price Index (CPI)** over a 10-year period ended
10/31/97. Unlike our Fund, these indices do not reflect any fees, expenses or
sales charges.
* The S&P 500 is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of these 500 stocks which represent all major
industries.
** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
34
<PAGE> 42
NATIONWIDE FUND
The total return for Nationwide Fund for the fiscal year ended October 31,
1997, was 40.17%, without sales charge, assuming all distributions were
reinvested, compared to 32.10% for the S&P 500 Index.
The excellent performance of Nationwide Fund was mainly attributable to
large investments in the pharmaceutical and financial services industries.
Warner-Lambert and Schering-Plough are Nationwide Fund's two largest holdings
and they have continued to perform very well. Solid revenue growth combined with
new products have allowed these two companies to outperform the market and their
peers. Financial services companies have performed well due to steady earnings
performance, combined with benefits from consolidation. First USA, Barnett Banks
and U.S. Bancorp were all acquired at significant premiums to their market
prices. These takeouts, combined with excellent performance from Mellon Bank,
Horace Mann and CoreStates Financial, led to the financial services sector
providing excellent performance for Nationwide Fund shareholders. These
companies remain significant holdings in the portfolio and should be important
contributors to the future performance of Nationwide Fund.
The New York Times is a significant new investment ranked in the top 10
holdings of the portfolio as of October 31, 1997. This company in many ways
epitomizes what NAS is looking for in an investment. The shares are
inexpensively priced compared to private market value, yet the business
franchise is one of the best in its industry. The company recently completed a
major capital spending program so cash flow will be available in the future to
reward shareholders. NAS is optimistic this will be a successful investment for
the Nationwide Fund.
Nationwide Fund also has two new holdings in the cellular telephone
industry. These are small holdings because the securities appreciated in price
before a larger position could be purchased. However, NAS is optimistic that the
worst of the fears regarding competition will not be realized and the attractive
purchase prices will provide excellent appreciation potential.
35
<PAGE> 43
FUND COMPOSITION
(SUBJECT TO CHANGE)
FUND COMPOSITION PIE CHART
Debt obligations and other assets less liabilities 1.0%
Common stock 99.0%
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
- ----------------------------------------------
<S> <C> <C> <C>
1 40.17% 36.71% 33.87%
5 18.60% 24.82% 17.51%
10 17.01% 18.19% 16.48%
</TABLE>
* These returns do not reflect the effects of sales charges.
** Assumes a 4.5% sales charge was paid, which has the most dramatic effect on
one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR
COVERED) FUND S&P 500 CPI
<S> <C> <C> <C>
1987 9550 10000 10000
1988 11193 11475 10425
1989 14225 14498 10903
1990 13226 13415 11598
1991 18049 17898 11925
1992 19615 19679 12319
1993 20822 22608 12658
1994 21838 23481 12997
1995 26039 29683 13353
1996 32837 36812 13753
1997 46029 48596 14014
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Fund, the S&P
500* and the Consumer Price Index (CPI)** over a 10-year period ended 10/31/97.
Unlike our Fund, these indices do not reflect any fees, expenses or sales
charges.
* The S&P 500 is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of these 500 stocks which represent all major
industries.
** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
36
<PAGE> 44
NATIONWIDE BOND FUND
Nationwide Bond Fund's total return with reinvestment of all distributions
for the fiscal year ended October 31, 1997, was 8.33%, without sales charge.
This compares to the 8.81% return of such Fund's new benchmark, the Lehman
Government/Corporate Bond Index which is more reflective of such Fund's
investment policies. In retrospect, it would have improved Nationwide Bond
Fund's comparative performance to the Lehman Brothers Long-Term
Government/Corporate Index if the change to this new index had been at the
beginning of the year rather than in the middle. For the last six months of the
fiscal year, Nationwide Bond Fund's total return was 7.37%, little different
than the 7.41% return for the new benchmark.
Interest rates declined substantially in the second half of the year. This
completely reversed the increase that followed the March increase in the Federal
Funds rate. Rates ended at yearly lows, with the 30-year Treasury note yielding
6.15% and the two-year treasury note yielding 5.61%. Inflationary pressures
remain remarkably subdued given the strength in the economy and, as a result,
expectations of future inflation have declined. The economic weakness seen in
some of the Asian countries has spread throughout that region and could have an
effect on our economy in 1998. Inflation could drop below 2% with enough of a
slowdown.
In the corporate and mortgage-backed market, spreads were historically
narrow for virtually the entire year and few opportunities to improve returns
were available. Spreads did widen substantially at the fiscal-year end, but it
happened too suddenly to affect our returns. Turmoil in the Asian markets and
the fear that corporate profitability in 1998 will be hurt were the primary
causes. Mortgage-backed securities widened in sympathy, with the rationale of
lower interest rates sparking a wave of prepayments.
Restructuring Nationwide Bond Fund from long-term to intermediate required
a significant change in composition. Approximately $50 million of long-term
corporates were sold, including large positions in Bank One, W.R. Berkley,
Prudential and Seagrams. New names added in the intermediate part of the curve
included Hanson, Hilton Hotels, McGraw-Hill and ITT Rayonier among others.
Because of the narrowness of spreads and increasing risk, positions in
corporates and mortgage-backed securities were reduced. U.S. Treasuries
comprised 18% of the portfolio as of October 31, 1997. The recent widening in
spreads appears to present an opportunity for Nationwide Bond Fund, but NAS
intends to wait for some signs of stability in the Asian markets and a clearer
picture of how much of a slowdown can be expected in 1998.
37
<PAGE> 45
FUND COMPOSITION
(SUBJECT TO CHANGE)
FUND COMPOSITION PIE CHART
Other assets less liabilities 0.7%
Corporate bonds 72.2%
U.S. government obligations 17.9%
Canadian bonds 4.8%
Mortgage-backed securities 4.4%
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
- ----------------------------------------------
<S> <C> <C> <C>
1 8.33% 11.22% 3.46%
5 7.02% 7.67% 6.04%
10 8.81% 8.28% 8.32%
</TABLE>
* These returns do not reflect the effects of sales charges.
** Assumes a 4.5% sales charge was paid, which has the most dramatic effect on
one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR
COVERED) FUND LBLTG/CBI LBG/CBI CPI
<S> <C> <C> <C> <C>
1987 9550 10000 10000 10000
1988 10695 11163 11062 10425
1989 11734 12916 12406 10903
1990 12420 13114 13088 11598
1991 14293 15591 15100 11925
1992 15844 17405 16772 12319
1993 18001 21274 19063 12658
1994 16234 18986 18179 12997
1995 19547 23955 21116 13353
1996 20534 25007 22254 13753
1997 22245 28058 24215 14014
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Bond Fund, the
Lehman Brothers Long-Term Government/Corporate Bond Index*, the Lehman Brothers
Government/Corporate Bond Index**, and the Consumer Price Index*** (CPI) over a
10-year period ended 10/31/97. Unlike our Fund, these indices do not reflect any
fees, expenses or sales charges.
* The Lehman Brothers Long-Term Gov't./Corp. Bond Index consists of U.S.
government and corporate bonds with maturities of 10 years or more and
outstanding par value of at least $100 million. All returns are market
value-weighted inclusive of accrued interest.
** The Lehman Brothers Gov't./Corp. Bond Index is the new index for the Fund.
It is the same as the above index except maturities of the securities are
one year and greater.
*** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
38
<PAGE> 46
NATIONWIDE MONEY MARKET FUND
The net assets of Nationwide Money Market Fund ended the fiscal year at
$820.7 million. They were $729.5 million a year ago. Mutual fund assets have
seen consistent growth during the year. Much of the growth is attributed to an
increase in individual retirement savings utilizing payroll deductions. The
average annual total return of Nationwide Money Market Fund for the year ended
October 31, 1997, was 5.07% versus 2.08% for the Consumer Price Index; the
seven-day effective yield for the Nationwide Money Market Fund was 5.15%.
Nationwide Money Market Fund met its investment objective of providing a
high level of current income consistent with capital preservation and
maintenance of liquidity. This was achieved by careful investment selection and
constant attention to the compliance objectives and policies outlined in the
prospectus.
The investment portfolio is well diversified and a laddered approach to
maturities was followed. The dollar-weighted average maturity of Nationwide
Money Market Fund remained between approximately 35-45 days. Prime commercial
paper provided the best risk/return profile, accounting for its dominant
portfolio weighting. The trading range for 30-day prime commercial paper (dealer
placed) was between 5.24% and 5.61% for the year.
FUND COMPOSITION
(SUBJECT TO CHANGE)
FUND COMPOSITION PIE CHART
Canadian obligations 3.4%
Commercial paper 92.7%
U.S. government and agency obligations and other
assets less liabilities 3.9%
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
$1,000 $100
LUMP SUM MONTHLY
INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC*
- ---------------------------------
<S> <C> <C>
1 5.07% 5.13%
5 4.30% 4.83%
10 5.47% 4.86%
</TABLE>
* There are no sales charges in the Nationwide(R) Money Market Fund.
An investment in the Money Market Fund is neither insured nor guaranteed by the
U.S. Government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR
COVERED) FUND CPI
<S> <C> <C>
1987 10000 10000
1988 10693 10425
1989 11644 10903
1990 12569 11598
1991 13341 11925
1992 13811 12319
1993 14170 12658
1994 14643 12997
1995 15443 13353
1996 16222 13753
1997 17045 14014
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Money Market
Fund, and the Consumer Price Index (CPI)* over a 10-year period ended 10/31/97.
Unlike our Fund, the CPI does not reflect any fees or expenses.
* The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
39
<PAGE> 47
THE ACQUIRING FUNDS AND THE NEW TRUST
Except where shareholder action is required by law, all of the authority of
the New Trust is exercised under the direction of the New Trust's Trustees, who
are elected by the shareholders of the New Trust's series or portfolios,
including the Acquiring Funds, and who are empowered to elect officers and
contract with and provide for the compensation of agents, consultants, and other
professionals to assist and advise in its day-to-day operations. The New Trust
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
Investment Adviser. The Acquiring Funds are also advised by NAS. It is
intended that upon completion of the Reorganization, Mr. Schaffner will be
responsible for the day-to-day management of the New Growth Fund's portfolio,
Mr. Bath will be responsible for the day-to-day management of the New Nationwide
Fund's portfolio, Mr. Kitchen will be responsible for the day-to-day management
of the New Bond Fund's portfolio and Ms. Mynster will be responsible for the
day-to-day management of the New Money Market Fund's portfolio. For its services
as investment adviser, NAS receives a fee from each Acquiring Fund, which is
calculated daily and paid monthly, at the following annual rates: for each of
the New Growth Fund and the New Nationwide Fund, 0.60% of such Fund's average
net assets up to $250 million, 0.575% of such Fund's average net assets of $250
million up to $1 billion, 0.55% of such Fund's average net assets of $1 billion
up to $2 billion, 0.525% of such Fund's average net assets of $2 billion up to
$5 billion, and 0.50% of such Fund's average net assets of $5 billion or more;
for the New Bond Fund, 0.50% of such Fund's average net assets up to $250
million, 0.475% of such Fund's average net assets of $250 million up to $1
billion, 0.45% of such Fund's average net assets of $1 billion up to $2 billion,
0.425% of such Fund's average net assets of $2 billion up to $5 billion, and
0.40% of such Fund's average net assets of $5 billion or more; and for the New
Money Market Fund, 0.40% of such Fund's average net assets up to $1 billion,
0.38% of such Fund's average net assets of $1 billion up to $2 billion, 0.36% of
such Fund's average net assets of $2 billion up to $5 billion, and 0.34% of such
Fund's average net assets of $5 billion or more. The New Trust's Investment
Advisory Agreement was approved by the New Trust's Board of Trustees on November
7, 1997, and will be approved by each Acquiring Fund's initial sole shareholder,
NAS, prior to the Reorganization.
The New Trust on behalf of the Acquiring Funds has also entered into an
Administration Agreement with NAS whereby NAS provides certain administration
and fund accounting services to the Acquiring Funds. For such services, NAS
receives a fee from each Acquiring Fund, calculated daily and paid periodically
at the following annual rate: 0.07% of such Fund's average net assets up to $250
million; 0.05% of such Fund's average net assets of $250 million up to $1
billion, and 0.04% of such Fund's average net assets of $1 billion or more. Such
Administration Agreement was approved by the New Trust's Board of Trustees on
November 7, 1997.
For a complete description of the Acquiring Funds' advisory arrangements,
see the section in the Acquiring Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST -- Investment Management."
Dividend and Transfer Agent. NISI also serves as the Acquiring Funds'
Dividend and Transfer Agent. In consideration of such services, the Acquiring
Funds have each agreed to pay NAS an annual fee, paid monthly, equal to: $16 per
account for the New Growth Fund and the New Nationwide Fund, $18 per account for
the New Bond Fund, and $27 per account for the New Money Market Fund, plus
out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Acquiring Funds, see the sections in the Acquiring Funds'
Prospectus entitled "MANAGEMENT OF THE TRUST -- Other Services" and " --
Transfer and Dividend Disbursing Agent."
Distributor. NAS also serves as the distributor of the Acquiring Funds'
shares pursuant to a distribution agreement. Pursuant to such agreement, NAS may
retain all or a portion of the front end sales charge, if any, imposed upon
purchases of Class D shares of the Acquiring Funds.
In addition, NAS may enter into, from time to time, agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of the Acquiring Fund Shares.
For a complete description of these arrangements, see the sections in the
Acquiring Funds' Prospectus entitled "HOW TO PURCHASE SHARES."
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<PAGE> 48
Custodian. The Acquiring Funds have also appointed Fifth Third as the
Acquiring Funds' custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the New Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Funds, and, as such, will audit the annual financial
statements of the Acquiring Funds.
Management Discussion of Fund Performance. No management discussion of
fund performance is included since the Acquiring Funds have not yet commenced
operations.
CERTAIN FINANCIAL INFORMATION.
The Prospectus for the Trust contains information on per share income,
capital changes and performance calculations under the caption "FINANCIAL
HIGHLIGHTS."
The Acquiring Funds have not yet commenced operations and have no and will
have no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE ADVERTISING FOR THE FUNDS" in
the Acquiring Funds' Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS
The Trust is a Michigan trust, registered under the 1940 Act as an open-end
investment company of the management type and established under a Trust
Indenture dated May 5, 1933. The Trust Indenture has been amended several times
since that date. The New Trust is an Ohio business trust, registered under the
1940 Act as an open-end investment company of the management type and
established under a Declaration of Trust dated as of October 30, 1997.
The Acquiring Funds are four of nine series of the New Trust. The other
five series of the New Trust are the Nationwide Tax-Free Income Fund, the
Nationwide Long-Term U.S. Government Bond Fund, the Nationwide Intermediate U.S.
Government Bond Fund, the Nationwide Mid Cap Growth Fund and the Nationwide S&P
500 Index Fund.
Both the Trust and the New Trust are authorized to issue an unlimited
number of shares of beneficial interest. Each share of beneficial interest in
the Trust is designated under its Amended Trust Indenture as a share of one of
the Acquired Funds; no provision is made for dividing such shares into
additional series or shares. The New Trust, in contrast, may divide its shares
of beneficial interest into one or more series of shares and into one or more
classes or sub-series of shares. Each share of a series of the Trust or New
Trust represents a beneficial interest in the assets of only that series. The
consideration received by the Trust or New Trust for the issuance of shares of a
particular series, the assets in which such consideration is invested, and all
income and proceeds from the holding or sale of such assets belong to that
series, subject only to the rights of creditors.
Each share of beneficial interest of a series of the Trust and New Trust
represents an equal proportionate interest in that series of the Trust and New
Trust, respectively, with each other share of the same series. Each such share
is entitled to share on a pro rata basis in any dividends or distributions out
of the income or assets belonging to the particular series of the Trust and New
Trust, as applicable. Such dividends or distributions are declared at the
discretion of the Trustees of the Trust and New Trust. Upon any liquidation of a
series of the Trust or New Trust, shareholders are entitled to share pro rata in
the net assets that belong to that series and that are available for
distribution.
Shares of the Acquiring Funds, once properly issued and outstanding, are
fully paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
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Shareholders of both the Trust and the New Trust are entitled to one vote
for each full share held and a proportionate fractional vote for each fractional
share held regardless of the net asset value of the shares.
Voting rights for the Trust's shareholders are not cumulative, so that the
holders of more than 50% of the Trust voting in the election of its Trustees
have the power to elect all of the Trustees of the Trust. The Trust is not
required to, and currently does not, hold an annual meeting of shareholders.
Shareholders of the New Trust have no cumulative voting rights; the holders
of a plurality of the shares voting for the election of the New Trust's Board of
Trustees can elect all of the New Trust's Board of Trustees. The New Trust does
not intend to hold annual meetings of shareholders, except as required under its
Declaration of Trust or the 1940 Act. Shareholders of the Acquiring Funds will
vote in the aggregate with other shareholders of the New Trust and not by series
or portfolio except as otherwise expressly required by law. For example,
shareholders of an Acquiring Fund will vote in the aggregate with other
shareholders of the New Trust with respect to the election of Trustees and
ratification of the selection of independent accountants. However, shareholders
of an Acquiring Fund will vote as a Fund, and not in the aggregate with other
shareholders of the New Trust, for purposes of approval of amendments to the
Investment Advisory Agreement as it relates to that Acquiring Fund or any of
that Acquiring Fund's fundamental policies.
The Trustees of the New Trust will call a special meeting of shareholders
for purposes of considering the removal of one or more Trustees upon written
request thereof from shareholders holding not less than 10% of the outstanding
votes of the New Trust, and the New Trust will assist in communications with
other shareholders as required by Section 16(c) of the 1940 Act. At such
meeting, a quorum of shareholders, by majority vote, has the power to remove one
or more Trustees.
For a complete description of the respective attributes of the Trust's and
the New Trust's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Acquired Funds or the Acquiring
Funds, as the case may be, and its shareholders, and dividend and distribution
policies, see the sections in the Acquired Funds' and the Acquiring Funds'
respective Prospectuses entitled "HOW TO PURCHASE SHARES," "HOW TO REDEEM
SHARES," "INVESTOR SERVICES," and "DISTRIBUTIONS AND TAXES." Additional
information about the Trust is included in its Prospectus, dated February 28,
1997, as supplemented on December 8, 1997, and December 23, 1997, which is
incorporated herein by reference, and in the Trust's Statement of Additional
Information dated February 28, 1997. Copies of the Prospectus and the Statement
of Additional Information may be obtained without charge by calling the Trust at
1-800-848-0920.
Additional information about the Acquiring Funds is included in their
Prospectus dated January 6, 1998, which accompanies this Combined
Prospectus/Proxy Statement, and Statement of Additional Information dated
January 6, 1998, copies of which may be obtained without charge by calling the
New Trust at 1-800-848-0920.
Additional information regarding the Reorganization is contained in the
Statement of Additional Information, dated January , 1998, to this Combined
Prospectus/Proxy Statement. The Statement of Additional Information is
incorporated by reference herein and may be obtained by calling the New Trust at
1-800-848-0920.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
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MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the New Trust are each subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act, and in accordance therewith each
files reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne 50% by the Trust
and 50% by NAS. Proxies will be solicited initially, and in any supplemental
solicitation, by mail and may be solicited in person, by telephone or other
electronic means by officers of the Trust, or by proxy solicitors hired by the
Trustees.
SUBSTANTIAL SHAREHOLDERS. As of December 18, 1997, to the knowledge of the
Trust, the only persons who own of record or beneficially five percent or more
of the outstanding shares of any of the Acquired Funds are Nationwide Life
Insurance Company and/or Nationwide Life and Annuity Insurance Company, One
Nationwide Plaza, Columbus, Ohio 43215, which own, through various separate
accounts, 31.0% of Nationwide Growth Fund, 24.1% of Nationwide Fund, 16.8% of
Nationwide Bond Fund, and 54.4% of Nationwide Money Market Fund.
As of the close of business on December 18, 1997, the officers and Trustees
of the Trust as a group beneficially owned less than 1% of the outstanding
shares of the Trust or of any Acquired Fund.
As of the close of business on December 18, 1997, there were no issued and
outstanding shares of the New Trust. As of such date, there were no shareholders
of the Acquiring Funds. It is anticipated, however, that those persons who are
beneficial holders of the Acquired Funds' shares immediately prior to the
Reorganization will be beneficial holders of the same or substantially the same
percentage of the corresponding Acquiring Fund Shares immediately after the
Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Funds dated January 6, 1998, is incorporated by reference into this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
February 28, 1997, as supplemented December 8, 1997, and December 23, 1997, is
incorporated by reference into this Combined Prospectus/Proxy Statement and may
be obtained by writing the Trust at Three Nationwide Plaza, Columbus, Ohio 43215
or by calling the Trust at 1-800-848-0920. Copies of documents requested will be
sent by first-class mail to the requesting shareholder within one business day
of receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in accordance
with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to introduce
at such meeting. Any shareholder proposals must be presented a reasonable time
before the proxy materials for the next meeting are sent to shareholders. The
submission of a proposal does not guarantee its inclusion in the Trust's proxy
statement and is subject to limitations under the 1934 Act. It is not presently
anticipated that the New Trust will hold regular meetings of shareholders, and
no anticipated date of the next meeting can be provided.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Nationwide Investing Foundation, a Michigan business trust
("NIF") and Nationwide Investing Foundation III, an Ohio business trust ("NIF
III").
WHEREAS, NIF is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following four series: Nationwide Growth Fund ("NIF Growth
Fund"), Nationwide Fund ("NIF Fund"), Nationwide Bond Fund ("NIF Bond Fund"),
and Nationwide Money Market Fund ("NIF Money Market Fund", and, together with
each of the NIF's other three series described in this paragraph, the "Acquired
Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series
(Nationwide Money Market Fund will only issue shares of beneficial interest,
without par value, without any class designation): Nationwide Growth Fund ("NIF
III Growth Fund"), Nationwide Fund ("NIF III Fund"), Nationwide Bond Fund ("NIF
III Bond Fund"), and Nationwide Money Market Fund ("NIF III Money Market Fund",
and, together with each of NIF III's other three series described in this
paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets and liabilities
of the corresponding Acquired Series; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares (or, in
the case of NIF III Money Market Fund, shares of beneficial interest, without
par value, without any class designation) of the corresponding Acquiring Series
("Acquiring Series Shares"), which are voting securities, followed by the
distribution of the Acquiring Series Shares by each Acquired Series to the
shareholders of the Acquired Series in connection with the dissolution of NIF
and the Acquired Series, all upon the terms and provisions of this Agreement
(individually and together, the "Reorganization"); and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: NIF Growth Fund corresponds to NIF III Growth Fund, NIF Fund
corresponds to NIF III Fund, NIF Bond Fund corresponds to NIF III Bond Fund, and
NIF Money Market Fund corresponds to NIF III Money Market Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of NIF has determined that the
Reorganization is in the best interests of NIF, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
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1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of NIF and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as described in Section 9(h) herein), NIF and the
Acquired Series agree to assign, convey, transfer and deliver to NIF III
and the Acquiring Series, and NIF III and the Acquiring Series agree to
acquire from NIF and the Acquired Series on the Exchange Date (as defined
below), all of the Investments (as defined below), cash and other assets of
NIF in exchange for that number of full and fractional Acquiring Series
Shares of the corresponding Acquiring Series having an aggregate net asset
value equal to the value of all assets of NIF transferred to the Acquiring
Series, as provided in Section 4, less the liabilities of NIF assumed by
the Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring Series
from NIF shall consist of all of NIF's property, including, without
limitation, all Investments (as defined below), cash and dividends or
interest receivables which are owned by NIF and any deferred or prepaid
expenses shown as an asset on the books of NIF as of the Valuation Time
described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date NIF will endeavor
to discharge or cause to be discharged, or make provision for the payment
of, all of its known liabilities and obligations. The Acquiring Series
shall assume all liabilities, expenses, costs, charges and reserves of NIF,
contingent or otherwise, including liabilities reflected in the unaudited
statements of assets and liabilities of NIF as of the Valuation Time,
prepared by or on behalf of NIF as of the Valuation Time in accordance with
generally accepted accounting principles consistently applied from and
after October 31, 1996, and including all liabilities of the NIF under its
registration statement on Form N-1A filed with the Securities and Exchange
Commission ("Commission") under the Securities Act of 1933, as amended
("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the transactions
described in Section 1(a), 1(b) and 1(c) above, each Acquired Series shall
distribute to its shareholders of record as of the Exchange Date the
Acquiring Series Shares received by it, each Acquired Series shareholder of
record being entitled to receive that number of Acquiring Series Shares
equal to the proportion which the number of shares of beneficial interest,
par value $1.00 per share, of the Acquired Series held by such shareholder
bears to the total number of such shares of the Acquired Series outstanding
on such date, and shall take such further action as may be required,
necessary or appropriate under NIF's Amended Trust Indenture, Michigan law
and the Code to effect the complete liquidation and dissolution of NIF. NIF
will fulfill all reporting requirements under the 1940 Act, both before and
after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF. NIF represents and
warrants to and agrees with NIF III and the Acquiring Series that:
(a) NIF is a business trust validly existing under the laws of the
State of Michigan and has power to own all of its properties and assets and
to carry out its obligations under this Agreement.
(b) NIF is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. NIF has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for NIF, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of NIF, have been furnished to NIF III. Such statements of assets
and liabilities fairly present the financial position of NIF as of such
date and such statements of operations and changes in net assets fairly
reflect the results of operations and changes in net assets for the
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periods covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of NIF as of such
dates which are not disclosed therein.
(d) The Prospectus of NIF dated February 28, 1997 and its related
Statement of Additional Information dated February 28, 1997 (together, the
"NIF Prospectus"), in the form filed under the 1933 Act with the Commission
and previously furnished to NIF III, did not as of their date and do not as
of the date hereof contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of NIF, threatened against NIF.
(f) There are no material contracts outstanding to which NIF is a
party, other than as disclosed in the NIF Prospectus, and there are no such
contracts or commitments (other than this Agreement) which will be
terminated with liability to NIF on or prior to the Exchange Date.
(g) NIF has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statements of
assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of NIF's business as an investment company since that date.
(h) As used in this Agreement, the term "Investments" shall mean NIF's
investments shown on the statements of assets and liabilities at October
31, 1996 referred to in Section 2(g) hereof, as supplemented with such
changes as NIF shall make after October 31, 1996 in the ordinary course of
its business.
(i) NIF has filed or will file all federal and state tax returns
which, to the knowledge of NIF's officers, are required to be filed by NIF
and has paid or will pay all federal and state taxes shown to be due on
said returns or on any assessments received by NIF. All tax liabilities of
NIF have been adequately provided for on its books, and no tax deficiency
or liability of NIF has been asserted, and no question with respect thereto
has been raised, by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), NIF will
have full right, power and authority to assign, transfer and deliver the
Investments and any other of its assets and liabilities to be transferred
to NIF III and the Acquiring Series pursuant to this Agreement. On the
Exchange Date, subject only to the delivery of the Investments and any such
other assets and liabilities as contemplated by this Agreement, NIF III and
the Acquiring Series will acquire the Investments and any such other assets
subject to no encumbrances, liens or security interests in favor of any
third party creditor of NIF and, except as described in Section 2(k),
without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of NIF or NIF III, except as previously
disclosed to NIF III by NIF prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by NIF of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement (the "N-14 Registration Statement") to
be filed with the Commission by NIF III on Form N-14 relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of NIF
included therein (the "Proxy Statement"), on the effective date of the N-14
Registration Statement and insofar as they relate to NIF and the Acquired
Series, (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in
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the N-14 Registration Statement of which the Proxy Statement is a part, as
amended or supplemented by any amendments or supplements filed with the
Commission by NIF III, (together, the "N-14 Prospectus") insofar as it
relates to NIF and the Acquired Series, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that the representations and warranties in
this Section 2(m) shall apply only to statements of fact relating to NIF
and the Acquired Series contained in the N-14 Registration Statement, the
N-14 Prospectus or and the Proxy Statement, or omissions to state in any
thereof a material fact relating to NIF or any Acquired Series, as such
Registration Statement, N-14 Prospectus and Proxy Statement shall be
furnished to NIF in definitive form as soon as practicable following
effectiveness of the N-14 Registration Statement and before any public
distribution of the N-14 Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with NIF that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to NIF promptly
upon the completion thereof and will not as of their date contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of NIF to be transferred to the Acquiring
Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date,
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the N-14 Prospectus, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that none of the representations and warranties in this subsection shall
apply to statements in or omissions from the N-14 Registration Statement,
the N-14 Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by NIF or any Acquired Series for use
in the N-14 Registration Statement, the N-14 Prospectus or the Proxy
Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end investment
company, nor does NIF III have any plan or intention to redeem or otherwise
reacquire any shares of the Acquiring Series issued to NIF shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business. NIF III will actively continue NIF's
business in the same manner that NIF conducted it immediately before the
Reorganization and has no plan or intention to sell or otherwise dispose of
any of the assets to be acquired by NIF III in the Reorganization, except
for dispositions made in the course of its business and dispositions
necessary to maintain the status of each Acquiring Series as a regulated
investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to NIF pursuant to this
Agreement will be legally and validly issued by NIF III and will be fully
paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to NIF a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of NIF acquired
by the respective Acquiring Series, less the value of the liabilities of
NIF assumed, determined as hereafter provided in this Section 4.
(a) The net assets of NIF and each Acquired Series will be computed as
of the Valuation Time, using the valuation procedures set forth in the NIF
Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
NIF on a share deposit receipt registered in the name of NIF. NIF shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former NIF shareholder as may
be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of NIF, whether
accrued or contingent, described in subsection l(c) hereof in connection
with the acquisition of assets and subsequent dissolution of NIF or
otherwise, except that recourse for assumed liabilities relating to an
Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of NIF and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
NIF will be responsible for proxy solicitation and other costs associated
with the special meeting.
A-5
<PAGE> 56
Notwithstanding the foregoing, Nationwide Advisory Services, Inc.,
investment adviser of NIF and NIF III, will be responsible for 50% of NIF's
and NIF III's fees and expenses of the Reorganization and 50% of NIF's
proxy solicitation and other costs associated with the special meeting.
6. EXCHANGE DATE. Delivery of the assets of NIF to be transferred, assumption
of the liabilities of NIF to be assumed, and the delivery of Acquiring
Series Shares to be issued shall be made at the offices of NIF, at 9:00
A.M. on March 1, 1998, or at such other time, date, and location agreed to
by NIF and NIF III, the date and time upon which such delivery is to take
place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) NIF agrees to call a special meeting of its shareholders as soon
as is practicable for the purpose of considering the transfer of all of the
assets of NIF to, and the assumption of all of the liabilities of NIF by,
the Acquiring Series as herein provided, authorizing and approving this
Agreement, and authorizing and approving the liquidation and dissolution of
NIF, and it shall be a condition to the obligations of each of the parties
hereto that the holders of shares of beneficial interest, par value $1.00
per share, of NIF shall have approved this Agreement, and the transactions
contemplated herein, including the liquidation and dissolution of NIF, in
the manner required by law and NIF's Amended Trust Indenture at such a
meeting on or before the Valuation Time.
(b) NIF agrees that the liquidation and dissolution of NIF will be
effected in the manner provided in NIF's Amended Trust Indenture and in
accordance with applicable law, and that it will not make any distribution
of any Acquiring Series Shares to the shareholders of NIF without first
paying or adequately providing for the payment of all of NIF's known debts,
obligations and liabilities.
(c) Each of NIF and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14-Registration Statement, including the N-14 Prospectus
and N-14 Proxy Statement included therein.
8. CONDITIONS OF NIF'S OBLIGATIONS. The obligations of NIF hereunder shall be
subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF,
shall have been approved by the trustees and shareholders of NIF in the
manner required by law.
(b) NIF III shall have executed and delivered to NIF an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of NIF, contingent or otherwise, including liabilities existing at
the Valuation Time and described in Section 1(c) hereof in connection with
the transactions contemplated by this Agreement; provided that recourse for
assumed liabilities relating to an Acquired Series shall be limited to the
corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to NIF a statement, dated the Exchange Date, signed by NIF III's
Chairman and Treasurer (or other financial officer) certifying those facts
as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) NIF shall have received an opinion of Druen, Dietrich, Reynolds &
Koogler in form reasonably satisfactory to NIF, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to NIF as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be
A-6
<PAGE> 57
fully paid and nonassessable by NIF III and no shareholder of NIF III has
any preemptive right to subscription or purchase in respect thereof, (iii)
this Agreement has been duly authorized, executed and delivered by NIF III,
and assuming due authorization, execution and delivery of this Agreement by
NIF, is a valid and binding obligation of NIF III, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) NIF shall have received an opinion of Baker & Hostetler LLP
addressed to NIF, NIF III and each Acquiring Series and in a form
reasonably satisfactory to NIF dated the Exchange Date, with respect to the
matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, NIF and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and NIF shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF,
shall have been approved by the trustees and shareholders of NIF in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF made in this Agreement are true and
correct in all material respects as if made at and as of such dates, NIF
has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to each of such dates,
and NIF shall have furnished to NIF III a statement, dated the Exchange
Date, signed by NIF's Chairman and Treasurer (or other financial officer)
certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) NIF is a business trust validly
existing under the laws of the State of Michigan, (ii) this Agreement has
been duly authorized, executed and delivered by NIF and, assuming due
authorization, execution and delivery of this Agreement by NIF III, is a
valid and binding obligation of NIF, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
A-7
<PAGE> 58
creditors' rights generally and other equitable principles, (iii) NIF has
power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, NIF
will have duly assigned, conveyed, transferred and delivered such
Investments and other assets to NIF III, (iv) the execution and delivery of
this Agreement did not and the consummation of the transactions
contemplated hereby will not, violate NIF's Amended Trust Indenture or its
Code of Regulations, as amended, or any provision of any agreement known to
such counsel to which NIF is a party or by which it is bound, and (v) to
the knowledge of such counsel no consent, approval, authorization or order
of any court or governmental authority is required for the consummation by
NIF of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, 1934 Act and 1940 Act and such as may be
required under state securities or blue sky laws or state laws applicable
to business trusts. In rendering such opinion, Druen, Dietrich, Reynolds &
Koogler may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and NIF, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
Acquired Series' assets in exchange for the Acquiring Series Shares
followed by the distribution of the Acquiring Series Shares to the
shareholders of the Acquired Series and the assumption by the Acquiring
Series of the liabilities of Acquired Series will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and each
of the Acquiring Series and Acquired Series is a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no
gain or loss will be recognized by Acquired Series upon the transfer of the
assets of the Acquired Series in exchange for Acquiring Series Shares and
the assumption by the Acquiring Series of the liabilities of Acquired
Series or upon the distribution of Acquiring Series Shares by Acquired
Series to its shareholders in liquidation; (iii) no gain or loss will be
recognized by the shareholders of Acquired Series upon the exchange of
their shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) an Acquired Series shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the
period for which he or she held Acquired Series Shares exchanged therefor,
provided that he or she held such Shares as capital assets; (vi) no gain or
loss will be recognized by the Acquiring Series upon the receipt of the
assets of the corresponding Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of the corresponding Acquired Series; (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of the
assets in the hands of the corresponding Acquired Series immediately prior
to the transfer; and (viii) the Acquiring Series' holding periods of the
assets of the corresponding Acquired Series will include the period for
which such assets of the corresponding Acquired Series were held by the
corresponding Acquired Series. In rendering such opinion, Baker & Hostetler
LLP may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF III, NIF, and certain of its
shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by NIF in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31,
A-8
<PAGE> 59
1997 and the short taxable year beginning November 1, 1997 and ending on
the Valuation Time (after reduction for any capital loss carryover).
(i) NIF shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
NIF's entire right, title and interest in and to the Investments and all
other assets of NIF to the Acquiring Series.
(j) NIF III and NIF shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
10. TERMINATION. NIF III and NIF may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or NIF, after consultation
with counsel and by consent of their respective trustees or an officer
authorized by such trustees may, subject to Section 11 of this Agreement,
waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
NIF; provided, however, that following the special meeting of NIF's shareholders
called by NIF pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received by
NIF, or altering or changing to any material extent the amount or kind of
liabilities assumed by NIF III and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect NIF's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
NATIONWIDE INVESTING FOUNDATION
By /s/ JAMES F. LAIRD, JR.
------------------------------------
NATIONWIDE INVESTING FOUNDATION III
By /s/ CHRISTOPHER A. CRAY
------------------------------------
A-9
<PAGE> 60
PROXY
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE GROWTH FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of
NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 61
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 62
PROXY
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of
NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 63
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 64
PROXY
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE BOND FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of
NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 65
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 66
PROXY
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE MONEY MARKET FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of
NATIONWIDE INVESTING FOUNDATION (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 67
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 68
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 SUMMARY -- Comparative Expense Information; SUMMARY; SPECIAL
CONSIDERATIONS AND RISK FACTORS
4 THE PROPOSED TRANSACTION
5 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
6 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
7 Front Cover; SUMMARY -- Approval and Consummation of the
Proposed Transaction; SUMMARY -- Comparison of Voting Rights;
THE PROPOSED TRANSACTION; and MISCELLANEOUS -- Solicitation of
Proxies and Payment of Expenses; MISCELLANEOUS -- Substantial
Shareholders
8 SUMMARY -- Proposed Reorganization; SUMMARY -- Comparative
Expense Information; SUMMARY -- Fees and Expenses; THE PROPOSED
TRANSACTION -- Reasons for the Proposed Transaction; ADDITIONAL
COMPARATIVE INFORMATION
9 Not Applicable
</TABLE>
<PAGE> 69
Dear Nationwide Investing Foundation II Shareholder:
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998 to consider an important proposal affecting your funds. After
careful consideration, the Trustees unanimously approved this proposal because
they believe it is in the best interests of the funds and the shareholders, and
they recommend you vote FOR the proposal.
The proposal would reorganize the Nationwide Investing Foundation II (Trust)
funds, along with several other Nationwide-managed funds, into a new Ohio
business trust. The main reasons for the reorganization are:
- To create a single, modern business trust to improve operating
efficiencies,
- To take advantage of Ohio business trust laws, which are more favorable
to shareholders than Massachusetts laws,
- To eliminate outdated investment restrictions, which will expand the
investments available to the portfolio managers while keeping similar
investment objectives and risk profiles,
- To increase the number of funds available within the Nationwide family of
funds, and
- To offer more choices to shareholders through the introduction of
additional share classes.
In addition, the proposal would lower the investment advisory fees of the funds,
eliminate the 12b-1 fee on your shares, establish a separate fee for fund
administration and implement a sliding fee schedule so that certain fees, as a
percentage of net assets, decrease as assets increase to certain levels. The
proposed fee structure is more fully explained in the attached "Proxy Statement
Summary" and detailed in the attached Combined Prospectus/Proxy Statement.
Most features of the funds in the new trust will be the same as those of the
current funds. For instance, the portfolio managers will remain the same, and
procedures to purchase and redeem shares generally will not change, however,
shares received in the new trust as a part of the reorganization will not be
subject to contingent deferred sales charges when redeemed. If the
reorganization is approved, you will receive Class D shares of the funds in the
new trust in exchange for your current shares. The shares received will be equal
in value to the shares exchanged, and there will be no charges, fees, or federal
income tax consequences as a result.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE TAKE A
FEW MINUTES TO READ THE COMBINED PROSPECTUS/PROXY STATEMENT AND CAST YOUR VOTE.
IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED BY NO LATER THAN FEBRUARY 13, 1998.
HOWEVER, PLEASE CONSIDER VOTING EARLY, SO THAT THE FUNDS CAN AVOID THE ADDED
COSTS ASSOCIATED WITH FOLLOW-UP SOLICITATIONS.
The Trust is using Shareholder Communications Corporation, a professional proxy
firm, to assist shareholders in the voting process. As the date of the meeting
approaches, if we have not already heard from you, you may receive a telephone
call from Shareholder Communications reminding you to exercise your right to
vote.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
Dimon R. McFerson, Chairman
<PAGE> 70
PROXY STATEMENT SUMMARY
The following Q & A is a brief summary of the proposal to be considered at the
special meeting. The information below is qualified by the more detailed
information included elsewhere in the attached Combined Prospectus/ Proxy
Statement. Accordingly, please read all the enclosed materials before voting.
PLEASE REMEMBER TO VOTE YOUR SHARES AS SOON AS POSSIBLE.
Q: Why are the Trustees recommending the reorganization?
A: The Nationwide Investing Foundation II (Trust) Trust was established in 1985
as a Massachusetts business trust. The Trust is not up-to-date with current
industry practices, which results in unnecessary investment limitations and
some inefficiencies in day-to-day operations. Also, Nationwide Advisory
Services, Inc. manages eight mutual funds in two other affiliated trusts,
Nationwide Investing Foundation (NIF) and Financial Horizons Investment Trust
(FHIT) which, if the reorganization is approved, will be combined with the
NIF II funds in the new Ohio business trust. The reorganization and
consolidation of all these Nationwide-managed funds into a new trust will
streamline operations, expand the number of funds available in the Nationwide
family, eliminate unnecessary investment restrictions, and permit the funds
to offer multiple share classes to their shareholders.
Q: How will the reorganization affect the value of my account?
A: The value of your account will not change. If the reorganization is approved,
you will receive Class D shares of the funds in the new trust in exchange for
your current shares. The shares received will be equal in value to the shares
exchanged, and there will be no charges, fees, or federal income tax
consequences to you as a result of the reorganization.
Q: Will the proposal significantly affect the way the funds are managed?
A: No. The portfolio managers and risk profiles of the funds will not
significantly change. The proposal will eliminate certain investment
restrictions that are no longer necessary, which will expand the range of
underlying investments from which the portfolio managers can choose.
Q: What effect will the proposal have on fund expenses?
A: Total expenses for the Tax-Free Income Fund will decrease by 0.27% (27/100 of
1%, or 27 basis points) due to reductions in fees. Total expenses for the
U.S. Government Income Fund will decrease by 0.28% (28/100 of 1%, or 28 basis
points) due to reductions in fees.
Q: Why am I receiving Class D shares in the exchange?
A: All of the funds in the new trust, except for the new Nationwide Money Market
Fund, will begin issuing Class A, Class B, and Class D shares in March 1998.
Multiple class structures are very common in the mutual fund industry,
providing investors with optional methods of purchasing shares.
Class A shares will have a front-end sales charge and an annual 12b-1 fee.
Class B shares will carry a contingent deferred sales charge ("CDSC") instead
of a front-end charge, and will also have a 12b-1 fee.
Class D shares are offered with a front-end sales charge similar to Class A
shares; however, Class D shareholders will not be subject to 12b-1 fees or
CDSC's.
The Nationwide Money Market Fund has no sales charges or 12b-1 fees, and
therefore will issue only shares without any class designation.
Q: How do I vote my shares?
A: You can vote by mail or in person at the special meeting. To vote by mail,
sign and send us the enclosed proxy voting card in the envelope provided. Or
you can vote in person at the special meeting set for February 16, 1998.
<PAGE> 71
NATIONWIDE INVESTING FOUNDATION II
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
TELEPHONE: (800) 848-0920
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE U.S. GOVERNMENT INCOME FUND
TO BE HELD ON FEBRUARY 16, 1998
To The Shareholders Of Nationwide
Investing Foundation II:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of all of the funds of Nationwide Investing Foundation II (the
"Trust") will be held on Monday, February 16, 1998, at 2:00 P.M. (Eastern Time)
concurrently with special meetings of two other trusts of the Nationwide family
of funds in Jeffers Auditorium, One Nationwide Plaza, Columbus, Ohio 43215. The
Meeting is being called for the following purposes:
(1) To approve an Agreement and Plan of Reorganization dated as of
November 24, 1997 (the "Plan"), between the Trust and Nationwide Investing
Foundation III (the "New Trust"), and the transactions contemplated
thereby, which include:
(a) the transfer of all of the assets of the Trust's Nationwide
Tax-Free Income Fund to a series of the New Trust which bears the same
name (the "New Tax-Free Income Fund"), in exchange for Class D shares of
the New Tax-Free Income Fund, and the assumption by the New Tax-Free
Income Fund of all of the liabilities of the Trust's Nationwide Tax-Free
Income Fund, followed by the distribution to shareholders of the Trust's
Nationwide Tax-Free Income Fund of such Class D shares of the New
Tax-Free Income Fund so received; and
(b) the transfer of all of the assets of the Trust's Nationwide
U.S. Government Income Fund to the Nationwide Intermediate U.S.
Government Bond Fund, a series of the New Trust (the "New Intermediate
Government Bond Fund"), in exchange for Class D shares of the New
Intermediate Government Bond Fund, and the assumption by the New
Intermediate Government Bond Fund of all of the liabilities of the
Trust's Nationwide U.S. Government Income Fund, followed by the
distribution to shareholders of the Trust's Nationwide U.S. Government
Income Fund of such Class D shares of the New Intermediate Government
Bond Fund so received; and
(2) To transact such other business as may properly come before the
Meeting, or any adjournment(s) thereof, including any adjournment(s)
necessary to obtain requisite quorums and/or approvals.
The Board of Trustees of the Trust has fixed the close of business on
December 18, 1997, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or any
adjournments thereof. The enclosed Combined Prospectus/Proxy Statement contains
further information regarding the Meeting and the proposals to be considered.
The enclosed Proxy Card is intended to permit you to vote even if you do not
attend the Meeting in person.
<PAGE> 72
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT
LEAST A MAJORITY OF EACH FUND'S SHARES OUTSTANDING AND ENTITLED TO VOTE MUST BE
PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED
BUT UNMARKED PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS
PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees
James F. Laird, Jr., Treasurer
January , 1998
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
<PAGE> 73
COMBINED PROSPECTUS/PROXY STATEMENT
January , 1998
<TABLE>
<S> <C>
Acquisition and Assumption of All of the Acquisition and Assumption of All of the
Assets and Assets and
Liabilities of Nationwide Tax-Free Income Fund Liabilities of Nationwide U.S. Government
of Income Fund of Nationwide Investing Foundation
Nationwide Investing Foundation II II
In Exchange for In Exchange for
Class D Shares of Nationwide Tax-Free Income Class D Shares of Nationwide Intermediate
Fund U.S. Government Bond Fund of
of Nationwide Investing Foundation III Nationwide Investing Foundation III
Nationwide Investing Foundation II Nationwide Investing Foundation III
Three Nationwide Plaza Three Nationwide Plaza
Columbus, Ohio 43215 Columbus, Ohio 43215
(800) 848-0920 (800) 848-0920
</TABLE>
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Nationwide Tax-Free Income Fund and Nationwide U.S. Government Income Fund
(collectively, the "Acquired Funds," and individually, an "Acquired Fund") of
Nationwide Investing Foundation II, a Massachusetts business trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at a Special Meeting of Shareholders of the
Trust (the "Meeting"), to be held in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio 43215, on Monday, February 16, 1998, beginning at 2:00 P.M.
(Eastern Time).
The Trustees of the Trust are seeking your approval of an Agreement and
Plan of Reorganization (the "Plan"), which contemplates that:
(i) Nationwide Tax-Free Income Fund of Nationwide Investing Foundation
III (the "New Tax-Free Income Fund") will acquire all of the assets and
assume all of the liabilities of Nationwide Tax-Free Income Fund of the
Trust in exchange for Class D shares of the New Tax-Free Income Fund; and
(ii) Nationwide Intermediate U.S. Government Bond Fund of Nationwide
Investing Foundation III (the "New Intermediate Government Bond Fund") will
acquire all of the assets and assume all of the liabilities of Nationwide
U.S. Government Income Fund of the Trust in exchange for Class D shares of
the New Intermediate Government Bond Fund.
The New Tax-Free Income Fund and the New Intermediate Government Bond Fund
of Nationwide Investing Foundation III (the "New Trust") are sometimes
collectively referred to herein as the "Acquiring Funds" and individually as an
"Acquiring Fund." Following such exchange, the Class D shares of the
corresponding Acquiring Fund received by each Acquired Fund will be distributed
to the Acquired Funds' shareholders and the Acquired Funds and the Trust will be
liquidated and dissolved. Each of these exchange and distribution transactions
is sometimes referred to herein as the "Reorganization."
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Funds
that a prospective investor, including shareholders of the Trust, should know
before investing. Additional information about the Reorganization and the
Acquiring Funds is contained in a separate Statement of Additional Information
which has been filed with the Securities and Exchange Commission (the
"Commission") and is available upon request without charge by calling the New
Trust at (800) 848-0920 or writing to the New Trust at the address set forth
above. The Statement of Additional Information bears the same date as this
Combined Prospectus/Proxy Statement and is incorporated by reference herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 74
Upon completion of the Reorganization, you will receive full and fractional
Class D shares of the corresponding Acquiring Fund equal in value when issued to
the shares of the Acquired Fund owned by you immediately prior to the
Reorganization. No commissions or sales loads will be charged in connection with
the Reorganization, including any contingent deferred sales charge, and there
will be no adverse federal income tax consequences. You should separately
consider any other tax consequences in consultation with your tax advisers.
As discussed in detail herein, the investment objectives and strategy of
each Acquiring Fund are substantially similar to those of the corresponding
Acquired Fund. There are some differences between investment policies and
restrictions, as well as differences in fee levels and expenses, which are
described in detail below.
The Prospectus of the Acquiring Funds, dated January 6, 1998, is
incorporated by reference into this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
The Acquired Funds' Prospectus dated February 28, 1997, as supplemented
December 8, 1997, and December 23, 1997, contains additional information about
the Acquired Funds, has been filed with the Commission, is incorporated by
reference herein and is available without charge by writing the Trust at Three
Nationwide Plaza, Columbus, Ohio 43215, or by calling the Trust at (800)
848-0920. Copies of documents requested will be sent by first-class mail to the
requesting shareholder within one business day of the request.
2
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 4
SPECIAL CONSIDERATIONS AND RISK FACTORS............................................... 11
THE PROPOSED TRANSACTION.............................................................. 17
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................ 21
ADDITIONAL COMPARATIVE INFORMATION.................................................... 27
MISCELLANEOUS......................................................................... 34
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION..................................... A-1
</TABLE>
3
<PAGE> 76
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Combined Prospectus/Proxy Statement, in
the Plan, a copy of which is attached to this Combined Prospectus/Proxy
Statement as Exhibit A, in the accompanying Prospectus of the Acquiring Funds
dated January 6, 1998, and in the Prospectus of the Acquired Funds dated
February 28, 1997, as supplemented December 8, 1997, and December 23, 1997.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of each Acquired Fund to the corresponding Acquiring Fund in exchange for
Class D shares of such Acquiring Fund and the assumption by the New Trust on
behalf of the Acquiring Funds of all of the liabilities of the corresponding
Acquired Fund. The Plan also calls for the distribution of such Class D shares
of the Acquiring Funds to the corresponding Acquired Fund's shareholders in
complete liquidation of the Trust and that Acquired Fund. As a result of the
Reorganization, each shareholder of an Acquired Fund will become the owner of
that number of full and fractional Class D shares of the corresponding Acquiring
Fund having an aggregate value equal to the aggregate value of the shareholder's
shares of the Acquired Fund as of the close of business on the day preceding the
date that the Acquired Fund's assets are exchanged for Class D shares of the
corresponding Acquiring Fund.
Proposals for similar reorganizations are simultaneously being made to
shareholders of Nationwide Investing Foundation and Financial Horizons
Investment Trust, two other trusts within the Nationwide family of funds.
Management of the Trust and the New Trust believes that the Reorganization
is necessary in order to be more efficient in the operation of the Nationwide
family of funds, including providing for more consistent investment policies and
restrictions and removing those restrictions which are out-dated or no longer
required by Federal or state law, and providing shareholders with more options
in purchasing shares of the Nationwide family of funds through the introduction
of multiple classes of shares. In addition the annual operating expenses of each
of the Acquiring Funds, including the investment advisory fees, are expected to
be lower than the current expenses of the Acquired Funds (as described in
greater detail below). In determining to break out the administrative services
provided to each of the Acquiring Funds and to charge a separate fee for such
services, management of the Trust and the New Trust believes that such fees are
needed to cover the increased costs of improved technology and the need to
maintain high quality compliance and administrative services in light of the
ever-increasing sophistication and competitiveness of the mutual fund industry.
For these reasons (which are discussed in greater detail below under "THE
PROPOSED TRANSACTION -- REASONS FOR THE REORGANIZATION") the Board of Trustees
of the Trust, including the Trustees of the Trust who are not "interested
persons" (the "Independent Trustees"), as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), at a meeting held on November
7, 1997, unanimously concluded that the Reorganization would be in the best
interests of the Trust, the Acquired Funds and their shareholders and that the
interests of the Acquired Funds' existing shareholders will not be diluted as a
result of the transactions contemplated by the Reorganization and therefore has
submitted the Plan for approval by the Acquired Funds' shareholders. The Board
of Trustees of the New Trust has reached similar conclusions with respect to the
Acquiring Funds and with respect to their shareholders subsequent to the
Reorganization and has also approved the Reorganization with respect of the
Acquiring Funds.
Approval of the Reorganization with respect to an Acquired Fund will
require the affirmative vote of (1) a majority of the outstanding shares of the
Trust and (2) a majority of the outstanding voting securities of each Acquired
Fund, which means the lesser of (a) 67% or more of the outstanding shares of an
Acquired Fund that are present in person or by proxy at the meeting, if holders
of more than 50% of the outstanding shares of that Acquired Fund are present in
person or by proxy, or (b) more than 50% of the outstanding shares of such
Acquired Fund. See "Approval and Consummation of the Proposed Transaction"
below.
4
<PAGE> 77
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Acquired Funds in understanding the costs and
expenses that a Class D shareholder in an Acquiring Fund would bear directly or
indirectly. The shareholder transaction expenses for the Acquired Funds are
based upon such expenses for the fiscal year ended October 31, 1997. The
expenses for the Class D shares of each of the Acquiring Funds are estimated for
the fiscal year following the Reorganization and ending October 31, 1998.
Because each Acquiring Fund will have no operations prior to completion of the
Reorganization, the information below for the Acquiring Funds on a pro forma
basis reflects each Acquiring Fund's expected operating expenses for fiscal year
ending October 31, 1998.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
TAX-FREE
NATIONWIDE INCOME FUND
TAX-FREE ON A
INCOME FUND PRO FORMA BASIS*
----------- ----------------
<S> <C> <C>
Sales Charge (as a percentage of offering price).................. 0% 4.50%
Maximum Contingent Deferred Sales Charge (as a percentage of
redemption proceeds)............................................ 5.00% 0%
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees........................................ 0.65% 0.50%
12b-1 Fees After Fee Waiver..................................... 0.20(2) None
Other Expenses.................................................. 0.11 0.19(1)
---------- ------ ----
Total Fund Operating Expenses After Fee Waiver.................. 0.96% 0.69%
========== ==========
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
NATIONWIDE OF THE NEW
TAX-FREE TAX-FREE
NATIONWIDE INCOME FUND INCOME FUND
TAX-FREE ASSUMING NO ON A
INCOME FUND REDEMPTION PRO FORMA BASIS*
----------- ----------- ----------------
<S> <C> <C> <C>
One Year............................................. $ 60 $ 10 $ 52
Three Years.......................................... $ 61 $ 31 $ 66
Five Years........................................... $ 63 $ 53 $ 81
Ten Years............................................ $ 118 $ 118 $ 126
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE> 78
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
INTERMEDIATE
NATIONWIDE GOVERNMENT BOND
U.S. FUND ON A
GOVERNMENT PRO FORMA
INCOME FUND BASIS*
----------- ---------------
<S> <C> <C>
Sales Charge (as a percentage of offering price).................. 0% 4.50%
Maximum Contingent Deferred Sales Charge (as a percentage of
redemption proceeds)............................................ 5.00% 0%
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees........................................ 0.65% 0.50%
12b-1 Fees After Fee Waiver..................................... 0.20(2) None
Other Expenses.................................................. 0.22 0.29(1)
---------- ------ ----
Total Fund Operating Expenses After Fee Waiver.................. 1.07% 0.79%
========== ==========
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
NATIONWIDE INTERMEDIATE
NATIONWIDE U.S. GOVERNMENT GOVERNMENT BOND
U.S. INCOME FUND FUND ON A
GOVERNMENT ASSUMING NO PRO FORMA
INCOME FUND REDEMPTION BASIS*
----------- --------------- ---------------
<S> <C> <C> <C>
One Year............................................ $ 61 $ 11 $ 53
Three Years......................................... $ 64 $ 34 $ 69
Five Years.......................................... $ 69 $ 59 $ 87
Ten Years........................................... $ 131 $ 131 $ 138
</TABLE>
- ---------------
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(1) "Other Expenses" are based upon estimated amounts for the current fiscal
year.
(2) Nationwide Advisory Services, Inc. ("NAS"), as the Acquired Funds'
distributor, charges a 12b-1 fee of 0.20%, rather than the 0.35% allowed
under the Trust's Rule 12b-1 Plan, and has agreed to waive the remaining
0.15% until further written notice.
* These calculations reflect the expense information for the relevant
Acquiring Fund after giving effect to the Reorganization.
** The Commission requires use of a 5% annual return figure for purposes of the
example. Actual return for a Fund may be greater or less than 5%.
NO CONTINGENT DEFERRED SALES CHARGE WILL BE IMPOSED UPON SHARES OF THE
ACQUIRED FUNDS SURRENDERED IN CONNECTION WITH THE REORGANIZATION NOR ON THE
REDEMPTION OF CLASS D SHARES OF THE ACQUIRING FUNDS AT ANY TIME.
The one, three, five and ten year figures in the Examples above for the New
Tax-Free Income Fund and the New Intermediate Government Bond Fund reflect the
deduction of the 4.5% maximum front-end sales charge. However, Class D shares of
an Acquiring Fund received by a shareholder of an Acquired Fund pursuant to the
Reorganization will not be subject to any such charge. Absent such front-end
sales charge, the one, three, five and ten year figures for the Class D shares
of the New Tax-Free Income Fund, on a pro forma basis, would be $7, $22, $38 and
$85, respectively, and the one, three, five and ten year figures for the Class D
shares of the New Intermediate Government Bond Fund, on a pro forma basis, would
be $8, $25, $44 and $98.
6
<PAGE> 79
Any Class D shares of an Acquiring Fund purchased after the Reorganization,
other than pursuant to dividend reinvestments, will be subject to the 4.5% sales
load unless the shareholder otherwise qualifies for a waiver or reduction of the
sales load. See the accompanying Prospectus of the Acquiring Funds for further
information regarding sales load reductions and waivers.
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of and as a condition
to the Reorganization, the Acquired Funds and the Trust will have received
opinions of counsel that, upon the consummation of the Reorganization and the
transfer of the assets of the Acquired Funds, no gain or loss will be recognized
by an Acquired Fund or its shareholders for federal income tax purposes; the
holding period and aggregate tax basis for the Acquiring Fund Class D shares
that are received by a corresponding Acquired Fund shareholder will be the same
as the holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder; and the holding period and tax basis of the
assets of an Acquired Fund in the hands of the corresponding Acquiring Fund as a
result of the Reorganization will be the same as the holding period and tax
basis of the assets in the hands of the Acquired Fund immediately prior to the
Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Trustees of the Trust, at a meeting held on November 7, 1997, determined
unanimously that the Reorganization is in the best interests of each of the
Acquired Funds and the Trust and that the interests of the existing shareholders
of the Acquired Funds will not be diluted as a result of the Reorganization.
Similarly, on such date the Board of Trustees of the New Trust unanimously
determined that the Reorganization is in the best interests of the New Trust and
the Acquiring Funds. The proposed Reorganization of each of the Acquired Funds
of the Trust with and into the corresponding Acquiring Funds of the New Trust is
part of a larger plan to reorganize each of the Trust, Nationwide Investing
Foundation (which consists of four separate funds) and Financial Horizons
Investment Trust (which consists of four separate funds) ("FHIT"), each a
separate stand-alone investment company, into separate corresponding funds of
the New Trust. Two smaller funds of FHIT which have similar investment
objectives and styles to two other Nationwide funds will be combined with such
other funds in the New Trust. One such smaller fund of FHIT is the Municipal
Bond Fund which will combine with the Trust's Nationwide Tax-Free Income Fund in
the New Tax-Free Income Fund.
It is anticipated that the Acquiring Funds will also offer two other
classes of shares beginning in March 1998.
To be approved, the Plan will require the affirmative vote of (1) a
majority of the outstanding shares of the Trust and (2) a majority of the
outstanding voting securities of each Acquired Fund, as defined above under
"SUMMARY -- Proposed Reorganization." The Reorganization with respect to each
Acquired Fund is contingent on the approval of the Reorganization with respect
to the Trust's other Acquired Fund and upon the approval of a similar
reorganization by shareholders of Nationwide Investment Foundation. The
Reorganization, however, is not contingent upon the approval of a similar
reorganization by shareholders of FHIT. If the proposed Reorganization is not
approved, the Trust's and the New Trust's Boards of Trustees will consider what
other alternatives would be in the shareholders' best interests. If the Plan is
approved at the Meeting by the shareholders of each Acquired Fund, the effective
date of the Reorganization (the "Closing Date") is expected to be on or about
March 1, 1998, subject, however, to the receipt by the Trust and the New Trust
of an order of exemption from the Commission with respect to the Reorganization.
There can be no assurance that such an order will be granted. However, the
Closing Date may be such earlier or later date as may be determined by the Trust
and the New Trust.
Shareholders of record of the Acquired Funds at the close of business on
December 18, 1997 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting or any adjournment thereof. As of the Record Date, there were
28,505,104.616 outstanding shares of the two series of the Trust. Of those
shares, the following constituted the issued and outstanding shares of each
Acquired Fund on the Record Date:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FUND SHARES OUTSTANDING
--------------------------------------------------------- ------------------
<S> <C>
Nationwide Tax-Free Income Fund.......................... 24,270,502.494
Nationwide U.S. Government Income Fund................... 4,234,602.122
</TABLE>
7
<PAGE> 80
As of the Record Date, there were no outstanding shares of any of the nine
series of the New Trust, including the Acquiring Funds. Each of the Acquiring
Funds has been created specifically for the purpose of acquiring the assets and
assuming the liabilities of its corresponding Acquired Fund. The Acquiring
Funds, prior to the effective date of the Reorganization, will not have
commenced operations.
Each shareholder of the Acquired Fund will be entitled to one vote for each
share, and a fractional vote for each fractional share, held by such
shareholder. Holders of a majority of the shares of each of the Acquired Funds
at the close of business on the Record Date will be deemed to constitute a
quorum for the transaction of business at the Meeting.
Any proxy which is properly executed and received in time to be voted at
the Meeting will be counted in determining whether a quorum is present and will
be voted in accordance with the instructions marked thereon. In the absence of
any instruction, such proxy will be voted in favor of the approval of the Plan.
Abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a particular matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will not be counted for or against any proposal to which they relate.
Abstentions will be counted for purposes of determining whether a quorum is
present. Broker non-votes will not be counted for purposes of determining
whether a quorum is present. Because approval of the Plan requires the vote of a
majority of the Trust's issued and outstanding shares as of the Record Date,
abstentions and broker non-votes will have the effect of a vote against the
proposal to approve the Plan.
The duly appointed Proxies may, in their discretion, vote upon such other
matters as properly may come before the Meeting or any adjournment(s) thereof,
including any proposal to adjourn a meeting, whether or not a quorum is present,
to permit the continued solicitation of proxies in favor of the Reorganization.
In case any such adjournment is proposed with respect to the Plan, the duly
appointed Proxies will vote those proxies required to be voted against the Plan
against adjournment. A shareholder of an Acquired Fund may revoke his or her
proxy at any time prior to its exercise by delivering written notice of
revocation or by executing and delivering a later-dated proxy to the Secretary
of the Trust, at Three Nationwide Plaza, Columbus, Ohio 43215, or by attending
the Meeting in person to vote the shares of the Acquired Funds held by such
shareholder. The date of the first mailing of this Combined Prospectus/Proxy
Statement to shareholders is on or about January 12, 1998.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Funds and the
corresponding Acquiring Funds have substantially similar investment objectives,
and generally have the same investment policies and restrictions, although there
are some differences shareholders should consider.
Nationwide Tax-Free Income Fund seeks as high a level of current income
exempt from Federal income tax (although shareholders may be subject to state
and local tax and the Federal alternative minimum tax) as is consistent with the
preservation of capital through investing in a diversified portfolio of
high-quality intermediate-term municipal obligations with maturities ranging
from three to 10 years and long-term municipal obligations with maturities in
excess of 10 years. The New Tax-Free Income Fund seeks as high a level of
current income exempt from Federal income tax (although shareholders may be
subject to state and local tax) as is consistent with the preservation of
capital through investing in investment grade municipal obligations. The New
Tax-Free Income Fund has adopted a fundamental investment policy which requires
it to invest at least 80% of its net assets in securities the 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.
The major emphasis in portfolio securities selection for the Nationwide
Tax-Free Income Fund is on a diversified portfolio of municipal obligations
rated within the three highest credit categories assigned by Moody's Investors
Services, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"), or if not
rated, are of equivalent investment quality as determined by NAS. The Nationwide
Tax-Free Income Fund may also invest up to 10% of its net assets in securities
rated BBB by S&P or Baa by Moody's, or, if not rated, are of equivalent
investment quality as determined by NAS.
The major emphasis on portfolio securities selection for the New Tax-Free
Income Fund is on municipal obligations rated within the four highest rating
categories (investment grade) by a nationally recognized statistical
8
<PAGE> 81
rating organization ("NRSRO") (e.g., S&P or Moody's), or if not rated, are of
equivalent investment quality as determined by NAS. The ability of the New
Tax-Free Income Fund to invest in securities within the fourth highest rating
category without limit is much broader than that of the Nationwide Tax-Free
Income Fund and therefore may increase the New Tax-Free Income Fund's exposure
to the risks of investing in medium-grade securities. For further information
regarding medium-grade securities, see "SPECIAL CONSIDERATIONS AND RISK
FACTORS -- Medium-Grade Securities" below.
Nationwide U.S. Government Income Fund seeks as high a level of current
income as is consistent with the preservation of capital by investing primarily
in securities of the U.S. Government, its agencies and instrumentalities. The
New Intermediate Government Bond Fund seeks as high a level of current income as
is consistent with the preservation of capital. Under normal market conditions
the New Intermediate Government Bond Fund will invest at least 65% of its total
assets in bonds issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. For purposes of this policy, bonds consist of debt
obligations of all types including bonds of varying maturities, bills and notes.
Nationwide U.S. Government Income Fund attempts to maintain an average
dollar-weighted maturity of between three and 10 years. The New Intermediate
Government Bond Fund will attempt to maintain an average duration of between
three and one-half and six years. Each of these Funds normally invests or will
invest all of its net assets in securities issued by the U.S. Government, its
agencies and instrumentalities and in repurchase agreements collateralized by
these securities. In selecting securities for these Funds, NAS utilizes
interest-rate expectations, yield-curve analysis, economic forecasting, market
sector analysis, and other security selection techniques. Such Funds'
investments will be concentrated in areas of the intermediate U.S. Government
securities market (based upon sector, coupon or maturity) that NAS believes are
relatively undervalued.
For a discussion of the differences between the investment policies and
restrictions of the Acquired Funds and the corresponding Acquiring Funds, see
"COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS."
FEES AND EXPENSES. Each of the Acquired Funds pays an investment advisory
and management fee, computed daily and paid monthly, at the annual rate of 0.65%
on the first $250 million of average daily net assets, 0.60% on the next $250
million, 0.55% on the next $250 million and 0.50% on the average daily net
assets in excess of $750 million of the value of its average daily net assets to
NAS as the Trust's investment adviser. Nationwide Investors Services, Inc., a
wholly owned subsidiary of NAS ("NISI"), serves as transfer agent for each of
the Acquired Funds and receives a fee from those Funds equal to $18 per account.
With respect to the Acquiring Funds, NAS also provides investment advisory
services to those Funds for a fee computed daily and paid monthly at the
following annual rates: 0.50% of such Fund's average net assets up to $250
million, 0.475% of such Fund's average net assets of $250 million up to $1
billion, 0.45% of such Fund's average net assets of $1 billion up to $2 billion,
0.425% of such Fund's average net assets of $2 billion up to $5 billion, and
0.40% of such Fund's average net assets of $5 billion or more. Each of the
Acquiring Funds also pays NAS an administration fee of 0.07% of such Fund's
average net assets up to $250 million; 0.05% of such Fund's average net assets
of $250 million up to $1 billion, and 0.04% of such Fund's average net assets of
$1 billion or more. Finally, each Acquiring Fund pays a fee to NISI for transfer
agency services equal to $18 per account.
Shares of each of the Acquired Funds and the Acquiring Funds are
distributed by NAS, a registered broker-dealer. The Trust has adopted a
Distribution Plan (the "12b-1 Plan") under Rule 12b-1 of the 1940 Act which
permits the Acquired Funds to compensate NAS, as the Acquired Funds'
distributor, for expenses associated with the distribution of their shares.
Under the 12b-1 Plan, each Acquired Fund is authorized to pay NAS compensation
accrued daily and paid monthly at a maximum annual rate of 0.35% of such
Acquired Fund's average daily net assets. Currently each Acquired Fund accrues
daily and pays monthly to NAS compensation at the annual rate of 0.20% of such
Fund's average daily net assets. NAS will continue to waive the remaining 0.15%
until further written notice to shareholders. NAS, as distributor, also receives
the proceeds of a contingent deferred sales charge imposed on certain
redemptions of shares of the Acquired Funds, as described more fully below under
"COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES." no contingent
deferred sales charge will be imposed on shares of the Acquired Funds
surrendered as a part of the Reorganization. The
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<PAGE> 82
Class D shares of the Acquiring Funds pay no distribution fees or expenses and
are not subject to a contingent deferred sales charge although such shares are
subject to a front-end sales load as described below.
The expense ratios of the Acquiring Funds subsequent to the Reorganization
are expected to be lower than the current expense ratio of the corresponding
Acquired Fund. See "THE PROPOSED TRANSACTION -- REASONS FOR THE PROPOSED
TRANSACTION." The chart below compares the total annual operating expenses (as a
percent of average net assets) of each Acquired Fund for the fiscal year ended
October 31, 1997, which includes the Rule 12b-1 fee waiver, to the estimated
total annual operating expenses (as a percent of average net assets) of the
corresponding Acquiring Fund for the fiscal year ending October 31, 1998,
assuming the same level of net assets for such Acquiring Fund after the
Reorganization:
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Nationwide Tax-Free Income Fund New Tax-Free Income Fund
0.96%* 0.69%
Nationwide U.S. Government Income Fund New Intermediate Government Bond Fund
1.07%* 0.79%
</TABLE>
- ---------------
* Reflects NAS' current Rule 12b-1 fee waiver from 0.35% to 0.20% of each
Acquired Fund's average daily net assets.
For further information regarding the expense ratios of each of the
Acquired and Acquiring Funds, see "SUMMARY -- Comparative Expense Information"
above.
COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES. Shares of each
of the Acquired and Acquiring Funds are offered through NAS as principal
underwriter. Net asset value of each Fund is determined as of the close of
regular trading on the New York Stock Exchange (usually 4 p.m. Eastern Time),
each day that the exchange is open and on such other days as the Board of
Trustees determines and on days in which there is sufficient trading in the
portfolio securities of a Fund to affect materially the net asset value of that
Fund. The minimum initial investment in each of the Acquired Funds and Acquiring
Funds is $1,000 (although such minimum is lowered for investments made through
certain plans) and the minimum subsequent investment is $100.
Shares of the Acquired Funds are offered at net asset value without any
sales charge, but are subject to a contingent deferred sales charge. A
contingent deferred sales charge is imposed on any redemption which causes the
current value of a shareholder's account to fall below the total amount of all
purchases made during the preceding five years. The contingent deferred sales
charge is never imposed on dividends, whether paid in cash or reinvested, or on
appreciation in value. The contingent deferred sales charge applies only to the
lesser of the original investment or current market value. Where the charge is
imposed, the amount of the charge depends upon the number of months since the
shareholder made the purchase payment from which an amount is being redeemed,
according to the following table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Months since purchase payment was made: 0-12 13-24 25-36 37-48 49-60 61 & over
Contingent deferred sales charge percentage: 5% 4% 3% 2% 1% none
</TABLE>
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<PAGE> 83
A sales charge is imposed upon the sale of the Class D shares of the
Acquiring Funds, equal to 4.5% of the public offering price (4.71% of the net
amount invested). The sales charge is reduced on investments of $50,000 or more,
as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
AS A
PERCENTAGE OF THE
NET AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION AMOUNT INVESTED OF OFFERING PRICE
- ---------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Less than $100,000........................................ 4.71% 4.5%
$100,000 but less than $250,000........................... 3.63 3.5
$250,000 but less than $500,000........................... 2.56 2.5
$500,000 but less than $1,000,000......................... 1.52 1.5
$1,000,000 or more........................................ 0.50 0.5
</TABLE>
NO FRONT END SALES CHARGE WILL BE IMPOSED ON CLASS D SHARES RECEIVED IN
CONNECTION WITH THE REORGANIZATION.
The front end sales charge on the Class D shares of the Acquiring Funds may
be waived under certain specified conditions.
With respect to the shares of each of the Acquired Funds and the Class D
shares of the Acquiring Funds, there is no sales charge imposed upon the
reinvestment of dividends and distributions.
Redemption orders for shares of both the Acquired Funds and the Acquiring
Funds must be placed with NAS. Investors may redeem shares of the Acquired Funds
or the Acquiring Funds at the net asset value per share next determined
following the receipt by NAS of the properly completed redemption request,
although as discussed above, redemptions of shares of the Acquired Funds may be
subject to a contingent deferred sales load. A request for redemption may be
made by telephone, by mail or by fax.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of an Acquired Fund may be
exchanged for shares of the other Acquired Fund without sales charge. Shares of
the Acquired Funds may also be exchanged for shares of other Nationwide Funds
without the imposition of the applicable contingent deferred sales charge but
only upon payment of the applicable front-end sales charge, unless a sales
charge has already been paid.
Class D shares of an Acquiring Fund are generally exchangeable without a
sales charge for Class D shares of any other Acquiring Fund or any other fund of
the New Trust which offers Class D shares and for shares of the New Trust's
Nationwide Money Market Fund.
COMPARISON OF DIVIDEND POLICIES. Each of the Acquired Funds and the
Acquiring Funds declares dividends of net investment income daily and pays such
dividends monthly. Each of the Acquired Funds and Acquiring Funds will
distribute all capital gains at least annually, if any. In addition,
shareholders of the Acquired Funds and the Acquiring Funds receive dividends and
distributions in the form of additional shares and not in cash unless otherwise
requested by the shareholder and such dividends and distributions are of $5 or
more each.
COMPARISON OF VOTING RIGHTS. Each shareholder of an Acquired Fund and an
Acquiring Fund is entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held on each matter
submitted to the vote of such Fund's shareholders, regardless of the net asset
value of such share.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies and strategies of each Acquired
Fund and the corresponding Acquiring Fund are substantially similar, the overall
level of investment risk should not materially change as a result of the
Reorganization. However, in some cases an Acquiring Fund may invest in certain
securities or instruments in which the corresponding Acquired Fund may not
invest. There can be no assurance that any Acquired Fund or Acquiring Fund will
achieve its investment objectives.
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<PAGE> 84
The following discussion is qualified in its entirety by the disclosure set
forth in the Acquiring Funds' Prospectus accompanying this Combined
Prospectus/Proxy Statement and in the Acquired Funds' Prospectus. For additional
information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
An investment in any of the Acquired Funds or the Acquiring Funds involves
the risk that the net asset value of such Fund's shares will fluctuate in
response to changes in economic conditions, interest rates, and the market's
perception of the securities held by such Fund. An investment in each of the
Acquired Funds and the Acquiring Funds is subject to bond market risk, i.e., the
risk that the market price of bonds in general will fluctuate. Bond prices
fluctuate largely in response to changes in the level of interest rate. When
interest rates rise, bond prices generally fall; conversely, when interest rates
fall, bond prices generally rise. Although the fluctuation in the price of bonds
is normally less than that of common stocks, in the past there have been
extended periods of cyclical increases in interest rates 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 each of Nationwide Tax-Free Income
Fund and the New Tax-Free Income Fund may also be affected by the market's
perception of changes in an issuer's credit risk. As perceived credit risk
increases, the value of a specific security generally decreases, and the
converse is also true.
U.S. Government Securities. As discussed above, each of the Acquiring and
the Acquired Funds may invest in securities which are issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. Securities issued by
the U.S. Government include U.S. Treasury obligations, such as Treasury bills,
notes, and bonds. Securities issued by U.S. Government agencies or
instrumentalities include, but are not limited to, obligations of the following:
the Federal Housing Administration; Farmers Home Administration; 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"); and 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. Each Acquiring 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; and 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 securities and does not receive any
rights to periodic interest payments on the security.
Duration. To limit its exposure to interest rate risk, the New Intermediate
Government Bond Fund will maintain a duration which, on a weighted average basis
and under normal market conditions, will generally be between three and one-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.
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<PAGE> 85
Traditionally, a debt security's "term-to-maturity" has been used as a
measure of the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term-to-maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Average dollar weighted maturity is calculated by averaging the
terms to maturity of each debt security held with each maturity "weighted"
according to the percentage of assets that it represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects
both principal and interest payments. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any debt security with interest payments
occurring prior to the payment of principal, duration is ordinarily less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a debt security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.
There are some situations where the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, NAS will use more sophisticated analytical
techniques to project the economic life of a security and estimate its interest
rate exposure. Since the computation of duration is based on predictions of
future events rather than known factors, there can be no assurance that the New
Intermediate Government Bond Fund will at all times achieve its targeted
portfolio duration.
The change in market value of U.S. Government fixed-income securities is
largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case). When interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfolios. With
respect to the composition of a fixed-income portfolio, the longer 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 the New Intermediate Government Bond Fund intends to maintain the
average duration described above under normal market conditions, there is no
limit as the maturity of any one security which the New Intermediate Government
Bond Fund may purchase.
Mortgage-Backed Securities. Nationwide U.S. Government Income Fund and the
New Intermediate Government Bond Fund may each purchase mortgage-backed
securities. Mortgage-backed securities represent direct or indirect
participation in, or are secured by and payable from, mortgage loans secured by
real property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations ("CMOs"). Such securities are issued or
guaranteed by U.S. Government, and its agencies or instrumentalities. The
underlying mortgage assets may have fixed rates or adjustable rates of interest.
Mortgage-backed securities in which Nationwide U.S. Government Income Fund and
the New Intermediate Government Bond Fund may invest include both fixed-rate and
adjustable-rate mortgage-backed securities.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt obligations. Among the principal differences are that
interest and principal payments are made more frequently on mortgage-and
asset-backed securities, usually monthly and that principal may be prepaid at
any time because the underlying mortgage loans and other assets generally may be
prepaid at any time. As a result, if a Fund purchases these securities at a
premium, a prepayment rate that is higher than expected will reduce yield, while
a prepayment rate that is lower than expected will have the opposite effect of
increasing the yield. Conversely, if a Fund purchases these securities at a
discount, a prepayment rate that is faster than expected will increase yield,
while a
13
<PAGE> 86
prepayment rate that is slower than expected will reduce yield. Accelerated
prepayments on securities purchased by Nationwide U.S. Government Income Fund or
the New Intermediate Government Bond Fund at a premium also poses a risk of loss
of principal because the premium may not have been fully amortized by the time
the principal is prepaid in full.
Unlike fixed rate mortgage-backed securities, adjustable rate
mortgage-backed securities are collateralized by or represent interests in
mortgage loans with variable rates of interest. These variable rates of interest
reset periodically to align themselves with market rates. Nationwide U.S.
Government Income Fund and the New Intermediate Government Bond Fund will not
benefit from increases in interest rates to the extent that interest rates rise
to the point where they cause the current coupon of the underlying adjustable
rate mortgages to exceed any maximum allowable annual or lifetime reset limits
(or "cap rates") for a particular mortgage. In this event, the value of the
adjustable rate mortgage-backed securities in such Fund would likely decrease.
Also, such a Fund's net asset value could vary to the extent that current yields
on adjustable rate mortgage-backed securities are different than market yields
during interim periods between coupon reset dates or if the timing of changes to
the index upon which the rate for the underlying mortgage is based lags behind
changes in market rates. During periods of declining interest rates, income to
Nationwide U.S. Government Income Fund or the New Intermediate Government Bond
Fund derived from adjustable rate mortgages which remain in a mortgage pool will
decrease in contrast to the income on fixed rate mortgages, which will remain
constant. Adjustable rate mortgages also have less potential for appreciation in
value as interest rates decline than do fixed rate investments.
Collateralized Mortgage Obligations. Nationwide U.S. Government Income
Fund and the New Intermediate Government Bond Fund may also acquire CMOs, and
the New Intermediate Government Bond Fund may acquire stripped mortgage-backed
securities. CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively referred
to an "Mortgage Assets"). Payments of principal or interest on the Mortgage
Assets, and any reinvestment income thereon, provide the income to pay debt
service on the CMOs. CMOs purchased by such Funds will be issued by agencies or
instrumentalities of the U.S. Government.
Interest Only and Principal Only Securities. Stripped mortgage-backed
securities are securities representing interest in a pool of mortgages the cash
flow from which has been separated into interest and principal components. "IOs"
(interest only securities) receive the interest portion of the cash flow while
"POs" (principal only securities) receive the principal portion. Stripped
mortgage-backed securities in which the New Intermediate Government Bond Fund
may invest are issued by U.S. Government agencies. As interest rates rise and
fall, the value of IOs tends to move in the same direction as interest rates.
The value of 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.
The New Intermediate Government Bond Fund may purchase stripped
mortgage-backed securities for hedging purposes to protect that Fund against
interest rate fluctuations. For example, since an IO will tend to increase in
value as interest rates rise, it my be utilized to hedge against a decrease in
value of other fixed-income securities. in a rising interest rate environment.
If the New Intermediate Government Bond Fund purchases a mortgage-related
security at a premium, all or part of the premium may be lost if there is a
decline in the market value of the security, whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. With
respect to IOs, if the underling mortgage securities experience greater than
anticipated prepayments of principal, the New Intermediate Government Bond Fund
may fail to recoup fully its initial investment in these securities even if the
securities are rated in the highest rating category by an NRSRO. Stripped
mortgage-backed securities may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on stripped mortgage-backed securities that receive all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be fully
recouped. No more than 10% of the New Intermediate
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<PAGE> 87
Government 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 value as a result of changes in interest rates; in such
an instance, the New Intermediate Government Bond Fund may have difficulty
selling such securities.
Municipal Securities. The two principal classifications of municipal
securities which may be held by Nationwide Tax-Free Income Fund and the New
Tax-Free Income Fund are "general obligation" securities and "revenue"
securities. General obligations securities are secured by the issuer's pledge of
its 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 Nationwide Tax-Free
Income Fund and the New Tax-Free Income Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Nationwide Tax-Free Income Fund and the New Tax-Free Income Fund may also
invest in "moral obligation" securities, which are normally issued by special
purpose public authorities. If the issuer of moral obligation securities is
unable to meet its debt service obligations from current revenue, it may draw on
a reserve fund, the restoration of which is a moral commitment, but not a legal
obligation, of the state or municipality which created the issuer.
Proposals to restrict or eliminate the Federal income tax exemption of
interest on municipal securities have been discussed from time to time and may
be enacted in the future.
Repurchase Agreements. Each of the Acquired Funds and the Acquiring Funds
may engage in repurchase agreement transactions as long as the underlying
securities are of the type that the Fund would be permitted to purchase
directly. Under the terms of a typical repurchase agreement, a Fund would
acquire an underlying security for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and the
Fund to resell, the obligation at an agreed upon price and time, thereby
determining the yield during the Fund's holding period. The Funds will enter
into repurchase agreements with member banks of the Federal Reserve System or
certain non-bank dealers. Under each repurchase agreement the selling
institution will be required to maintain the value of the securities subject to
the repurchase agreement at not less than their repurchase price (including
interest). Repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon a Fund's ability to dispose of the underlying securities. NAS,
acting under the supervision of such Trust's Board of Trustees, reviews the
creditworthiness of those banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate these risks.
Investment Companies. As permitted by the 1940 Act, each Acquiring Fund
may invest up to 10% of its total assets, calculated at the time of investment,
in the securities of other investment companies. No more than 5% of an Acquiring
Fund's total assets may be invested in the securities of any one investment
company nor may it acquire more than 3% of the voting securities of any other
investment company. Each Acquiring Fund will indirectly bear its proportionate
share of any management fees paid by an investment company in which it invests
in addition to the advisory fee paid by such Acquiring Fund.
When-Issued Securities. Each of the Acquiring Funds may invest without
limitation in securities purchased on a when-issued or delayed delivery basis.
Although the payment and terms of these securities are established at the time
the Acquiring Fund enters into the commitment, these securities may be delivered
and paid for at a future date, generally within 45 days; for mortgage-backed
securities, the delivery date may extend to as long as 120 days. Purchasing
when-issued securities allows an Acquiring Fund to lock in a fixed price or
yield on a security it intends to purchase. However, when the Acquiring Fund
purchases a when-issued security, it immediately assumes the risk of ownership,
including the risk of price fluctuation until the settlement date.
The greater an Acquiring Fund's outstanding commitments for these
securities, the greater the exposure to potential fluctuations in the net asset
value of that Acquiring Fund. Purchasing securities on a when-issued basis may
involve the additional risk that the yield available in the market when the
delivery occurs may be higher or
15
<PAGE> 88
the market price lower than that obtained at the time of commitment. Although an
Acquiring Fund may be able to sell these securities prior to the delivery date,
it will purchase when-issued securities for the purpose of actually acquiring
the securities, unless after entering into the commitment a sale appears
desirable for investment reasons. The Acquiring Funds will set aside liquid
assets in a segregated account to secure its outstanding commitments for
when-issued securities.
Floating and Variable Rate Obligations. The Acquiring Funds may each
invest in floating and variable rate obligations. Variable or floating rate
obligations bear interest at rates that are not fixed, but vary with changes in
specified market rates or indices, such as the prime rate, and at specified
intervals, interest rates on floating rate obligations vary with changes in an
underlying index whenever such index changes, 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 such 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
credit risks, like other debt instruments, but because the issuer may call the
obligations, such 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 an Acquiring Fund may carry a demand
feature that would permit the holder to tender them back to the issuer at par
value prior to maturity. Such obligations include variable rate master demand
notes, which are unsecured instruments issued pursuant to an agreement between
the issuer and the holder that permits the indebtedness thereunder to vary and
provides for periodic adjustments in the interest rate. Each Acquiring Fund will
limit its purchase of floating and variable rate obligations to those of the
same quality as it otherwise is allowed to purchase. NAS will monitor on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
Although there may be no active secondary market with respect to a
particular variable or floating rate obligation purchased by an Acquiring Fund,
such Fund may attempt to resell the obligation at any time to a third party. The
absence of an active secondary market, however, could make it difficult for that
Acquiring Fund to dispose of a variable or floating rate obligation in the event
the issuer of the obligation defaulted on its payment obligations, and the
Acquiring Fund would, as a result or for other reasons, suffer a loss to the
extent of the default. Variable or floating rate obligations may be secured by
bank letters of credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value.
Variable and floating rate obligations for which no readily available
market exists and which are not subject to a demand feature that will permit the
Acquiring Fund to receive payment of the principal within seven days after
demand by that Fund, will be considered illiquid and therefore, together with
other illiquid securities held by such Fund, will not exceed 15% of such Fund's
net assets.
Medium-Grade Securities. The New Tax-Free Income Fund may invest in
medium-grade 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, such Fund should take consistent with its investment objective; there is
no requirement that the Fund sell such downgraded securities.
Zero Coupon Securities. Nationwide U.S. Government Income Fund, the New
Intermediate Government Bond Fund and the New Tax-Free Income Fund may each
invest in zero coupon securities. Zero coupon securities are debt securities
that pay no cash income but are sold at substantial discounts from their value
at maturity. When a zero coupon security is held to maturity, its entire return,
which consists of the amortization of discount, comes from the difference
between its purchase price and its maturity value. This difference is known at
the time of purchase, so that investors holding zero coupon securities until
maturity know at the time of their investment
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<PAGE> 89
what the expected return on their investment will be. Certain zero coupon
securities also are sold at substantial discounts from their maturity value and
provide for the commencement of regular interest payments at a deferred date.
Zero coupon securities may have conversion features.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.
Current federal income tax law requires the holder of a zero coupon
security to accrue income with respect to these securities prior to the receipt
of cash payments. Accordingly, to avoid liability for federal income and excise
taxes, such Funds may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Lending Portfolio Securities. From time to time, the New Intermediate
Government Bond Fund may lend its portfolio securities to brokers, dealers and
other financial institutions who need to borrow securities to complete certain
transactions. In connection with such loans, the New Intermediate Government
Bond Fund will receive collateral consisting of cash, U.S. Government securities
or irrevocable letters of credit. Such collateral will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. The New Intermediate Government Bond 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 New
Intermediate Government Bond Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the New Intermediate Government Bond Fund.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION. The Plan provides that all of the
assets of each Acquired Fund as of the Exchange Date (as defined in the Plan)
will be transferred to the corresponding Acquiring Fund in exchange for Class D
shares of the Acquiring Fund and the assumption by the Acquiring Fund of all of
the liabilities of the Acquired Fund. The Exchange Date is expected to be on or
about March 1, 1998; subject, however, to the receipt by the Trust and the New
Trust of any necessary order of exemption from the Commission with respect to
the Reorganization. A copy of the Plan is attached as Exhibit A to this Combined
Prospectus/Proxy Statement. Although portions of the Plan are summarized below,
this summary is qualified in its entirety by reference to the Plan.
Promptly after the Exchange Date, each Acquired Fund will distribute the
Class D shares of the corresponding Acquiring Fund to the Acquired Fund's
shareholders of record as of 9:00 a.m. on the Exchange Date. The Class D shares
of the corresponding Acquiring Fund which will be issued for distribution to
each Acquired Fund's shareholders will be equal in aggregate value to the shares
of the corresponding Acquired Fund held as of the Valuation Time (as defined in
the Plan). All issued and outstanding shares of the Acquired Funds will be
cancelled on the Trust's books and any certificates representing such shares
will no longer be valid. Class D shares of the Acquiring Funds will be
represented only by book entries; no share certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of each of the Acquired Funds and approval of a similar plan of reorganization
be shareholders of Nationwide Investing Foundation. The Plan also may be
terminated and the Reorganization abandoned by the Acquired Funds and the
Acquiring Funds by mutual consent of their respective trustees.
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<PAGE> 90
The Reorganization will not be completed unless the Trust and the New Trust
obtain opinions of counsel to the effect that the Reorganization constitutes a
tax-free reorganization for federal income tax purposes and any necessary
written order of exemption from the Commission exempting the Reorganization from
the provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a
party in connection with the Plan will be paid by the party directly incurring
such costs. NAS will pay 50% of the costs associated with the Reorganization,
including 50% of the costs associated with this proxy solicitation. Each
Acquiring Fund will bear its own organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders and the Reorganization is
consummated, all shareholders of the Acquired Funds (as of 9:00 a.m. on the
Exchange Date), including those that voted against the approval of the Plan,
will receive Class D shares of the corresponding Acquiring Fund. All
shareholders of the Acquired Funds have the right at any time up to the next
business day preceding the Exchange Date to redeem their shares at net asset
value, subject to any applicable contingent deferred sales charge, according to
the procedures set forth in the Acquired Funds' Prospectus.
This summary does not purport to be a complete description of the Plan and
is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in October, 1985. The New Trust was
organized as a series investment company as of October 30, 1997, and on November
7, 1997, its Board of Trustees created the Acquiring Funds with substantially
similar investment objectives and policies of, and restrictions generally
similar to, those of the Acquired Funds. Because of the similarity between the
Acquired Funds and the Acquiring Funds, the considerations and risks involved
with an investment in an Acquiring Fund are expected to be comparable to those
associated with an investment in the corresponding Acquired Fund. Each Acquiring
Fund has been established for purposes of effecting the Reorganization and will
not commence operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for its consideration at a meeting held on November 7,
1997. The Board of Trustees of the Trust concluded unanimously that the
Reorganization is in the best interests of the Trust, the Acquired Funds and
their shareholders and that the interests of the existing shareholders of the
Acquired Funds will not be diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Acquired Funds and the
Trust and the proposed costs of the Acquiring Funds and the New Trust as
provided by NAS, in light of their substantially similar investment objectives,
policies, restrictions, Boards of Trustees, officers and service providers. The
Trust's Board also considered the operating and compliance efficiencies that
could result from moving the operation of the Acquired Funds from the Trust to
corresponding separate portfolios of the New Trust, which has been organized
under a more flexible and modern declaration of trust. The investment
restrictions of the Acquiring Funds which were approved by the Board of Trustees
of the New Trust vary somewhat from the restrictions of the Acquired Funds;
however, such differences generally reflect a more uniform and flexible set of
investment restrictions that are currently in place for each of the other series
or portfolios of the New Trust. Such restrictions were approved to help achieve
greater compliance efficiencies by having each series of the New Trust have the
same or substantially the same investment restrictions and, in certain
instances, to provide greater flexibility to NAS in managing the Acquiring
Funds' portfolio assets.
One of the operating efficiencies expected is that certain fixed costs
associated with the operation of the Acquired Funds and the Trust when incurred
by the New Trust and the Acquiring Funds would decrease on a per share basis
since such costs would be spread over a larger pool of assets, e.g., certain
professional and regulatory fees and printing costs.
In particular, the Trust's Board considered the anticipated expense ratios
of the Acquiring Funds, the structure of the New Trust, including the provision
for multiple classes of shares, the experience of the service providers of the
Acquiring Funds and the level of service to be provided to the shareholders of
the Acquiring
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<PAGE> 91
Funds, as represented by NAS, including the greater resources that could be
dedicated to providing administrative and compliance services.
The Trust's Board also considered the lower investment advisory fees
charged to the Acquiring Funds compared to those of the Acquired Funds. During
its review of the fees for the Acquiring Funds, the Trust's Board considered the
following factors, among others: (1) the nature, scope and quality of the
services provided by NAS, (2) the costs incurred and revenues generated by NAS
in rendering such services, (3) NAS' profitability from its mutual fund
activities, (4) the compensation paid to investment advisers of mutual funds
with similar investment objectives and policies and asset sizes, (5) the quality
of personnel at NAS, (6) comparative expense and performance information, (7)
pro forma expense ratios based upon the proposed level of investment advisory
and administration fees, (8) the need to provide NAS with adequate financial
incentives to maintain and improve its services, and (9) NAS' planned and
proposed additional expenditures in the area of fund administration services.
More specifically, the Trust's Board considered the significant increases
in expenses that NAS will experience in connection with the general
administration and fund accounting for each of the Acquiring Funds and the fact
that the total expense ratios for each of the Acquiring Funds would decrease and
continue to be at least 24% lower than the average for comparable mutual funds
according to data from Lipper Analytical Services, Inc. as of September 30,
1997. The Board of Trustees of the Trust and the New Trust also determined that
the proposed breakpoints in the Acquiring Funds' fees would allow shareholders
of the Acquiring Funds to benefit from certain economies of scale as a Fund's
assets grow.
The Board of Trustees of the Trust based its decision to approve the
proposed transaction upon its consideration of a number of factors, including,
among other things:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
(2) the similarity of the Acquired Funds' investment objectives,
strategies and policies with those of the corresponding Acquiring Funds, as
well as the views of NAS that any differences between the investment
policies and restrictions of the Acquired Funds and their corresponding
Acquiring Fund should not materially increase investment risks;
(3) the experience and resources of NAS with respect to providing
investment management services, and the experience of and quality of
services to be provided by the Acquiring Funds' other service providers;
(4) the projected expense ratios and information regarding fees and
expenses of each Acquiring Fund, each Acquired Fund and other similar funds
and the services being offered to shareholders and the fact that the
overall expense ratio for each Acquiring Fund will be at least 24% lower
than the median expense ratio of its peer group of mutual funds;
(5) the continuity of the portfolio managers for the Acquired Funds;
(6) the conditioning of the Reorganization on the receipt of legal
opinions confirming the absence of any adverse federal tax consequences to
the Acquired Funds or their shareholders resulting from the Reorganization;
and
(7) other factors as it deemed relevant.
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<PAGE> 92
In particular, the Board considered the per share operating expense ratios
(total annual operating expenses expressed as a percentage of average net
assets) for shares of the Acquired Funds and as estimated for the Acquiring
Funds. The following are the per share operating expense ratios for shares of
the Acquired Funds for the year ended October 31, 1997, and as estimated for the
Class D shares of the corresponding Acquiring Funds for the period following the
effective date of the Reorganization and ending October 31, 1998, after giving
effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Nationwide Tax-Free Income Fund New Tax-Free Income Fund
0.96%* 0.69%
Nationwide U.S. Government Income Fund New Intermediate Government Bond Fund
1.07%* 0.79%
</TABLE>
- ---------------
* Reflects NAS' current Rule 12b-1 waiver from 0.35% to 0.20% of each Acquired
Fund's average daily net assets.
For further information regarding the expense ratios of each of the
Acquired and Acquiring Funds, see "SUMMARY -- Comparative Expense Information"
above.
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in each Acquiring
Fund is represented by units of beneficial interest, without par value, of
Nationwide Investing Foundation III, which is an open-end investment company of
the management type, organized as an Ohio business trust as of October 30, 1997.
The Acquiring Funds are currently two of nine separate series of the New Trust.
Like the Acquired Funds, each Acquiring Fund is diversified, as that term is
defined in the 1940 Act. Currently there is only one class of shares for the
Acquired Funds. However, each of the Acquiring Funds is expected to offer at
least three classes of shares -- Class A, Class B and Class D shares. Class A
shares of the New Trust will be sold with a front-end sales load and pay
expenses pursuant to a Rule 12b-1 plan. Class B shares of the New Trust will be
subject to a contingent deferred sales charge, will be sold without imposition
of a front-end sales load and will pay expenses pursuant to a Rule 12b-1 plan.
Class D shares will be sold with a front-end sales load but will not be subject
to a Rule 12b-1 plan. Except for Rule 12b-1 fees, Class A, Class B and Class D
shares of the New Trust will generally bear the same expenses.
All shareholders of an Acquiring Fund, regardless of class, will generally
vote on the same issues and in the aggregate with respect to matters submitted
to the shareholders of that Fund for their approval as a Fund. However, holders
of one class of shares of an Acquiring Fund will vote as a class and not with
holders of any other class of shares with respect to its respective Rule 12b-1
Plan, if any. The Class D shares which shareholders of the Acquired Funds will
received pursuant to the Reorganization do not have a Rule 12b-1 Plan.
Shareholders of an Acquiring Fund are entitled to one vote for each share held
and a proportionate fractional vote for any fraction of a share held. See
"ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the New Trust must receive favorable opinions from
Baker & Hostetler LLP substantially to the effect that, for Federal income tax
purposes: (a) the Reorganization will constitute a "tax-free" reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) no gain or loss will be recognized by the Acquiring
Funds or the Acquired Funds as a result of the Reorganization; (c) no gain or
loss will be recognized by shareholders of the Acquired Funds upon the exchange
of their shares of the Acquired Funds for Class D shares of the corresponding
Acquiring Funds; (d) the tax basis of the Acquiring Fund Class D shares received
by shareholders of the Acquired Funds pursuant to the Reorganization will be the
same as the basis of the shares of the corresponding Acquired Fund held
immediately prior to the Reorganization; (e) the holding period of the Acquiring
Funds' Class D shares so received will include the period during which the
Acquired Fund shareholder held shares of the Acquired Fund, provided such shares
were held as a capital asset; (f) the tax basis of each Acquired Fund's assets
acquired by the corresponding Acquiring Fund will be the same as the basis of
such assets immediately prior to the Reorganization; and (g) the holding period
of such assets will include the period during which those assets were held by
the Acquired Fund.
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<PAGE> 93
Such opinions are not the equivalent of a ruling from the Internal Revenue
Service and may, upon audit, be challenged by the Internal Revenue Service. The
Acquiring Funds and the Acquired Funds do not intend to seek a private letter
ruling with respect to the tax effects of the Reorganization.
CAPITALIZATION. The following table shows the capitalization both of the
Acquired Funds as of October 31, 1997, and of the corresponding Acquiring Fund
on a pro forma basis. The pro forma financial information giving effect to the
Reorganization provided below is the same as the corresponding Acquired Fund
because, except for certain organizational activities, the Acquiring Funds have
no and will have no assets or liabilities, and will not commence operations
prior to the consummation of the Reorganization.
NATIONWIDE TAX-FREE INCOME FUND / NEW TAX-FREE INCOME FUND*
<TABLE>
<S> <C>
Net assets..................................................................... $256,486,302
Shares outstanding............................................................. 24,412,274
Net asset value per share...................................................... $ 10.51
NATIONWIDE U.S. GOVERNMENT INCOME FUND / NEW INTERMEDIATE GOVERNMENT BOND FUND*
Net assets..................................................................... $ 41,327,786
Shares outstanding............................................................. 4,007,905
Net asset value per share...................................................... $ 10.31
</TABLE>
- ---------------
* The capitalization information for each of the Acquiring Funds is provided on
a pro forma basis; that is, what the capitalization of the Acquiring Funds
would have been at October 31, 1997 had the Reorganization been completed. The
information above for the New Tax-Free Income Fund does not include the effect
of the combination of FHIT Municipal Bond Fund with such Fund.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of each Acquired Fund are substantially similar to those of the corresponding
Acquiring Fund. The investment objectives and certain of the investment
restrictions of each Acquired Fund and Acquiring Fund are "fundamental," which
means that they may not be changed without the consent of a majority of such
Fund's outstanding shares, as defined in the 1940 Act. The investment policies
and certain of the investment restrictions of the Acquired Funds and the
Acquiring Funds are, however, non-fundamental. A "non-fundamental" policy may be
changed upon the vote of the Trustees but without shareholder approval.
The investment policies and strategies of each Acquired Fund are generally
the same as those of the corresponding Acquiring Fund, although there are some
differences in the investment policies and restrictions that shareholders should
consider.
NATIONWIDE TAX-FREE INCOME FUND/NEW TAX-FREE INCOME FUND
The investment objective of Nationwide Tax-Free Income Fund is to provide
as high a level of current income exempt from federal income tax (although
investors may be subject to state and local tax and the Federal alternative
minimum tax) as is consistent with the preservation of capital through investing
in a diversified portfolio of high-quality intermediate-term municipal
obligations with maturities ranging from three to 10 years and long-term
municipal obligations with maturities in excess of 10 years. The investment
objective of the New Tax-Free Income Fund is to seek as high a level of current
income exempt from Federal income tax (although investors may be subject to
state and local tax) as is consistent with the preservation of capital through
investing in investment grade municipal obligations.
Nationwide Tax-Free Income Fund seeks to achieve its investment objective
by maintaining a diversified portfolio of municipal obligations that are rated
within the three highest credit categories assigned by Moody's and S&P, or, if
not rated, that are of equivalent investment quality as determined by NAS. Such
obligations include municipal securities backed the full faith and credit of the
United States, municipal bonds rated within the three highest credit categories
by Moody's or S&P, state and municipal notes rates MIG-1, MIG-2, and MIG-3 by
Moody's, and other types of municipal securities such as commercial paper,
provided that such securities are rated at least Prime-2 by Moody's or A-2 by
S&P. On a temporary basis or for defensive purposes, the Nationwide Tax-Free
Income Fund may also hold and invest up to 20% of its assets in cash or
temporary taxable investments such as Treasury notes, bills and bonds with
remaining maturities of one year or less.
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<PAGE> 94
The New Tax-Free Income Fund has adopted a fundamental investment policy
that requires it to invest at least 80% of its net assets in securities that
generate income that is exempt from Federal income taxes and that is not treated
as a preference item for purposes of the Federal alternative minimum tax. The
New Tax-Free Income Fund invests in municipal obligations that are rated within
the four highest rating categories (investment grade) by an NRSRO, or, if not
rated, that are of equivalent investment quality as determined by NAS. Such
obligations include (1) municipal securities backed by the full faith and credit
of the United States, (2) municipal bonds and notes rated within the four
highest rating categories by an NRSRO, and (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 New Tax-Free Income Fund may invest include variable and floating
rate securities. The New Tax-Free Income Fund may also purchase securities on a
when-issued or delayed-delivery basis, zero-coupon securities and securities of
other investment companies and enter into repurchase agreements. As a temporary
defensive position, the New Tax-Free Income Fund may hold and invest up to 20%
of its assets in cash or taxable money market obligations.
NATIONWIDE U.S. GOVERNMENT INCOME FUND/NEW INTERMEDIATE
GOVERNMENT BOND FUND
The investment objective of Nationwide U.S. Government Income Fund is to
provide as high a level of current income as is consistent with the preservation
of capital by investing in securities of the U.S. Government, its agencies and
instrumentalities. The investment objective of the New Intermediate Government
Bond Fund is to provide as high a level of current income as is consistent with
the preservation of capital. The average dollar-weighted maturity of Nationwide
U.S. Government Income Fund is maintained at between three and 10 years. Under
normal market conditions, the average duration of the New Intermediate
Government Bond Fund will be between three and one-half and six years. In
addition, the New Intermediate Government Bond Fund 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 policy, bonds consist of debt obligations of all types,
including bonds of varying maturities, bills and notes. The Government Bond Fund
does not have such a 65% policy.
Each of these Funds normally invests or will invest all of its net assets
in securities issued by the U.S. Government, its agencies and instrumentalities
or in repurchase agreements collateralized by these securities. Nationwide U.S.
Government Income Fund may invest up to 80% of its net assets in, and the New
Intermediate Government Bond may invest without limitation in, mortgage-backed
securities issued by U.S. Government agencies. These securities include
pass-through securities and CMOs. Pass-through securities represent part
ownership of a pool of mortgage loans. These securities differ from typical
bonds because principal is repaid monthly over the term of the loan rather than
returned in a lump sum at maturity. 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 CMOs. Nationwide U.S.
Government Income Fund may invest up to 20% of its assets in, and the New
Intermediate Government Bond may invest without limitation in, zero-coupon
securities that are direct obligations of the U.S. Government and its agencies
and instrumentalities. Each Fund may also invest in money market obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and in repurchase agreements. Each such Fund concentrates on investing 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 New Intermediate Government
Bond Fund may invest include variable and floating rate securities, some of
which may be callable. Such 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
New Intermediate Government Bond Fund may invest up to 100% of its total assets
in cash and/or money market obligations.
FUNDAMENTAL INVESTMENT POLICIES. Each Acquired Fund and corresponding
Acquiring Fund have some fundamental investment policies that are the same and
some that are different. The primary purposes for adopting more flexible
investment restrictions for the Acquiring Funds are to promote standardization
of such restrictions among all of the Nationwide Funds and to provide the
portfolio managers with greater flexibility in managing the Acquiring Funds'
portfolios. The similarities and differences are described in the following
table.
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<PAGE> 95
ACQUIRED FUNDS
ACQUIRING FUNDS
DIVERSIFICATION:
The Nationwide Tax-Free Income Fund has a fundamental policy against
investing more than 5% of its total assets (excluding cash and cash items) in
the securities of any one issuer, except the U.S. Government, its agencies and
instrumentalities.
Each of the Acquiring Funds has a fundamental policy against purchasing
securities of any one issuer, other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, if, immediately after such
purchase, more than 5% of such Fund's total assets would be invested in such
issuer or such Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that 25% or less of such Fund's total assets
may be invested without regard to these 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.
CONCENTRATION:
The Nationwide Tax-Free Income Fund has a fundamental policy against
investing 25% or more of its total assets in securities of issuers that are in
the same industry, except that this Fund may invest more than 25% of its assets
in municipal bonds and in obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities.
Each of the Acquiring Funds has a fundamental policy against purchasing
securities of any one issuer if, as a result of such purchase, 25% or more
(taken at current value) of an Acquiring Fund's total assets would be invested
in securities of issuers the principal activities of which are in the same
industry. This investment restriction does not apply to securities issued by the
U.S. Government, its agencies, or instrumentalities or to securities issued by
state, county, or municipal governments. The following industries are considered
separate industries for purposes of this investment restriction: electric,
natural gas distribution, natural gas pipeline, combined electric and natural
gas, telephone utilities, captive borrowing conduit, equipment finance, premium
finance, leasing finance, consumer sales finance and other finance.
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<PAGE> 96
ACQUIRED FUNDS
ACQUIRING FUNDS
ISSUING SENIOR SECURITIES / BORROWING MONEY:
Each of the Acquired Funds has a fundamental policy against issuing senior
securities or borrowing money, except that each Acquired Fund may borrow an
amount not in excess of 33 1/3% of the value of its total assets (calculated
when the loan is made) from banks for temporary purposes to facilitate the
orderly sale of portfolio securities to accommodate unusually heavy redemption
requests, if they should occur. Such borrowing is not intended to be for
investment purposes, and the Acquired Funds will not purchase portfolio
securities during periods in which borrowings are outstanding. Each Acquired
Fund may also borrow an amount equal to no more than 5% of the value of each of
its total assets (calculated when the loan is made) for temporary, emergency
purposes or to clear transactions, provide NAS additional flexibility in
executing routine daily transactions or allow for more efficient cash
management. Such borrowing will not be used to leverage the Acquired Funds, nor
will such borrowing be for an extended period of time.
Each of the Acquiring Funds has a fundamental policy against borrowing
money or issuing senior securities, except that each Acquiring 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.
Each of the Acquiring Funds, however, currently, may only borrow money from
banks and in an amount no greater than 33 1/3% of its total assets (including
the amount borrowed). In addition, an Acquiring Fund may borrow up to an
additional 5% of its total assets from banks for temporary or emergency
purposes.
LENDING MONEY OR SECURITIES TO OTHERS:
Each of the Acquired Funds has a fundamental policy against making loans to
others except in connection with purchasing certain debt securities or entering
into certain repurchase agreements.
Each of the Acquiring Funds has a fundamental policy against lending
securities or making loans to others, except that each Acquiring Fund may
purchase or hold debt instruments and lend portfolio securities in accordance
with its investment objective and policies, make time deposits with financial
institutions, and enter into repurchase agreements.
PLEDGING ASSETS:
Each of the Acquired Funds has a fundamental policy against pledging more
than 10% of its assets or pledging such assets for any reason except to secure
temporary borrowings from banks.
Each of the Acquiring Funds has a non-fundamental policy against
mortgaging, pledging, or hypothecating more than one-third of its total assets.
ACTING AS UNDERWRITER:
Each of the Acquired Funds has a fundamental policy against acting as an
underwriter, except that in disposing of certain portfolio securities each such
Fund may be deemed to be an underwriter under certain federal securities laws.
Each of the Acquiring Funds has a fundamental policy against acting as an
underwriter of another issuer's securities, except to the extent that an
Acquiring Fund may be deemed to be an underwriter under the Securities Act of
1933, as amended, in connection with the purchase and sale of portfolio
securities.
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<PAGE> 97
ACQUIRED FUNDS
ACQUIRING FUNDS
PURCHASING SECURITIES ON MARGIN:
Each of the Acquired Funds has a fundamental policy against purchasing
securities on margin; however, each Acquired Fund may obtain credits when
necessary to clear purchases and sales of securities.
Each of the Acquiring Funds has a non-fundamental policy against purchasing
securities on margin, except that each Acquiring Fund may obtain whatever
short-term credits are necessary to clear purchases and sales of securities and
to make margin payments in connection with derivative securities transactions.
ILLIQUID OR RESTRICTED SECURITIES:
Each of the Acquired Funds has a fundamental policy against purchasing
securities that are restricted under federal securities laws or that are
illiquid or unmarketable. Each of the Acquired Funds also has a fundamental
policy against entering into any repurchase agreement if, as a result, more than
10% of its total assets would be subject to repurchase agreements that mature in
more than seven days.
The Acquiring Funds are not subject to any restriction in regard to
investing in securities for which market quotations are not available. Each of
the Acquiring Funds, however, has a non-fundamental investment policy against
purchasing or otherwise acquiring any security if, as a result, more than 15% of
its net assets would be invested in securities that are illiquid. For purposes
of this investment restriction, illiquid securities include securities that are
not readily marketable and repurchase agreements with maturities in excess of
seven days.
SELLING SECURITIES SHORT:
Each of the Acquired Funds has a fundamental policy against selling
securities short.
Each of the Acquiring Funds has a non-fundamental policy against selling
securities short, unless an Acquiring Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short or unless
an Acquiring Fund covers its short sale as required by the current rules and
positions of the Commission or its staff. Short positions in forward currency
contracts, options, futures contracts, options on futures contracts, and other
derivative instruments do not constitute selling securities short.
REAL ESTATE / COMMODITIES / FUTURES CONTRACTS:
Each of the Acquired Funds has a fundamental policy against purchasing or
selling real estate, real estate mortgage loans, commodities or futures
contracts.
Each of the Acquiring Funds has a fundamental policy against purchasing or
selling real estate, except that each Acquiring Fund may acquire real estate
through ownership of securities or instruments and may purchase or sell
securities issued by entities or investment vehicles that own or deal in real
estate (including interests therein) or instruments secured by real estate
(including interests therein). Each of the Acquiring Funds also has a
fundamental policy against purchasing or selling commodities or commodities
contracts, except to the extent disclosed in the Acquiring Fund's current
Prospectus.
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<PAGE> 98
ACQUIRED FUNDS
ACQUIRING FUNDS
SECURITIES OF OTHER INVESTMENT COMPANIES:
Each of the Acquired Funds has a fundamental policy against purchasing or
selling securities of other investment companies except in connection with a
merger, consolidation, acquisition or reorganization.
Each of the Acquiring Funds has a non-fundamental policy against purchasing
securities of other investment companies except (a) in connection with a merger,
consolidation, acquisition, reorganization or offer of exchange, and (b) to the
extent permitted by the 1940 Act or any rules or regulations thereunder or
pursuant to any exemptions therefrom.
INVESTMENTS THAT GENERATE INCOME SUBJECT TO FEDERAL INCOME TAXES:
The Nationwide Tax-Free Income Fund has a fundamental policy against
investing more than 20% of its assets in securities that generate income subject
to federal income taxes.
The New Tax-Free Income Fund has a fundamental investment policy which
requires it to invest at least 80% of its net assets in securities the 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.
INVESTING IN A COMPANY WITH LESS THAN THREE YEARS OF OPERATION:
The Nationwide Tax-Free Income Fund has a fundamental policy against
investing more than 5% of its total assets, taken at cost, in securities whose
issuer, or whose guarantor of principal and interest, including any predecessor,
has been in operation for less than three years.
The Acquiring Funds are not subject to any such restriction.
INVESTING IN PUTS, CALLS, STRADDLES, AND SPREADS / OIL, GAS, MINERAL LEASES:
Each of the Acquired Funds has a fundamental policy against writing,
purchasing, or selling puts, calls, straddles, spreads or any combination
thereof.
The Acquiring Funds are not subject to any such restriction.
DEALING WITH TRUSTEES / SHORT-TERM TRADING PROFITS / CONTROL OF MANAGEMENT:
Each of the Acquired Funds has a fundamental policy against dealing with
the Trustees of the Trust in regard to the purchase and sale of securities and
investing for the purpose of making short-term trading profits or for exercising
control of management.
The Acquiring Funds are not subject to any such restriction.
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in each Acquiring Fund. For a more complete description of the
Acquiring Funds' investment policies and restrictions, including relevant risk
factors, see "OBJECTIVES AND MANAGEMENT" in the Acquiring Funds' Prospectus and
"INVESTMENT OBJECTIVES AND POLICIES" in the Acquiring Funds' Statement of
Additional Information. For a more complete description of the Acquired Funds'
investment policies and restrictions, including relevant risk factors, see
"OBJECTIVES AND MANAGEMENT, in the Acquired Funds' Prospectus and "ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES" in the Acquired
Funds' Statement of Additional Information.
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<PAGE> 99
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE ACQUIRED FUNDS AND THE TRUST
Pursuant to the laws of Massachusetts and the Trust's Amended Declaration
of Trust, the responsibility for the management of the Trust is vested in its
Board of Trustees which, among other things, is empowered by the Trust's Amended
Declaration of Trust to elect officers of the Trust and contract with and
provide for the compensation of agents, consultants, and other professionals to
assist and advise in such management.
Investment Adviser. The Acquired Funds are advised by Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a wholly
owned subsidiary of Nationwide Life Insurance Company, which in turn is wholly
owned by Nationwide Financial Services, Inc., a holding company ("NFS"). NFS has
two classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B common
stock) to control NFS. All of the common stock of Nationwide Corporation is held
by Nationwide Mutual Insurance Company (95.3%) and Nationwide Mutual Fire
Insurance Company (4.7%), each of which is a mutual company owned by its
policyholders. NAS is also the investment adviser, administrator, fund
accountant and distributor of each of the other funds of the Nationwide family
of funds. NAS was established as an Ohio corporation on June 28, 1960, and has
been providing investment advisory services to open-end investment management
companies like the Acquired Funds since 1965.
In its capacity as investment adviser, and subject to the ultimate
authority of the Trust's Board of Trustees, NAS, in accordance with the Acquired
Funds' investment objectives and policies, manages the Acquired Funds, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since March, 1986, Alpha Benson, MBA, has been primarily
responsible for the day-to-day management of Nationwide Tax-Free Income Fund's
portfolio. Ms. Benson has been with Nationwide Insurance Enterprise as a
financial analyst in the Securities Investment Department since 1977. Ms. Benson
graduated with a Bachelor of Science in Accounting from Central State
University. She received her Master of Business Administration degree from the
University of Dayton.
Wayne Frisbee, CFA, Kimberly Bingle, CFA, FLMI, and Gary Hunt, MBA, are the
portfolio managers of Nationwide U.S. Government Income Fund. Mr. Frisbee joined
Nationwide Insurance Enterprise in 1981 as a securities analyst and has managed
Nationwide U.S. Government Income Fund since its inception in February of 1992.
He received a Bachelor of Science from The Ohio State University and is a
Chartered Financial Analyst.
Ms. Bingle joined Nationwide Insurance Enterprise in 1986 as a securities
analyst and began co-managing Nationwide U.S. Government Income Fund on March
11, 1997. Since April, 1992, she has managed the Fixed Income Fund which is part
of the Nationwide Insurance Enterprise incentive savings plan. Ms. Bingle
received a Bachelor of Arts in Finance from The Pennsylvania State University.
She is a Chartered Financial Analyst and a Fellow of the Life Management
Institute.
Mr. Hunt joined Nationwide Insurance Enterprise in 1992 as a securities
analyst and began co-managing Nationwide U.S. Government Income Fund on March
11, 1997. In his career at Nationwide Insurance Enterprise, Mr. Hunt has been
responsible for the analysis of agency CMOs and U.S. Treasury securities. In
addition, he has managed the commercial mortgage-backed securities sector for
Nationwide Life Insurance Company and its affiliates. Mr. Hunt received a
Bachelor of Science in Finance and a Master of Business Administration from The
Ohio State University.
In addition, pursuant to the Investment Advisory Agreement, NAS generally
assists in all aspects of the Acquired Funds' administration and operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Trust, NAS receives a fee from each Acquired Fund,
computed daily and paid monthly, at the annual rate of 0.65% on the first $250
million of average daily net assets, 0.60% on the next $250 million, 0.55% on
the next $250 million and 0.50% on the average daily net assets in excess of
$750 million.
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<PAGE> 100
For a complete description of the Acquired Funds' advisory arrangements,
see the sections in the Acquired Funds' Prospectus entitled "OBJECTIVES AND
MANAGEMENT" and "MANAGEMENT OF THE TRUSTS."
Distributor. The Trust has entered into an Underwriting Agreement with
NAS, Three Nationwide Plaza, Columbus, Ohio 43215, pursuant to which shares of
the Acquired Funds continuously are offered on a best efforts basis by NAS and
dealers selected by NAS. Dimon Richard McFerson is Chairman of the Board and
Chief Executive Officer of NAS. Joseph J. Gasper, Robert A. Oakley, Gordon E.
McCutchan and Robert J. Woodward, Jr. are President and a director, Executive
Vice President -- Chief Financial Officer and a director, Executive Vice
President -- Law and Corporate Services and a director, and Executive Vice
President -- Chief Investment Officer and a director, respectively, of NAS.
James F. Laird, Jr. is Vice President -- General Manager of NAS. NAS receives no
compensation from the Acquired Funds in connection with its services under such
Underwriting Agreement but may retain some or all of the contingent deferred
sales charge, if any, imposed upon redemptions of the Acquired Funds' shares. In
addition, pursuant to the 12b-1 Plan, each Acquired Fund is authorized to pay
NAS compensation accrued daily and paid monthly at a maximum annual rate of
0.35% of such Acquired Fund's average daily net assets. Currently each Acquired
Fund accrues daily and pays monthly to NAS compensation at the annual rate of
0.20% of such Fund's average daily net assets. NAS will continue to waive the
remaining 0.15% until further written notice.
Dividend and Transfer Agent. Nationwide Investors Service, Inc., a wholly
owned subsidiary of NAS ("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215,
serves as the Acquired Funds' Dividend and Transfer Agent. In consideration of
such services, the Acquired Funds have agreed to pay NISI an annual fee, paid
monthly, equal to $18 per shareholder account, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Trust, see the section in the Acquired Funds' Prospectus entitled
"MANAGEMENT OF THE TRUSTS."
Custodian. The Acquired Funds have appointed The Fifth Third Bank ("Fifth
Third"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, as the Acquired
Funds' custodian. In such capacity Fifth Third will hold or arrange for the
holding of all portfolio securities and other assets acquired and owned by each
of the Acquired Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Acquired
Funds, and, as such, has audited the annual financial statements of the Acquired
Funds.
Management Discussion of Fund Performance.
NATIONWIDE TAX-FREE INCOME FUND
Nationwide Tax-Free Income Fund's total return for the year ended October
31, 1997, was 7.72%, without sales charge and assuming all distributions were
reinvested, while the Lehman Brothers Municipal Bond Index returned 8.49%.
The Municipal Bond Market experienced an active yet volatile year
characterized by a combination of declining interest rates and a large level of
issuance. The Bond-Buyer 11 General Obligation Municipal Bond Index fell from
5.60% to 5.28%, a 0.32% decline. The decline wasn't a smooth one as the index
rose as high as 5.79% in early April and saw a low of 5.15% by the end of July.
The yield on the most current U.S. Treasury 30-year bond also fell from 6.65% to
6.15%, a 0.50% decline. The most current U.S. Treasury 30-year bond saw its
highest yield of 7.11% during April as well and its low of 6.15% in late
October. Municipal bonds underperformed Treasuries during the period.
As 1997 began, a Democratic President and a Republican Majority were
returned to Washington and the economy was growing at a slow, manageable,
noninflationary pace. The markets reacted favorably to these events with stable
to declining interest rates. However, during the first quarter of the calendar
year, economic statistics
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<PAGE> 101
began to show signs of an economy that may be overheating, and on March 25, in a
preemptive move against inflationary concerns, the Federal Reserve raised the
Federal Funds rate 0.25%. The move appeared to be justified as during the
following months inflationary measures remained remarkably tame. In late April,
the announcement of a balanced budget agreement also overshadowed concerns about
the growth rate.
During the latter part of October, the Equity markets experienced a
sell-off that prompted investors to a flight to quality in U.S. Treasury
securities. This movement helped to sustain the lower yields and higher prices
in the bond markets. This volatility in the worldwide financial markets,
however, has significantly reduced the threat of another preemptive rate hike
from the Federal Reserve to slow the growth in U.S. economy.
Municipal issuers continued to take advantage of the lower interest rates
and propelled municipal volume up 17% for the first 10 months of the calendar
year. This increased supply has kept municipal securities from fully
participating in the bond market rally. As a consequence, particularly in the
long end, municipals have cheapened when compared to Treasury securities.
NAS will continue to monitor developments in the market and to look for
opportunities that will produce positive performance in the long-run. The
average credit quality of Nationwide Tax-Free Income Fund is "AA," average
coupon is 6.08% and the average maturity is approximately 18 years.
FUND COMPOSITION
(SUBJECT TO CHANGE)
FUND COMPOSITION PIE CHART
Other assets less liabilities 1.0%
Municipal securities 99.0%
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
- ----------------------------------------------
<S> <C> <C> <C>
1 7.72% 8.71% 2.72%
5 6.78% 6.46% 6.63%
10 8.18% 7.16% 8.18%
</TABLE>
* These returns do not reflect the effects of sales charges.
** Assumes the applicable contingent deferred sales charge (CDSC) was paid on
withdrawals, which has the most dramatic effect on the one-year performance
figures. The CDSC declines from 5% in the first year to 0% after 5 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR
COVERED) FUND LBMBI CPI
<S> <C> <C> <C>
1987 10000 10000 10000
1988 11629 11456 10425
1989 12529 12383 10903
1990 13191 13302 11598
1991 14763 14921 11928
1992 15823 16174 12319
1993 18507 18450 12658
1994 16890 17646 12997
1995 19366 20266 13353
1996 20393 21421 13753
1997 21969 23240 14014
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) Tax-Free Income
Fund, the Lehman Brothers Municipal Bond Index* (LBMBI) and the Consumer Price
Index (CPI)** over a 10-year period ended 10/31/97. Unlike our Fund, these
indices do not reflect any fees, expenses or sales charges.
* The LBMBI consists of investment grade tax-exempt bonds and includes
securities with at least one year to maturity and at least $100 million in
par value outstanding.
** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
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<PAGE> 102
NATIONWIDE U.S. GOVERNMENT INCOME FUND
The Nationwide U.S. Government Income Fund's total return for the fiscal
year ended October 31, 1997, was 8.86% without sales charge and assuming all
distributions were reinvested, while its new index, the Merrill Lynch Government
Master Index, returned 8.67%. The new index is more reflective of the Fund's
investment policies.
Shareholders who stayed in the Fund for the entire period were rewarded
after a difficult first six months when intermediate-term interest rates rose
0.4%-0.5%. The second half of the period was more favorable as intermediate
interest rates dropped 0.5%-0.9% and longer rates dropped by approximately 0.8%.
The higher prices for bonds in the second half was the result of several
factors. The most notable factor was the continued release of favorable
inflation reports in spite of low unemployment and significant growth in the
overall economy. Another important factor is the perception that the Federal
Reserve will not act to raise rates until clear signs of inflationary pressures
are present. The Federal Reserve's stance combined with favorable inflation
reports has led to a significantly flatter yield curve. Finally, the U.S.
government market has been the beneficiary of a flight to quality as the result
of increased turmoil in world equity markets.
Nationwide U.S. Government Income Fund benefited from its weighting in the
collateralized mortgage obligation (CMO) market during the period and the shift
out of callable into non-callable agency notes. As of October 31, 1997,
approximately 77% of portfolio assets were invested in the CMO market, and 19%
of Fund assets were invested in U.S. Government and agency obligations. The
remainder of Fund assets were held in repurchase agreements.
FUND COMPOSITION
(SUBJECT TO CHANGE)
FUND COMPOSITION PIE CHART
Mortgage-backed securities 76.4%
U.S. government and agency long-term obligations 18.7%
Other assets less liabilities 4.9%
30
<PAGE> 103
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
- ----------------------------------------------
<S> <C> <C> <C>
1 8.86% 11.36% 3.86%
5 7.09% 7.77% 6.94%
Life 7.17% 7.60% 7.17%
</TABLE>
* These returns do not reflect the effects of sales charges.
** Assumes the applicable contingent deferred sales charge (CDSC) was paid on
withdrawals, which has the most dramatic effect on the one-year performance
figures. The CDSC declines from 5% in the first year to 0% after 5 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR
COVERED) FUND LBIGBI MLGMI CPI
<S> <C> <C> <C> <C>
2/10/92 10000 10000 10000 10000
1992 10513 10669 10692 10223
1993 11581 11653 12083 10504
1994 11094 11453 11560 10785
1995 12922 12806 13341 11081
1996 13604 13532 14015 11413
1997 14809 14524 15231 11629
</TABLE>
Comparative performance of $10,000 invested in the Nationwide(R) U.S. Government
Income Fund, the Lehman Brothers Intermediate Government Bond Index* (LBIGBI),
the Merrill Lynch Government Master Index** (MLGMI) and the Consumer Price Index
(CPI)*** since inception (2/10/92) to 10/31/97. Unlike our Fund, these indices
do not reflect any fees, expenses or sales charges.
* The LBIGBI is comprised of U.S. government securities with par values of at
least $100 million and maturities of at least one year and up to 10 years.
** The MLGMI is the new index for the Fund. It consists of U.S. Treasury notes
and bonds with one or more years remaining to final maturity and at least $1
billion in face value outstanding, and U.S. agencies with one ore more years
remaining to final maturity and at least $100 million in face value
outstanding.
*** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
THE ACQUIRING FUNDS AND THE NEW TRUST
Except where shareholder action is required by law, all of the authority of
the New Trust is exercised under the direction of the New Trust's Trustees, who
are elected by the shareholders of the New Trust's series or portfolios,
including the Acquiring Funds, and who are empowered to elect officers and
contract with and provide for the compensation of agents, consultants, and other
professionals to assist and advise in its day-to-day operations. The New Trust
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
Investment Adviser. The Acquiring Funds are also advised by NAS. It is
intended that upon completion of the Reorganization, Ms. Benson will be
responsible for the day-to-day management of the New Tax-Free Income Fund's
portfolio, and Messrs. Frisbee and Hunt and Ms. Bingle will be responsible for
the day-to-day management of the New Intermediate Government Bond Fund's
portfolio. For its services as investment adviser, NAS receives a fee for each
Acquiring Fund, which is calculated daily and paid monthly, at the following
annual rates: 0.50% of such Fund's average net assets up to $250 million, 0.475%
of such Fund's average net assets of $250 million up to $1 billion, 0.45% of
such Fund's average net assets of $1 billion up to $2 billion, 0.425% of such
Fund's average net assets of $2 billion up to $5 billion, and 0.40% of such
Fund's average net assets of $5 billion or more. The New Trust's Investment
Advisory Agreement was approved by the New Trust's Board of Trustees on November
7, 1997, and will be approved by each Acquiring Fund's initial sole shareholder,
NAS, prior to the Reorganization.
The New Trust on behalf of the Acquiring Funds has also entered into an
Administration Agreement with NAS whereby NAS provides certain administration
and fund accounting services to the Acquiring Funds. For such services, NAS
receives a fee from each Acquiring Fund, calculated daily and paid periodically
at the following annual rate: 0.07% of such Fund's average net assets up to $250
million; 0.05% of such Fund's average
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<PAGE> 104
net assets of $250 million up to $1 billion, and 0.04% of such Fund's average
net assets of $1 billion or more. Such Administration Agreement was approved by
the New Trust's Board of Trustees on November 7, 1997.
For a complete description of the Acquiring Funds' advisory arrangements,
see the section in the Acquiring Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST -- Investment Management."
Dividend and Transfer Agent. NISI also serves as the Acquiring Funds'
Dividend and Transfer Agent. In consideration of such services, the Acquiring
Funds have each agreed to pay NAS an annual fee, paid monthly, equal to $18 per
shareholder account, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Acquiring Funds, see the sections in the Acquiring Funds'
Prospectus entitled "MANAGEMENT OF THE TRUST -- Other Services" and "-- Transfer
and Dividend Disbursing Agent."
Distributor. NAS also serves as the distributor of the Acquiring Funds'
shares pursuant to a distribution agreement. Pursuant to such agreement, NAS may
retain all or a portion of the front end sales charge, if any, imposed upon
purchases of Class D shares of the Acquiring Funds.
In addition, NAS may enter into, from time to time, agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of the Acquiring Funds' Class D shares.
For a complete description of these arrangements, see the sections in the
Acquiring Funds' Prospectus entitled "HOW TO PURCHASE SHARES."
Custodian. The Acquiring Funds have also appointed Fifth Third as the
Acquiring Funds' custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the New Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Funds, and, as such, will audit the annual financial
statements of the Acquiring Funds.
Management Discussion of Fund Performance. No management discussion of
fund performance is included since the Acquiring Funds have not yet commenced
operations.
CERTAIN FINANCIAL INFORMATION
The Prospectus for the Trust contains information on per share income,
capital changes and performance calculations under the caption "FINANCIAL
HIGHLIGHTS."
The Acquiring Funds have not yet commenced operations and have no and will
have no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE ADVERTISING FOR THE FUNDS" in
the Acquiring Funds' Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS
The Trust is a Massachusetts business trust, registered under the 1940 Act
as an open-end investment company of the management type. The Trust was
established under a Declaration of Trust dated October 8, 1985. The Declaration
of Trust was amended March 1, 1993. The New Trust is an Ohio business trust,
registered under the 1940 Act as an open-end investment company of the
management type and established under a Declaration of Trust dated as of October
30, 1997.
The Acquiring Funds are two of nine series of the New Trust. The other
seven series of the New Trust are Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund, Nationwide Money Market Fund, Nationwide Long-Term U.S.
Government Bond Fund, Nationwide Mid Cap Growth Fund and Nationwide S&P 500
Index Fund.
32
<PAGE> 105
Both the Trust and the New Trust are authorized to issue an unlimited
number of shares of beneficial interest and to divide their shares of beneficial
interest into one or more series. The New Trust is also authorized to divide its
shares of beneficial interest into one or more classes or sub-series. Each share
of a series of the Trust or New Trust represents a beneficial interest in the
assets of only that series. The consideration received by the Trust or New Trust
for the issuance of shares of a particular series, the assets in which such
consideration is invested, and all income and proceeds from the holding or sale
of such assets belong to that series, subject only to the rights of creditors.
Each share of beneficial interest of a series of the Trust and New Trust
represents an equal proportionate interest in that series of the Trust and New
Trust, respectively, with each other share of the same series. Each such share
is entitled to share on a pro rata basis in any dividends or distributions out
of the income or assets belonging to the particular series of the Trust and New
Trust, as applicable. Such dividends or distributions are declared at the
discretion of the Trustees of the Trust and New Trust. Upon any liquidation of a
series of the Trust or the New Trust, shareholders are entitled to share pro
rata in the net assets that belong to that series and that are available for
distribution.
Shares of the Acquiring Funds, once properly issued and outstanding, are
fully paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
Shareholders of the both the Trust and the New Trust are entitled to one
vote for each full share held and a proportionate fractional vote for each
fractional share held, regardless of the net asset value of such shares.
Voting rights for Trust shareholders are not cumulative, so that the
holders of more than 50% of the Trust voting in the election of its Trustees
have the power to elect all of the Trustees of the Trust. The Trust is not
required to, and currently does not, hold an annual meeting of shareholders.
Shareholders of the New Trust have no cumulative voting rights; the holders
of a plurality of the shares voting for the election of the New Trust's Board of
Trustees can elect all of the New Trust's Board of Trustees. The New Trust does
not intend to hold annual meetings of shareholders, except as required under its
Declaration of Trust or the 1940 Act. Shareholders of the Acquiring Funds will
vote in the aggregate with other shareholders of the New Trust and not by series
or portfolio except as otherwise expressly required by law. For example,
shareholders of an Acquiring Fund will vote in the aggregate with other
shareholders of the New Trust with respect to the election of Trustees and
ratification of the selection of independent accountants. However, shareholders
of an Acquiring Fund will vote as a Fund, and not in the aggregate with other
shareholders of the New Trust, for purposes of approval of amendments to the
Investment Advisory Agreement as it relates to that Acquiring Fund or any of
that Acquiring Fund's fundamental policies.
The Trustees of the New Trust will call a special meeting of shareholders
for purposes 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 New Trust, and the New Trust will assist in communications with
other shareholders as required by Section 16(c) of the 1940 Act. At such
meeting, a quorum of shareholders, by majority vote, has the power to remove one
or more Trustees.
For a complete description of the respective attributes of the Trust's and
the New Trust's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Acquired Funds or the Acquiring
Funds, as the case may be, and its shareholders, and dividend and distribution
policies, see the sections in the Acquired Funds' and the Acquiring Funds'
respective Prospectuses entitled "HOW TO PURCHASE SHARES," "HOW TO REDEEM
SHARES," "INVESTOR SERVICES," and "DISTRIBUTIONS AND TAXES." Additional
information about the Trust is included in its Prospectus, dated February 28,
1997, as supplemented on December 8, 1997, and December 23, 1997, which is
incorporated herein by reference, and in the Trust's Statement of Additional
Information dated February 28, 1997. Copies of the Prospectus and the Statement
of Additional Information may be obtained without charge by calling the Trust at
1-800-848-0920.
Additional information about the Acquiring Funds is included in its
Prospectus dated January 6, 1998, which accompanies this Combined
Prospectus/Proxy Statement and Statement of Additional Information dated January
6, 1998, copies of which may be obtained without charge by calling the New Trust
at 1-800-848-0920.
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Additional information regarding the Reorganization is contained in the
Statement of Additional Information, dated January , 1998, to this Combined
Prospectus/Proxy Statement. The Statement of Additional Information is
incorporated by reference herein and may be obtained by calling the New Trust at
1-800-848-0920.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the New Trust are each subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act, and in accordance therewith each
files reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne 50% the Trust and
50% by NAS. Proxies will be solicited initially, and in any supplemental
solicitation, by mail and may be solicited in person, by telephone or other
electronic means by officers of the Trust or by proxy solicitors hired by the
Trustees.
SUBSTANTIAL SHAREHOLDERS. As of December 18, 1997, to the knowledge of the
Trust, the only persons who own of record or beneficially five percent or more
of the outstanding shares of any of the Acquired Funds are Nationwide Life
Insurance Company and/or Nationwide Life and Annuity Company, One Nationwide
Plaza, Columbus, Ohio 43215, which own through various separate accounts 15.8%
of Nationwide U.S. Government Income Fund.
As of the close of business on December 18, 1997, the officers and Trustees
of the Trust as a group beneficially owned less than 1% of the outstanding
shares of the Trust or of any Acquired Fund.
As of the close of business on December 18, 1997, there were no issued and
outstanding shares of the New Trust. As of such date, there were no shareholders
of the Acquiring Funds. It is anticipated, however, that those persons who are
beneficial holders of the Acquired Funds' shares immediately prior to the
Reorganization will be beneficial holders of the same or substantially the same
percentage of the corresponding Acquiring Fund's Class D shares immediately
after the Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Funds dated January 6, 1998, is incorporated by reference into this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
February 28, 1997, as supplemented December 8, 1997, and December 23, 1997, is
incorporated by reference into this Combined Prospectus/Proxy Statement and may
be obtained by writing the Trust at Three Nationwide Plaza, Columbus, Ohio 43215
or by calling the Trust at 1-800-848-0920. Copies of documents requested will be
sent by first-class mail to the requesting shareholder within one business day
of receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in accordance
with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to introduce
at such meeting. Any shareholder proposals must be presented a reasonable time
before the proxy materials for the next meeting are sent to shareholders. The
submission of a proposal does not guarantee its inclusion in the Trust's proxy
statement and is subject to limitations under the 1934 Act. It is not presently
anticipated that the New Trust will hold regular meetings of shareholders, and
no anticipated date of the next meeting can be provided.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, by and between Nationwide Investing Foundation II, a Massachusetts
business trust ("NIF II") and Nationwide Investing Foundation III, an Ohio
business trust ("NIF III").
WHEREAS, NIF II is registered under the Investment Company Act of 1940, as
amended ("1940 Act") as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following two series: Nationwide Tax-Free Income Fund ("NIF II
Tax-Free Income Fund") and Nationwide U.S. Government Income Fund ("NIF II U.S.
Government Income Fund", and together with NIF II's other series described in
this paragraph, the "Acquired Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series:
Nationwide Tax-Free Income Fund ("NIF III Tax-Free Income Fund") and Nationwide
Intermediate U.S. Government Bond Fund ("NIF III Intermediate U.S. Government
Bond Fund," and, together with NIF III's other series described in this
paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets or liabilities
of the corresponding Acquired Series; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares of the
corresponding Acquiring Series ("Acquiring Series Shares"), which are voting
securities, followed by the distribution of the Acquiring Series Shares by each
Acquired Series to the shareholders of the Acquired Series in connection with
the dissolution of NIF II and the Acquired Series, all upon the terms and
provisions of this Agreement (individually and together, the "Reorganization");
and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: NIF II Tax-Free Income Fund corresponds to NIF III Tax-Free
Income Fund and NIF II U.S. Government Income Fund corresponds to NIF III
Intermediate U.S. Government Bond Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of NIF II has determined that the
Reorganization is in the best interests of NIF II, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of NIF II and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as described in Section 9(h) herein), NIF II and the
Acquired Series agree to assign, convey, transfer and deliver to NIF III
and the Acquiring Series, and NIF III and the Acquiring Series agree to
acquire from
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NIF II and the Acquired Series on the Exchange Date (as defined below), all
of the Investments (as defined below), cash and other assets of NIF II in
exchange for that number of full and fractional Acquiring Series Shares of
the corresponding Acquiring Series having an aggregate net asset value
equal to the value of all assets of NIF II transferred to the Acquiring
Series, as provided in Section 4, less the liabilities of NIF II assumed by
the Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring
Series from NIF II shall consist of all of NIF II's property, including,
without limitation, all Investments (as defined below), cash and dividends
or interest receivables which are owned by NIF II and any deferred or
prepaid expenses shown as an asset on the books of NIF II as of the
Valuation Time described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date NIF II will
endeavor to discharge or cause to be discharged, or make provision for the
payment of, all of its known liabilities and obligations. The Acquiring
Series shall assume all liabilities, expenses, costs, charges and reserves
of NIF II, contingent or otherwise, including liabilities reflected in the
unaudited statements of assets and liabilities of NIF II as of the
Valuation Time, prepared by or on behalf of NIF II as of the Valuation Time
in accordance with generally accepted accounting principles consistently
applied from and after October 31, 1996, and including all liabilities of
the NIF II under its registration statement on Form N-1A filed with the
Securities and Exchange Commission ("Commission") under the Securities Act
of 1933, as amended ("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, each Acquired
Series shall distribute to its shareholders of record as of the Exchange
Date the Acquiring Series Shares received by it, each Acquired Series
shareholder of record being entitled to receive that number of Acquiring
Series Shares equal to the proportion which the number of shares of
beneficial interest, par value $1.00 per share, of the Acquired Series held
by such shareholder bears to the total number of such shares of the
Acquired Series outstanding on such date, and shall take such further
action as may be required, necessary or appropriate under NIF II's Amended
Declaration of Trust, Massachusetts law and the Code to effect the complete
liquidation and dissolution of NIF II. NIF II will fulfill all reporting
requirements under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF II. NIF II represents
and warrants to and agrees with NIF III and the Acquiring Series that:
(a) NIF II is a business trust validly existing under the laws of the
Commonwealth of Massachusetts and has power to own all of its properties
and assets and to carry out its obligations under this Agreement.
(b) NIF II is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. NIF II has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for NIF II, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of NIF II, have been furnished to NIF III. Such statements of
assets and liabilities fairly present the financial position of NIF II as
of such date and such statements of operations and changes in net assets
fairly reflect the results of operations and changes in net assets for the
periods covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of NIF II as of
such dates which are not disclosed therein.
(d) The Prospectus of NIF II dated February 28, 1997 and its related
Statement of Additional Information dated February 28, 1997 (together, the
"NIF II Prospectus"), in the forms filed under the 1933 Act with the
Commission and previously furnished to NIF III, did not as of their date
and do not as of the
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date hereof contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of NIF II, threatened against NIF II.
(f) There are no material contracts outstanding to which NIF II is a
party, other than as disclosed in the NIF II Prospectus, and there are no
such contracts or commitments (other than this Agreement) which will be
terminated with liability to NIF II on or prior to the Exchange Date.
(g) NIF II has no known liabilities of a material nature, contingent
or otherwise, other than those shown as belonging to it on its statements
of assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of NIF II's business as an investment company since that
date.
(h) As used in this Agreement, the term "Investments" shall mean NIF
II's investments shown on the statements of assets and liabilities at
October 31, 1996 referred to in Section 2(g) hereof, as supplemented with
such changes as NIF II shall make after October 31, 1996 in the ordinary
course of its business.
(i) NIF II has filed or will file all federal and state tax returns
which, to the knowledge of NIF II's officers, are required to be filed by
NIF II and has paid or will pay all federal and state taxes shown to be due
on said returns or on any assessments received by NIF II. All tax
liabilities of NIF II have been adequately provided for on its books, and
no tax deficiency or liability of NIF II has been asserted, and no question
with respect thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), NIF II
will have full right, power and authority to assign, transfer and deliver
the Investments and any other of its assets and liabilities to be
transferred to NIF III and the Acquiring Series pursuant to this Agreement.
On the Exchange Date, subject only to the delivery of the Investments and
any such other assets and liabilities as contemplated by this Agreement,
NIF III and the Acquiring Series will acquire the Investments and any such
other assets subject to no encumbrances, liens or security interests in
favor of any third party creditor of NIF II and, except as described in
Section 2(k), without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of NIF II or NIF III, except as previously
disclosed to NIF III by NIF II prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by NIF II of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement to be filed by NIF III with the
Commission on Form N-14 (the "N-14 Registration Statement") relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of NIF
II included therein (the "Proxy Statement"), on the effective date of the
N-14 Registration Statement and insofar as they relate to NIF II and the
Acquired Series, (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at
the time of the shareholders' meeting referred to in Section 7 below and on
the Exchange Date, the prospectus contained in the N-14 Registration
Statement of which the Proxy Statement is a part, as amended or
supplemented by any amendments or supplements filed with the Commission by
NIF III (together, the "N-14 Prospectus") insofar as it relates to NIF II
and the Acquired Series, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this Section
2(m) shall apply only
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to statements of fact relating to NIF II and the Acquired Series contained
in the N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, or omissions to state in any thereof a material fact relating to
NIF II or any Acquired Series, as such N-14 Registration Statement, N-14
Prospectus and Proxy Statement shall be furnished to NIF II in definitive
form as soon as practicable following effectiveness of the N-14
Registration Statement and before any public distribution of the N-14
Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with NIF II that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to NIF II
promptly upon the completion thereof and will not as of their date contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of NIF II to be transferred to the
Acquiring Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date, the N-14
Prospectus, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the N-14 Registration Statement, the N-14
Prospectus or the Proxy Statement made in reliance upon
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and in conformity with information furnished by NIF II or any Acquired
Series for use in the N-14 Registration Statement, the N-14 Prospectus or
the Proxy Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end investment
company, nor does NIF III have any plan or intention to redeem or otherwise
reacquire any shares of the Acquiring Series issued to NIF II shareholders
pursuant to the Reorganization, other than through redemptions arising in
the ordinary course of that business. NIF III will actively continue NIF
II's business in the same manner that NIF II conducted it immediately
before the Reorganization and has no plan or intention to sell or otherwise
dispose of any of the assets to be acquired by NIF III in the
Reorganization, except for dispositions made in the course of its business
and dispositions necessary to maintain the status of each Acquiring Series
as a regulated investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to NIF II pursuant to
this Agreement will be legally and validly issued by NIF III and will be
fully paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to NIF II a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of NIF II
acquired by the respective Acquiring Series, less the value of the
liabilities of NIF II assumed, determined as hereafter provided in this
Section 4.
(a) The net assets of NIF II and each Acquired Series will be computed
as of the Valuation Time, using the valuation procedures set forth in the
NIF II Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
NIF II on a share deposit receipt registered in the name of NIF II. NIF II
shall distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former NIF II shareholder as
may be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of NIF II,
whether accrued or contingent, described in subsection l(c) hereof in
connection with the acquisition of assets and subsequent dissolution of NIF
II or otherwise, except that recourse for assumed liabilities relating to
an Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of NIF II and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
NIF II will be responsible for proxy solicitation and other costs
associated with the special meeting. Notwithstanding the foregoing,
Nationwide Advisory Services, Inc., investment adviser of NIF II and NIF
III, will be responsible for 50% of NIF II's and NIF III's fees and
expenses of the Reorganization and 50% of NIF II's proxy solicitation and
other costs associated with the special meeting.
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6. EXCHANGE DATE. Delivery of the assets of NIF II to be transferred,
assumption of the liabilities of NIF II to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of NIF
II, at 9:00 A.M. on March 1, 1998, or at such other time, date, and
location agreed to by NIF II and NIF III, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) NIF II agrees to call a special meeting of its shareholders as
soon as is practicable for the purpose of considering the transfer of all
of the assets of NIF II to, and the assumption of all of the liabilities of
NIF II by, the Acquiring Series as herein provided, authorizing and
approving this Agreement, and authorizing and approving the liquidation and
dissolution of NIF II, and it shall be a condition to the obligations of
each of the parties hereto that the holders of shares of beneficial
interest, par value $1.00 per share, of NIF II shall have approved this
Agreement, and the transactions contemplated herein, including the
liquidation and dissolution of NIF II, in the manner required by law and
NIF II's Amended Declaration of Trust at such a meeting on or before the
Valuation Time.
(b) NIF II agrees that the liquidation and dissolution of NIF II will
be effected in the manner provided in NIF II's Amended Declaration of Trust
and in accordance with applicable law, and that it will not make any
distribution of any Acquiring Series Shares to the shareholders of NIF II
without first paying or adequately providing for the payment of all of NIF
II's known debts, obligations and liabilities.
(c) Each of NIF II and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14 Registration Statement, including the N-14 Prospectus
and Proxy Statement included therein.
8. CONDITIONS OF NIF II'S OBLIGATIONS. The obligations of NIF II hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF II,
shall have been approved by the trustees and shareholders of NIF II in the
manner required by law.
(b) NIF III shall have executed and delivered to NIF II an Assumption
of Liabilities dated as of the Exchange Date pursuant to which the
Acquiring Series will assume all of the liabilities, expenses, costs,
charges and reserves of NIF II, contingent or otherwise, including
liabilities existing at the Valuation Time and described in Section 1(c)
hereof in connection with the transactions contemplated by this Agreement;
provided that recourse for assumed liabilities relating to an Acquired
Series shall be limited to the corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to NIF II a statement, dated the Exchange Date, signed by NIF
III's Chairman and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) NIF II shall have received an opinion of Druen, Dietrich, Reynolds
& Koogler in form reasonably satisfactory to NIF II, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to NIF II as provided for by this Agreement are duly authorized
and upon such delivery will be validly issued and will be fully paid and
nonassessable by NIF III and no shareholder of NIF III has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by NIF III, and assuming
due authorization, execution and delivery of this Agreement by NIF II,
A-6
<PAGE> 113
is a valid and binding obligation of NIF III, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) NIF II shall have received an opinion of Baker & Hostetler LLP
addressed to NIF II, NIF III and each Acquiring Series and in a form
reasonably satisfactory to NIF II dated the Exchange Date, with respect to
the matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, NIF II and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF II,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF II, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and NIF II shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF II, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
(j) The Agreement and Plan of Reorganization dated as of November 24,
1997 between Nationwide Investing Foundation, a Michigan business trust
("NIF"), and NIF III, shall have been approved by the shareholders of NIF
as required by law and all other conditions in such agreement shall have
been satisfied as of the Exchange Date.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of NIF II,
shall have been approved by the trustees and shareholders of NIF II in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF II made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF II has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to each of
such dates, and NIF II shall have furnished to NIF III a statement, dated
the Exchange Date, signed by NIF II's Chairman and Treasurer (or other
financial officer) certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) NIF II is a business trust
validly existing under the laws of the Commonwealth of Massachusetts, (ii)
this Agreement has been duly authorized, executed and delivered by NIF II
and, assuming due authorization, execution and delivery of this
A-7
<PAGE> 114
Agreement by NIF III, is a valid and binding obligation of NIF II,
enforceable in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights generally and other equitable
principles, (iii) NIF II has power to assign, convey, transfer and deliver
the Investments and other assets contemplated hereby and, upon consummation
of the transactions contemplated hereby in accordance with the terms of
this Agreement, NIF II will have duly assigned, conveyed, transferred and
delivered such Investments and other assets to NIF III, (iv) the execution
and delivery of this Agreement did not and the consummation of the
transactions contemplated hereby will not, violate NIF II's Amended
Declaration of Trust or its Amended Bylaws, as amended, or any provision of
any agreement known to such counsel to which NIF II is a party or by which
it is bound, and (v) to the knowledge of such counsel no consent, approval,
authorization or order of any court or governmental authority is required
for the consummation by NIF II of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, 1934 Act and 1940 Act
and such as may be required under state securities or blue sky laws or
state laws applicable to business trusts. In rendering such opinion, Druen,
Dietrich, Reynolds & Koogler may rely upon certain reasonable and customary
assumptions and certifications of fact received from NIF II and its
officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and NIF II, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
the Acquired Series' assets in exchange for the Acquiring Series Shares
followed by the distribution of the Acquiring Series Shares to the
shareholders of the Acquired Shares and the assumption by the Acquiring
Series of the liabilities of Acquired Series will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and each
of the Acquiring Series and Acquired Series is a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no
gain or loss will be recognized by Acquired Series upon the transfer of the
assets of the Acquired Series in exchange for Acquiring Series Shares and
the assumption by the Acquiring Series of the liabilities of Acquired
Series or upon the distribution of Acquiring Series Shares by Acquired
Series to its shareholders in liquidation; (iii) no gain or loss will be
recognized by the shareholders of Acquired Series upon the exchange of
their shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) an Acquired Series shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the
period for which he or she held Acquired Series Shares exchanged therefor,
provided that he or she held such Shares as capital assets; (vi) no gain or
loss will be recognized by the Acquiring Series upon the receipt of the
assets of the corresponding Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of the corresponding Acquired Series (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of the
assets in the hands of the corresponding Acquired Series immediately prior
to the transfer and (viii) the Acquiring Series' holding periods of the
assets of the corresponding Acquired Series will include the period for
which such assets of the corresponding Acquired Series were held by the
corresponding Acquired Series. In rendering such opinion, Baker & Hostetler
LLP may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF III, NIF II, and certain of its
shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by NIF II in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any
A-8
<PAGE> 115
deduction for dividends paid), and all of its net capital gain realized in
its taxable year ended October 31, 1997 and the short taxable year
beginning November 1, 1997 and ending on the Valuation Time (after
reduction for any capital loss carryover).
(i) NIF II shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
NIF II's entire right, title and interest in and to the Investments and all
other assets of NIF II to the Acquiring Series.
(j) NIF III and NIF II shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and NIF II, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
(k) The Agreement and Plan of Reorganization dated as of November 24,
1997 between Nationwide Investing Foundation, a Michigan business trust
("NIF"), and NIF III, shall have been approved by the shareholders of NIF
as required by law and all other conditions in such agreement shall have
been satisfied as of the Exchange Date.
10. TERMINATION. NIF III and NIF II may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or NIF II, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees may, subject to Section 11 of this
Agreement, waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
NIF II; provided, however, that following the special meeting of NIF II's
shareholders called by NIF II pursuant to Section 7 of this Agreement, no such
amendment may have the effect of altering or changing the amount or kind of
shares received by NIF II, or altering or changing to any material extent the
amount or kind of liabilities assumed by NIF III and the Acquiring Series, or
altering or changing any other terms and conditions of the Reorganization if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect NIF II's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
NATIONWIDE INVESTING FOUNDATION II
By: /s/ JAMES F. LAIRD, JR.
------------------------------------
James F. Laird, Jr.
NATIONWIDE INVESTING FOUNDATION III
By: /s/ CHRISTOPHER A. CRAY
------------------------------------
Christopher A. Cray
A-9
<PAGE> 116
PROXY
NATIONWIDE INVESTING FOUNDATION II
NATIONWIDE TAX-FREE INCOME FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of
NATIONWIDE INVESTING FOUNDATION II (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 117
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 118
PROXY
NATIONWIDE INVESTING FOUNDATION II
NATIONWIDE U.S. GOVERNMENT INCOME FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of
NATIONWIDE INVESTING FOUNDATION II (the "Trust"), which the undersigned is
entitled to vote, at the Special Meeting of Shareholders of the Trust to be
held Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 119
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 120
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 SUMMARY -- Comparative Expense Information; SUMMARY; SPECIAL
CONSIDERATIONS AND RISK FACTORS
4 THE PROPOSED TRANSACTION
5 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
6 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS;
ADDITIONAL COMPARATIVE INFORMATION; MISCELLANEOUS -- Additional
Information; MISCELLANEOUS -- Documents Incorporated by
Reference
7 Front Cover; SUMMARY -- Approval and Consummation of the
Proposed Transaction; SUMMARY -- Comparison of Voting Rights;
THE PROPOSED TRANSACTION; and MISCELLANEOUS -- Solicitation of
Proxies and Payment of Expenses; MISCELLANEOUS -- Substantial
Shareholders
8 SUMMARY -- Proposed Reorganization; SUMMARY -- Comparative
Expense Information; SUMMARY -- Fees and Expenses; THE PROPOSED
TRANSACTION -- Reasons for the Proposed Transaction; ADDITIONAL
COMPARATIVE INFORMATION
9 Not Applicable
</TABLE>
<PAGE> 121
Dear Financial Horizons Investment Trust Shareholder:
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998 to consider an important proposal affecting your funds. After
careful consideration, the Trustees unanimously approved this proposal because
they believe it is in the best interests of the funds and the shareholders, and
they recommend you vote FOR the proposal.
The proposal would reorganize the Financial Horizons Investment Trust (Trust)
funds, along with several other Nationwide-managed funds, into a new Ohio
business trust. The main reasons for the reorganization are:
- To create a single, modern business trust to improve operating
efficiencies,
- To take advantage of Ohio business trust laws, which are more favorable
to shareholders than Massachusetts laws,
- To eliminate outdated investment restrictions, which will expand the
investments available to the portfolio managers while keeping similar
investment objectives and risk profiles,
- To increase the number of funds available within the Nationwide family of
funds, and
- To offer more choices to shareholders through the introduction of
additional share classes.
In addition, the proposal would change the investment advisory fees of the
funds, eliminate the 12b-1 fee on your shares, establish a separate fee for fund
administration and implement a sliding fee schedule so that certain fees, as a
percentage of a fund's net assets, decrease as assets increase to certain
levels. The proposed fee structure is more fully explained in the attached
"Proxy Statement Summary" and detailed in the attached Combined Prospectus/Proxy
Statement.
Most features of the funds in the new trust will be the same as those of the
current funds. For instance, the portfolio managers will remain the same (except
with respect to the money market fund) and procedures to purchase and redeem
shares generally will not change; however, shares received in the new trust as a
part of the reorganization will not be subject to contingent deferred sales
charges when redeemed. If the reorganization is approved, you will receive Class
D shares of the funds in the new trust (except with respect to the Money Market
Fund, which will offer only one class of shares without any class designation)
in exchange for your current shares. The shares received will be equal in value
to the shares exchanged, and there will be no sales charges, fees, or federal
income tax consequences as a result of this exchange.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE TAKE A
FEW MINUTES TO READ THE COMBINED PROSPECTUS/PROXY STATEMENT AND CAST YOUR VOTE.
IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED BY NO LATER THAN FEBRUARY 13, 1998.
HOWEVER, PLEASE CONSIDER VOTING EARLY, SO THAT THE FUNDS CAN AVOID THE ADDED
COSTS ASSOCIATED WITH FOLLOW-UP SOLICITATIONS.
The Trust is using Shareholder Communications Corporation, a professional proxy
firm, to assist shareholders in the voting process. As the date of the meeting
approaches, if we have not already heard from you, you may receive a telephone
call from Shareholder Communications reminding you to exercise your right to
vote.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
Dimon R. McFerson, Chairman
<PAGE> 122
PROXY STATEMENT SUMMARY
The following Q & A is a brief summary of the proposal to be considered at the
special meeting. The information below is qualified by the more detailed
information included elsewhere in the attached Combined Prospectus/Proxy
Statement. Accordingly, please read all the enclosed materials before voting.
PLEASE REMEMBER TO VOTE YOUR SHARES AS SOON AS POSSIBLE.
Q: Why are the Trustees recommending the reorganization?
A: The Financial Horizons Investment Trust (FHIT) was established in 1988 as a
Massachusetts business trust. FHIT's Declaration of Trust is not up-to-date
with current industry practices, which results in unnecessary investment
limitations and some inefficiencies in day-to-day operations. Also,
Nationwide manages six mutual funds in two other trusts, Nationwide Investing
Foundation (NIF) and Nationwide Investing Foundation II (NIF II) which, if
the reorganization is approved, will be combined with the FHIT funds in the
new Ohio business trust. The reorganization and consolidation of all of these
Nationwide-managed funds into a new trust will streamline operations, expand
the number of funds available in the Nationwide Family, eliminate unnecessary
investment restrictions, and permit the funds to offer multiple share classes
to their shareholders.
Q: How will the reorganization affect the value of my account?
A: The value of your account will not change. If the reorganization is approved,
you will receive Class D shares of the funds in the new trust (except for the
New Money Market Fund which offers only one class of shares) in exchange for
your current shares. The shares received will be equal in value to the shares
exchanged, and there will be no charges, fees, or federal income tax
consequences to you as a result of the reorganization.
Q: How will the proposal affect the way the funds are managed?
A: The portfolio managers and risk profiles of the funds will not significantly
change. However, the FHIT Growth Fund will be renamed the Nationwide Mid Cap
Growth Fund and the investment objectives and policies will be changed to
more clearly direct portfolio management to invest primarily in equity
securities of companies with capitalizations between $300 million and $5
billion with long-term growth potential. The proposal will eliminate certain
outdated investment restrictions for all the funds. Removing these
restrictions will expand the range of underlying investments that the
portfolio managers can choose from.
Q: What effect will the proposal have on fund expenses?
A: It is estimated that Nationwide Mid Cap Growth Fund expenses will increase
from 0.96% to 0.98% (an increase of 2/100 of 1% or 2 basis points), but will
remain 34% below the average mid cap growth fund in the industry based upon
data from Lipper Analytical Services, Inc. as of September 30, 1997. In
addition, FHIT Growth Fund's current expenses of 0.96% exclude such Fund's
0.75% Rule 12b-1 fee. If such Rule 12b-1 fees were not waived, the Growth
Fund's total expenses would be approximately 1.70%.
The FHIT Government Bond Fund (which will be renamed Nationwide Long-Term
U.S. Government Bond Fund) expenses will decrease from 0.85% to 0.77% (a
decrease of 8/100 of 1% or 8 basis points). The new expense ratio is 36%
below the industry average based upon data from Lipper Analytical Services,
Inc. as of September 30, 1997.
The FHIT Municipal Bond Fund and FHIT Cash Reserve Fund will be combined with
current NIF funds having similar investment objectives. The successor funds
will be named the Nationwide Tax-Free Income Fund and the Nationwide Money
Market Fund, respectively. Estimated expenses for the Nationwide Tax-Free
Income Fund are 0.69%, compared to the current FHIT Municipal Bond Fund
expense ratio of 0.85% (a decrease of 16/100 of 1% or 16 basis points). The
estimated expense ratio for the Nationwide Money Market Fund is 0.60%,
compared to the FHIT Cash Reserve Fund's expense ratio of 0.68% (a decrease
of 8/100 of 1% or 8 basis points). Again, such current expenses for FHIT
Municipal Bond Fund and FHIT Government Bond Fund do not include such Funds'
0.75% Rule 12b-fees which are currently being waived.
<PAGE> 123
Q: The Combined Prospectus/Proxy Statement mentions that I will receive Class D
shares under the proposed reorganization. Why am I receiving Class D shares
in the exchange?
A: All of the funds in the new trust (except for the Nationwide Money Market
Fund) will begin issuing Class A, Class B, and Class D shares in March 1998.
Multiple class structures are very common in the mutual fund industry,
providing investors with optional methods of purchasing shares.
Class A shares will have a front-end sales charge and an annual 12b-1 fee.
Class B shares will carry a contingent deferred sales charge ("CDSC") instead
of a front-end charge, and will also have a 12b-1 fee.
Class D shares are offered with a front-end sales charge similar to Class A
shares; however, Class D shareholders will not be subject to 12b-1 fees or
CDSC's.
The Nationwide Money Market Fund has no sales charges or 12b-1 fees, and
therefore will issue only a single share class.
Q: Will I see any other changes as a result of the reorganization?
A: Yes. If the proposal is approved, you will gain access to Nationwide's voice
response unit, which provides you with immediate automated access to account
information. Additionally, shareholders in the new Nationwide Money Market
Fund will have the ability to write checks on their account.
Q: How do I vote my shares?
A: You can vote by mail or in person at the special meeting. To vote by mail,
sign and send us the enclosed proxy voting card in the envelope provided. Or
you can vote in person at the special meeting set for February 16, 1998.
<PAGE> 124
FINANCIAL HORIZONS INVESTMENT TRUST
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
TELEPHONE: (800) 848-0920
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
GROWTH FUND
CASH RESERVE FUND
GOVERNMENT BOND FUND
MUNICIPAL BOND FUND
TO BE HELD ON FEBRUARY 16, 1998
To The Shareholders Of Financial Horizons
Investment Trust:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of all of the funds of Financial Horizons Investment Trust (the
"Trust") will be held on Monday, February 16, 1998, at 2:00 P.M. (Eastern Time)
concurrently with special meetings of two other trusts of the Nationwide family
of funds, in Jeffers Auditorium, One Nationwide Plaza, Columbus, Ohio 43215. The
Meeting is being called for the following purposes:
(1) To approve an Agreement and Plan of Reorganization dated as of
November 24, 1997, as amended as of December 30, 1997 (the "Plan"), between
the Trust and Nationwide Investing Foundation III (the "New Trust"), and
the transactions contemplated thereby, which include:
(a) the transfer of all of the assets of the Trust's Growth Fund to
the Mid Cap Growth Fund series of the New Trust (the "New Mid Cap Growth
Fund"), in exchange for Class D shares of the New Mid Cap Growth Fund,
and the assumption by the New Mid Cap Growth Fund of all of the
liabilities of the Trust's Growth Fund, followed by the distribution to
shareholders of the Trust's Growth Fund of such Class D shares of the
New Mid Cap Growth Fund so received;
(b) the transfer of all of the assets of the Trust's Cash Reserve
Fund to the Nationwide Money Market Fund series of the New Trust (the
"New Money Market Fund"), in exchange for shares of the New Money Market
Fund, and the assumption by the New Money Market Fund of all of the
liabilities of the Trust's Cash Reserve Fund, followed by the
distribution to shareholders of the Trust's Cash Reserve Fund of such
shares of the New Money Market Fund so received;
(c) the transfer of all of the assets of the Trust's Government
Bond Fund to the Nationwide Long-Term U.S. Government Bond Fund series
of the New Trust (the "New Long-Term Government Bond Fund"), in exchange
for Class D shares of the New Long-Term Government Bond Fund, and the
assumption by the New Long-Term Government Bond Fund of all of the
liabilities of the Trust's Government Bond Fund, followed by the
distribution to shareholders of the Trust's Government Bond Fund of such
Class D shares of the New Long-Term Government Bond Fund so received;
and
(d) the transfer of all of the assets of the Trust's Municipal Bond
Fund to the Nationwide Tax-Free Income Fund series of the New Trust (the
"New Tax-Free Income Fund"), in exchange for Class D shares of the New
Tax-Free Income Fund, and the assumption by the New Tax-Free Income Fund
of all of the liabilities of the Trust's Municipal Bond Fund, followed
by the distribution to shareholders of the Trust's Municipal Bond Fund
of such Class D shares of the New Tax-Free Income Fund so received; and
(2) To transact such other business as may properly come before the
Meeting, or any adjournment(s) thereof, including any adjournment(s)
necessary to obtain requisite quorums and/or approvals.
<PAGE> 125
The Board of Trustees of the Trust has fixed the close of business on
December 18, 1997, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or any
adjournments thereof. The enclosed Combined Prospectus/Proxy Statement contains
further information regarding the Meeting and the proposals to be considered.
The enclosed Proxy Card is intended to permit you to vote even if you do not
attend the Meeting in person.
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT
LEAST A MAJORITY OF EACH FUND'S SHARES OUTSTANDING AND ENTITLED TO VOTE MUST BE
PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED
BUT UNMARKED PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS
PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees
James F. Laird, Jr., Treasurer
January , 1998
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
<PAGE> 126
COMBINED PROSPECTUS/PROXY STATEMENT
January , 1998
Acquisition and Assumption of All of the Assets and Liabilities of Growth Fund
of Financial Horizons Investment Trust
In Exchange for Class D Shares of Nationwide Mid Cap Growth Fund of Nationwide
Investing Foundation III
Acquisition and Assumption of All of the Assets and Liabilities of Government
Bond Fund of Financial Horizons Investment Trust
In Exchange for Class D Shares of Nationwide Long-Term U.S. Government Bond Fund
of Nationwide Investing Foundation III
Acquisition and Assumption of All of the Assets and Liabilities of Cash Reserve
Fund of Financial Horizons Investment Trust
In Exchange for Shares of Nationwide Money Market Fund of Nationwide Investing
Foundation III
Acquisition and Assumption of All of the Assets and Liabilities of Municipal
Bond Fund of Financial Horizons Investment Trust
In Exchange for Class D Shares of Nationwide Tax-Free Income Fund of Nationwide
Investing Foundation III
<TABLE>
<S> <C>
Financial Horizons Investment Trust Nationwide Investing Foundation III
Three Nationwide Plaza Three Nationwide Plaza
Columbus, Ohio 43215 Columbus, Ohio 43215
(800) 848-0920 (800) 848-0920
</TABLE>
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Growth Fund, Cash Reserve Fund, Government Bond Fund and Municipal Bond Fund
(collectively, the "Acquired Funds," and individually, an "Acquired Fund") of
Financial Horizons Investment Trust, a Massachusetts business trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at a Special Meeting of Shareholders of the
Trust (the "Meeting"), to be held in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio 43215, on Monday, February 16, 1998, beginning at 2:00 P.M.
(Eastern Time).
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Funds
(as defined below) that a prospective investor, including shareholders of the
Trust, should know before investing. Additional information about the
Reorganization (as defined below) and the Acquiring Funds is contained in a
separate Statement of Additional Information which has been filed with the
Securities and Exchange Commission (the "Commission") and is available upon
request without charge by calling Nationwide Investing Foundation III at (800)
848-0920 or writing to Nationwide Investing Foundation III at the address set
forth above. The Statement of Additional Information bears the same date as this
Combined Prospectus/Proxy Statement and is incorporated by reference herein.
THE SHARES OF THE ACQUIRING FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN AN ACQUIRING FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
AN INVESTMENT IN THE NEW MONEY MARKET FUND (AS DEFINED BELOW) IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT
THE NEW MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 127
The Trustees of the Trust are seeking your approval of an Agreement and
Plan of Reorganization (the "Plan"), which contemplates that:
(i) Nationwide Mid Cap Growth Fund of Nationwide Investing Foundation
III (the "New Mid Cap Growth Fund") will acquire all of the assets and
assume all of the liabilities of Growth Fund of the Trust in exchange for
Class D shares of the New Mid Cap Growth Fund;
(ii) Nationwide Money Market Fund of Nationwide Investing Foundation
III (the "New Money Market Fund") will acquire all of the assets and assume
all of the liabilities of Cash Reserve Fund of the Trust in exchange for
shares of the New Money Market Fund;
(iii) Nationwide Long-Term U.S. Government Bond Fund of Nationwide
Investing Foundation III (the "New Long-Term Government Bond Fund") will
acquire all of the assets and assume all of the liabilities of Government
Bond Fund of the Trust in exchange for Class D shares of the New Long-Term
Government Bond Fund; and
(iv) Nationwide Tax-Free Income Fund of Nationwide Investing
Foundation III (the "New Tax-Free Income Fund") will acquire all of the
assets and assume all of the liabilities of Municipal Bond Fund of the
Trust in exchange for Class D shares of the New Tax-Free Income Fund.
The New Mid Cap Growth Fund, the New Money Market Fund, the New Long-Term
Government Bond Fund and the New Tax-Free Income Fund of Nationwide Investing
Foundation III (the "New Trust") are sometimes collectively referred to herein
as the "Acquiring Funds," and individually as an "Acquiring Fund." Following
such exchange, the shares of the corresponding Acquiring Funds received by each
Acquired Fund will be distributed to the Acquired Funds' shareholders, and each
of the Acquired Funds and the Trust will be liquidated and dissolved.
Shareholders of Growth Fund, Government Bond Fund and Municipal Bond Fund will
receive Class D shares of the corresponding Acquiring Fund, and shareholders of
Cash Reserve Fund will receive shares, without class designation, of the New
Money Market Fund. Each of these exchange and distribution transactions is
sometimes referred to herein as the "Reorganization," and the shares of the
Acquiring Funds to be received by the respective Acquired Fund are sometimes
referred to herein as "Acquiring Fund Shares."
Upon completion of the Reorganization, you will receive full and fractional
Acquiring Fund Shares of the corresponding Acquiring Fund equal in value when
issued to the shares of the Acquired Fund owned by you immediately prior to the
Reorganization. No commissions or sales loads will be charged in connection with
the Reorganization, including any contingent deferred sales charge, and there
will be no adverse federal income tax consequences. You should separately
consider any other tax consequences in consultation with your tax advisers.
As discussed in detail herein, the investment objectives and strategy of
each Acquiring Fund are generally similar to those of the corresponding Acquired
Fund. There are some differences between investment policies and restrictions,
as well as differences in fee levels and expenses, which are described in detail
below.
The Prospectus of the Acquiring Funds, dated January 6, 1998, is
incorporated by reference into this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
The Acquired Funds' Prospectus dated February 28, 1997, as supplemented
December 8, 1997, contains additional information about the Acquired Funds, has
been filed with the Commission, is incorporated by reference herein and is
available without charge by writing the Trust at Three Nationwide Plaza,
Columbus, Ohio 43215, or by calling the Trust at (800) 848-0920. Copies of
documents requested will be sent by first-class mail to the requesting
shareholder within one business day of the request.
2
<PAGE> 128
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................ 4
SPECIAL CONSIDERATIONS AND RISK FACTORS............................................ 14
THE PROPOSED TRANSACTION........................................................... 21
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS..................... 25
ADDITIONAL COMPARATIVE INFORMATION................................................. 32
MISCELLANEOUS...................................................................... 41
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION.................................. A-1
</TABLE>
3
<PAGE> 129
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Combined Prospectus/Proxy Statement, in
the Plan, a copy of which is attached to this Combined Prospectus/Proxy
Statement as Exhibit A, in the accompanying Prospectus of the Acquiring Funds
dated January 6, 1998, and in the Prospectus of the Acquired Funds dated
February 28, 1997, as supplemented December 8, 1997.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of each Acquired Fund to the corresponding Acquiring Fund in exchange for
shares of such Acquiring Fund and the assumption by the New Trust on behalf of
the Acquiring Funds of all of the liabilities of the corresponding Acquired
Fund. The New Mid Cap Growth Fund, the New Long-Term Government Bond Fund and
the New Tax-Free Income Fund will issue their Class D shares in connection with
the Reorganization. The New Money Market Fund will issue its shares, which are
without class designation, in connection with the Reorganization. (Such shares
to be issued are hereafter referred to as "Acquired Fund Shares"). The Plan also
calls for the distribution of such Acquiring Fund Shares to the corresponding
Acquired Fund's shareholders in complete liquidation of the Trust and that
Acquired Fund. As a result of the Reorganization, each shareholder of an
Acquired Fund will become the owner of that number of full and fractional
Acquiring Fund Shares of the corresponding Acquiring Fund having an aggregate
value equal to the aggregate value of the shareholder's shares of the Acquired
Fund as of the close of business on the day preceding the date that the Acquired
Fund's assets are exchanged for such Acquiring Fund Shares.
Proposals for similar reorganizations are simultaneously being made to
shareholders of Nationwide Investing Foundation and Nationwide Investing
Foundation II, two other trusts within the Nationwide family of funds.
Management of the Trust and the New Trust believes that the Reorganization
is necessary in order to be more efficient in the operation of the Nationwide
family of funds, including providing for more consistent investment policies and
restrictions and removing those restrictions which are out-dated or no longer
required by Federal or state law, and providing shareholders with more options
in purchasing shares of the Nationwide family of funds through the introduction
of multiple classes of shares. The Cash Reserve Fund will be combined with a
significantly larger money market fund of Nationwide Investing Foundation in the
New Money Market Fund. Likewise, the Municipal Bond Fund will be combined with a
significantly larger but similar fund of Nationwide Investing Foundation II in
the New Tax-Free Income Fund. The New Money Market Fund and the New Tax-Free
Income Fund will have substantially similar investment objectives to those of
the Cash Reserve Fund and the Municipal Bond Fund, respectively, and the
combination will result in significant economies of scale. The operating
expenses of the Acquiring Funds are expected to be lower than the operating
expenses of the corresponding Acquired Funds assuming that no fees are waived.
And based upon the current level of operating expenses for the Acquired Funds,
which includes a waiver of all Rule 12b-1 fees, the operating expenses of the
Acquiring Funds are also expected to be lower than those of the corresponding
Acquired Fund except with respect to the Growth Fund. In determining to break
out the administrative services provided to each of the Acquiring Funds and to
charge a separate fee for such services, management of the Trust and the New
Trust believes that such fees are needed to cover the increased costs of
improved technology and to maintain high quality compliance and administrative
services in light of the ever-increasing sophistication and competitiveness of
the mutual fund industry.
For these reasons (which are discussed in greater detail under "THE
PROPOSED TRANSACTION -- REASONS FOR THE REORGANIZATION") the Board of Trustees
of the Trust, including the Trustees of the Trust who are not "interested
persons" (the "Independent Trustees") as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), at a meeting held on November
7, 1997, unanimously concluded that the Reorganization would be in the best
interests of the Trust, the Acquired Funds and their shareholders and that the
interests of the Acquired Funds' existing shareholders will not be diluted as a
result of the transactions contemplated by the Reorganization and therefore has
submitted the Plan for approval by the Acquired Funds' shareholders. The Board
of Trustees of the New Trust has reached similar conclusions with respect to the
Acquiring Funds and with respect to their shareholders subsequent to the
Reorganization and has also approved the Reorganization with respect of the
Acquiring Funds.
4
<PAGE> 130
Approval of the Reorganization with respect to an Acquired Fund will
require the affirmative vote of (1) a majority of the outstanding shares of the
Trust and (2) a majority of the outstanding voting securities of that Acquired
Fund, which means the lesser of (a) 67% or more of the outstanding shares of
such Acquired Fund that are present in person or by proxy at the meeting, if
holders of more than 50% of the outstanding shares of that Acquired Fund are
present in person or by proxy, or (b) more than 50% of the outstanding shares of
such Acquired Fund. See "APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION"
below.
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Acquired Funds in understanding the costs and
expenses that a holder of Acquiring Fund Shares would bear directly or
indirectly. The shareholder transaction expenses for the Acquired Funds are
based upon such expenses for the fiscal year ended October 31, 1997. The
expenses for the Acquiring Fund Shares of each of the Acquiring Funds are
estimated for the fiscal period following the Reorganization and ending October
31, 1998. Because each Acquiring Fund will have no operations prior to
completion of the Reorganization, the information below for the Acquiring Funds
on a pro forma basis reflects each Acquiring Fund's expected operating expenses
for the fiscal year ending October 31, 1998.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
MID CAP
GROWTH FUND
ON A
GROWTH FUND PRO FORMA BASIS*
----------- ----------------
<S> <C> <C>
Sales Charge (as a percentage of offering price) ............... None 4.50%
Maximum Deferred Sales Charge (as a percentage of redemption
proceeds) .................................................... 5.00% None
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees...................................... 0.65% 0.60%
12b-1 Fees After Fee Waiver................................... 0%(1) None
Other Expenses................................................ 0.31 0.38(2)
----- -----
Total Fund Operating Expenses After Fee Waiver................ 0.96% 0.98%
----- -----
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
GROWTH MID CAP
FUND GROWTH FUND
ASSUMING NO ON A
GROWTH FUND REDEMPTION PRO FORMA BASIS*
----------- ----------- ----------------
<S> <C> <C> <C>
One Year.............................................. $ 60 $ 10 $ 55
Three Years........................................... $ 71 $ 31 $ 75
Five Years............................................ $ 73 $ 53 $ 97
Ten Years............................................. $ 118 $ 118 $ 160
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE> 131
<TABLE>
<CAPTION>
NEW MONEY
MARKET FUND
CASH RESERVE ON A
FUND PRO FORMA BASIS*
------------ ----------------
<S> <C> <C>
Sales Charge (as a percentage of offering price)................ None None
Maximum Deferred Sales Charge (as a percentage of
redemption proceeds).......................................... None None
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees...................................... 0.40% 0.40%
12b-1 Fees.................................................... None None
Other Expenses................................................ 0.28 0.20(2)
------ ------
Total Fund Operating Expenses................................. 0.68% 0.60%
====== ======
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
NEW MONEY
MARKET FUND
CASH RESERVE ON A
FUND PRO FORMA BASIS*
------------ ----------------
<S> <C> <C>
One Year........................................................ $ 7 $ 6
Three Years..................................................... $ 22 $ 19
Five Years...................................................... $ 38 $ 33
Ten Years....................................................... $ 85 $ 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.
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
LONG-TERM
GOVERNMENT BOND
FUND ON A
GOVERNMENT PRO FORMA
BOND FUND BASIS*
---------- ---------------
<S> <C> <C>
Sales Charge (as a percentage of offering price).................. None 4.50%
Maximum Deferred Sales Charge (as a percentage of redemption
proceeds)....................................................... 5.00% None
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees.......................................... 0.65% 0.50%
12b-1 Fees After Fee Waiver..................................... 0%(1) None
Other Expenses.................................................. 0.20 0.27(2)
---- ----
Total Fund Operating Expenses After Fee Waiver.................. 0.85% 0.77%
==== ====
</TABLE>
6
<PAGE> 132
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
LONG-TERM
GOVERNMENT GOVERNMENT BOND
BOND FUND FUND ON A
GOVERNMENT ASSUMING NO PRO FORMA
BOND FUND REDEMPTION BASIS*
---------- ----------- ---------------
<S> <C> <C> <C>
One Year............................................... $ 59 $ 9 $ 53
Three Years............................................ $ 67 $ 27 $ 68
Five Years............................................. $ 67 $ 47 $ 86
Ten Years.............................................. $ 105 $ 105 $ 136
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
TAX-FREE
INCOME FUND
MUNICIPAL ON A
BOND FUND PRO FORMA BASIS*
--------- ----------------
<S> <C> <C>
Sales Charge (as a percentage of offering price)............... None 4.50%
Maximum Deferred Sales Charge (as a percentage of redemption
proceeds).................................................... 5.00% None
Annual Fund Expenses (as a percentage of average net assets)
Investment Advisory Fees..................................... 0.65% 0.50%
12b-1 Fees After Fee Waiver.................................. 0.00%(1) None
Other Expenses............................................... 0.20 0.19(2)
---- ----
Total Fund Operating Expenses After Fee Waiver............... 0.85% 0.69%
==== ====
</TABLE>
EXAMPLE**
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
CLASS D SHARES
OF THE NEW
MUNICIPAL TAX-FREE
BOND FUND INCOME FUND
MUNICIPAL ASSUMING NO ON A
BOND FUND REDEMPTIONS PRO FORMA BASIS*
--------- ----------- ----------------
<S> <C> <C> <C>
One Year.......................................... $ 59 $ 9 $ 52
Three Years....................................... $ 67 $ 27 $ 66
Five Years........................................ $ 67 $ 47 $ 81
Ten Years......................................... $ 105 $ 105 $ 126
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE> 133
- ---------------
(1) As of November 8, 1996 and until further written notice to shareholders,
Nationwide Advisory Services, Inc. ("NAS"), as the Acquired Funds'
distributor, has agreed to waive all of the 0.75% 12b-1 fee. Absent such
fee waiver, Total Fund Operating Expenses for Growth Fund, Government Bond
Fund and Municipal Bond Fund would have been 1.71%, 1.60% and 1.60%,
respectively.
(2) "Other Expenses" are based upon estimated amounts for the current fiscal
year.
* These calculations reflect the expense information for the relevant
Acquiring Fund after giving effect to the Reorganization.
** The Commission requires use of a 5% annual return figure for purposes of the
example. Actual return for a Fund may be greater or less than 5%.
NO CONTINGENT DEFERRED SALES CHARGE WILL BE IMPOSED UPON SHARES OF THE
ACQUIRED FUNDS SURRENDERED IN CONNECTION WITH THE REORGANIZATION NOR UPON
THE REDEMPTION OF ACQUIRING FUND SHARES AT ANY TIME.
The one, three, five and ten year figures in the Examples above for the New
Mid Cap Growth Fund, the New Long-Term Government Bond Fund and the New Tax-Free
Income Fund reflect the deduction of the 4.50% maximum front-end sales charge.
However, Class D shares of such Acquiring Funds received by a shareholder of an
Acquired Fund pursuant to the Reorganization will not be subject to any such
charge. Absent such front-end sales charge, the one, three, five and ten year
figures for the Class D shares of the New Mid Cap Growth Fund, on a pro forma
basis, would be $10, $31, $54 and $120, respectively; the one, three, five and
ten year figures for the Class D shares of the New Long-Term Government Bond
Fund, on a pro forma basis, would be $8, $25, $43 and $95, respectively; and the
one, three, five and ten year figures for the Class D shares of the New Tax-Free
Income Fund, on a pro forma basis, would be $7, $22, $38 and $85, respectively.
Any Class D shares of an Acquiring Fund purchased after the Reorganization,
other than pursuant to dividend reinvestments, will be subject to the 4.5% sales
load unless the shareholder otherwise qualifies for a waiver or reduction of the
sales load. See the accompanying Prospectus of the Acquiring Funds for further
information regarding sales load reductions and waivers.
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of and as a condition
to the Reorganization, the Acquired Funds and the Trust will have received
opinions of counsel that, upon the consummation of the Reorganization and the
transfer of the assets of the Acquired Funds, no gain or loss will be recognized
by an Acquired Fund or its shareholders for federal income tax purposes; the
holding period and aggregate tax basis for the Acquiring Fund Shares that are
received by an Acquired Fund shareholder will be the same as the holding period
and aggregate tax basis of the shares of the Acquired Fund previously held by
such shareholder; and the holding period and tax basis of the assets of an
Acquired Fund in the hands of the corresponding Acquiring Fund as a result of
the Reorganization will be the same as the holding period and tax basis of the
assets in the hands of the Acquired Fund immediately prior to the
Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Trustees of the Trust, at a meeting held on November 7, 1997, determined
unanimously that the Reorganization is in the best interests of each of the
Acquired Funds and the Trust and that the interests of the existing shareholders
of the Acquired Funds will not be diluted as a result of the Reorganization.
Similarly, on such date the Board of Trustees of the New Trust unanimously
determined that the Reorganization is in the best interests of the New Trust and
the Acquiring Funds. The proposed Reorganization of each of the Acquired Funds
of the Trust with and into the corresponding Acquiring Funds of the New Trust is
part of a larger plan to reorganize each of the Trust, Nationwide Investing
Foundation (which consists of four separate funds) ("NIF") and Nationwide
Investing Foundation II (which consists of two separate funds) ("NIF II"), each
a separate stand-alone investment company, into separate corresponding funds of
the New Trust. Two funds of the Trust, Cash Reserve Fund and Municipal Bond
Fund, which have similar investment objectives and styles to two other
Nationwide funds, will be combined with such other funds in the New Trust to
avoid duplication of expenses. Cash Reserve Fund of the Trust will combine with
Nationwide Money Market Fund of NIF in the New Money Market Fund, and Municipal
Bond Fund of the Trust will combine with Nationwide Tax-Free Income Fund of NIF
II in the New Tax-Free Income Fund.
8
<PAGE> 134
Other than the New Money Market Fund, it is anticipated that the Acquiring
Funds will also offer two other classes of shares beginning in March 1998. The
New Money Market Fund offers only one class of shares which is without any class
designation.
To be approved, the Plan will require the affirmative vote of (1) a
majority of the outstanding shares of the Trust and (2) a majority of the
outstanding voting securities of each Acquired Fund, as defined above under
"SUMMARY -- Proposed Reorganization." The Reorganization with respect to each
Acquired Fund is contingent on the approval of the Reorganization with respect
to each of the Trust's other Acquired Funds and upon the approval of a similar
reorganization by shareholders of NIF. The Reorganization, however, is not
contingent upon the approval of a similar reorganization by shareholders of NIF
II. If the proposed Reorganization is not approved, the Trust's and the New
Trust's Boards of Trustees will consider what other alternatives would be in the
shareholders' best interests. If the Plan is approved at the Meeting by the
shareholders of each Acquired Fund, the effective date of the Reorganization
(the "Closing Date") is expected to be on or about March 1, 1998, subject,
however, to the receipt by the Trust and the New Trust of an order of exemption
from the Commission with respect to the Reorganization. There can be no
assurance that such an order will be granted. However, the Closing Date may be
such earlier or later date as may be determined by the Trust and the New Trust.
Shareholders of record of the Acquired Funds at the close of business on
December 18, 1997 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting or any adjournment thereof. As of the Record Date, there were
10,262,205.20 outstanding shares of all four series of the Trust. Of those
shares, the following constituted the issued and outstanding shares of each
Acquired Fund on the Record Date:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
FUND SHARES OUTSTANDING
--------------------------------------------------------- ------------------
<S> <C>
Growth Fund.............................................. 408,450.394
Cash Reserve Fund........................................ 4,122,357.740
Government Bond Fund..................................... 4,245,039.846
Municipal Bond Fund...................................... 1,486,357.226
</TABLE>
As of the Record Date, there were no outstanding shares of any of the nine
series of the New Trust, including the Acquiring Funds. Each of the Acquiring
Funds has been created specifically for the purpose of acquiring the assets and
assuming the liabilities of its corresponding Acquired Fund. The Acquiring
Funds, prior to the effective date of the Reorganization, will not have
commenced operations.
Each shareholder of the Acquired Fund will be entitled to one vote for each
share, and a fractional vote for each fractional share, held by such
shareholder. Shareholders entitled to cast a majority of the shares of each of
the Acquired Funds at the close of business on the Record Date will be deemed to
constitute a quorum for the transaction of business at the Meeting.
Any proxy which is properly executed and received in time to be voted at
the Meeting will be counted in determining whether a quorum is present and will
be voted in accordance with the instructions marked thereon. In the absence of
any instruction, such proxy will be voted in favor of the approval of the Plan.
Abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a particular matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will not be counted for or against any proposal to which they relate.
Abstentions will be counted for purposes of determining whether a quorum is
present. Broker non-votes will not be counted for purposes of determining
whether a quorum is present. Because approval of the Plan requires the
affirmative vote of a majority of the Trust's issued and outstanding shares as
of the Record Date, abstentions and broker non-votes will have the effect of a
vote against the proposal to approve the Plan.
The duly appointed Proxies may, in their discretion, vote upon such other
matters as properly may come before the Meeting or any adjournment(s) thereof,
including any proposal to adjourn a meeting, whether or not a quorum is present,
to permit the continued solicitation of proxies in favor of the Reorganization.
In case any such adjournment is proposed with respect to the Plan, the duly
appointed Proxies will vote those proxies required to
9
<PAGE> 135
be voted against the Plan against adjournment. A shareholder of an Acquired Fund
may revoke his or her proxy at any time prior to its exercise by delivering
written notice of revocation or by executing and delivering a later-dated proxy
to the Secretary of the Trust, at Three Nationwide Plaza, Columbus, Ohio 43215,
or by attending the Meeting in person to vote the shares of the Acquired Funds
held by such shareholder. The date of the first mailing of this Combined
Prospectus/Proxy Statement to shareholders is on or about January 12, 1998.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Funds and the
corresponding Acquiring Funds have substantially similar investment objectives,
and generally have the same investment policies and restrictions, although there
are some differences shareholders should consider.
The Growth Fund seeks long-term capital appreciation through investing in
equity securities with above average, long-term growth potential. In order to
achieve this objective, the Growth Fund focuses on investments that are seen to
unfold over the long term, and avoids investing on the basis of cyclical
opportunity. Generally, long term would mean a period of between two and five
years.
The Growth Fund looks at a long term investment as one that will likely
provide total return greater than that of the market in general over the
relevant investment horizon. This total return would be composed of dividends
paid plus increase price valuation of the security compared to its purchase
price valuation. In evaluating the prospects for the earnings or asset growth
that should provide increased price valuation, the Growth Fund normally
considers: (a) quality of management and sufficient financial wherewithal to
successfully exploit the company's business opportunities, (b) social, economic,
demographic, and/or technological trends that present the company with
significant future business opportunities, and (c) the degree to which there are
barriers to competition in the company's business, with higher barriers tending
to increase the company's opportunity to achieve superior growth. While the
Growth Fund generally intends to invest in common stocks or in issues
convertible to common stock, there are no restrictive provisions covering the
portion of one or another class of securities that may be held which in any way
inhibit management in the selection of appropriate investments to reach
objectives.
The New Mid Cap Growth Fund seeks long-term capital appreciation. The New
Mid Cap Growth Fund will invest primarily in equity securities of mid-cap
companies.
For such Fund, major emphasis in the selection of securities is placed on
companies which have capable management, and are in fields where social and
economic trends, technological developments, and new processes or products
indicate a potential for greater-than-average growth. Under normal market
conditions, the New Mid Cap Growth Fund will invest at least 65% of its total
assets in equity securities of mid cap companies. The New Mid Cap Growth Fund
defines mid cap companies as those with market capitalization or sales in the
range between $300 million and $8 billion, but will generally focus on companies
between $300 million and $5 billion. The equity securities in which the New Mid
Cap Growth Fund will invest are generally common stocks or securities
convertible into common stocks. Investments are made in equity securities of
many different companies and industries which provide diversification to help
minimize risk.
The Cash Reserve Fund seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity through
investing in a diversified portfolio of high-quality money market instruments
maturing in 397 days or less. The New Money Market Fund seeks as high a level of
current income as is consistent with preservation of capital and maintenance of
liquidity. The New Money Market Fund will invest in high quality money market
instruments maturing in 397 days or less.
Each of the Cash Reserve Fund and the New Money Market Fund are required to
maintain a dollar weighted average maturity of 90 days or less. Although
principal is not intended to fluctuate, there can be no assurance that either
the Cash Reserve Fund or the New Money Market Fund will be able to maintain a
stable net asset value of $1.00 per share.
The Government Bond Fund seeks as high a level of income as is consistent
with capital preservation from securities issued or guaranteed as to principal
and interest by the U.S. Government, its agencies, authorities or
instrumentalities. The Government Bond Fund seeks to achieve such objectives by
normally investing at least 65% of its assets in bonds issued by the U.S.
Government and its agencies and instrumentalities. These bonds pay interest at
regular intervals, usually semi-annually, and pay principal at maturity.
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The New Long-Term Government Bond Fund seeks as high a level of current
income as is consistent with preservation of capital. Under normal market
conditions, the New Long-Term Government Bond Fund will invest all or
substantially all, but in no event less than 65%, of its assets in bonds issued
or guaranteed by the U.S. Government or its agencies and instrumentalities and
in repurchase agreements secured by these securities. For purposes of this
policy, bonds consist of debt obligations of all types, including bonds of
varying maturities, bills and notes. On a weighted average basis and under
normal market conditions, the duration of the New Long-Term Government Bond Fund
will generally be greater than six years and its dollar weighted average
portfolio maturity will be greater than 10 years. In selecting securities for
this Fund, NAS utilizes interest-rate expectations, yield-curve analysis,
economic forecasting, market sector analysis, and other security selection
techniques. Such Fund's investments will be concentrated in areas of the
long-term U.S. Government securities market (based upon sector, coupon or
maturity) NAS believes are relatively undervalued.
The Municipal Bond Fund seeks to provide as high a level of municipal
income as is consistent with the preservation of capital through investing in a
diversified portfolio of investment grade municipal bonds. Municipal income is
defined to mean income earned on municipal obligations. The Municipal Bond Fund
normally invests at least 65% of the value of its total assets in debt
securities generally called bonds and 80% of its assets in municipal bonds rated
within the four highest credit categories by Moody's Investors Services, Inc.
("Moody's") and/or Standard & Poor's Corporation ("S&P"), state and municipal
notes rated in the two highest credit categories for municipal notes by Moody's
and/or S&P, and other types of short-term municipal securities such as
commercial paper that is rated in the two highest credit categories by Moody's
and/or S&P. The Municipal Bond Fund will not normally invest more than 20% of
its assets in short-term debt securities.
The New Tax-Free Income Fund seeks as high a level of current income exempt
from Federal income tax (although shareholders may be subject to state and local
tax) as is consistent with the preservation of capital through investing in
investment grade municipal obligations. The New Tax-Free Income Fund has adopted
a fundamental investment policy which requires it to invest at least 80% of its
net assets in securities the 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.
The major emphasis in portfolio securities selection for the New Tax-Free
Income Fund is on municipal obligations rated within the four highest rating
categories (investment grade) by a nationally recognized statistical rating
organization ("NRSRO") (e.g., Moody's and S&P), or if not rated, are of
equivalent investment quality as determined by NAS.
For a discussion of the differences between the investment policies and
restrictions of the Acquired Funds and the corresponding Acquiring Funds, see
"COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS" below.
FEES AND EXPENSES. Each of the Acquired Funds pays an investment advisory
and management fee, computed daily and paid monthly, to NAS, the Trust's
investment adviser, at the following annual rates: for Cash Reserve Fund, 0.40%
of the value of its average daily net assets; and for each of the other Acquired
Funds, 0.65% of the value of its average daily net assets. Nationwide Investors
Services, Inc., a wholly owned subsidiary of NAS ("NISI"), serves as transfer
agent for each of the Acquired Funds and receives a fee from those Funds equal
to: $16 per account for the Growth Fund; $18 per account for the Government Bond
Fund and the Municipal Bond Fund; and $18 per account for the Cash Reserve Fund.
With respect to the Acquiring Funds, NAS also provides investment advisory
services to those Funds for a fee computed daily and paid monthly at the
following annual rates: for the New Mid Cap Growth Fund, 0.60% of such Fund's
average net assets up to $250 million, 0.575% of such Fund's average net assets
of $250 million up to $1 billion, 0.55% of such Fund's average net assets of $1
billion up to $2 billion, 0.525% of such Fund's average net assets of $2 billion
up to $5 billion, and 0.50% of such Fund's average net assets of $5 billion or
more; for each of the New Long-Term Government Bond Fund and the New Tax-Free
Income Fund, 0.50% of such Fund's average net assets up to $250 million, 0.475%
of such Fund's average net assets of $250 million up to $1 billion, 0.45% of
such Fund's average net assets of $1 billion up to $2 billion, 0.425% of such
Fund's average net assets of $2 billion up to $5 billion, and 0.40% of such
Fund's average net assets of $5 billion or more; and for the New Money Market
Fund, 0.40% of such Fund's average net assets up to $1 billion, 0.38% of
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such Fund's average net assets of $1 billion up to $2 billion, 0.36% of such
Fund's average net assets of $2 billion up to $5 billion, and 0.34% of such
Fund's average net assets of $5 billion or more. Each of the Acquiring Funds
also pays NAS an administration fee of 0.07% of such Fund's average net assets
up to $250 million; 0.05% of such Fund's average net assets of $250 million up
to $1 billion, and 0.04% of such Fund's average net assets of $1 billion or
more. Finally, the Acquiring Funds pay an annual fee to NISI for transfer agency
services equal to: $16 per account for the New Mid Cap Growth Fund; $18 per
account for the New Long-Term Government Bond Fund and the New Tax-Free Income
Fund; and $27 per account for the New Money Market Fund.
Shares of each of the Acquired Funds and the Acquiring Funds are
distributed by NAS, a registered broker-dealer. The Trust has adopted a
Distribution Plan (the "12b-1 Plan") under Rule 12b-1 of the 1940 Act which
permits each of the Acquired Funds, other than Cash Reserve Fund (the "12b-1
Plan Funds"), to compensate NAS, as the 12b-1 Plan Funds' distributor, for
expenses associated with the distribution of its shares. Under the Plan, each
12b-1 Plan Fund is authorized to pay NAS compensation accrued daily and paid
monthly at a maximum annual rate of up to 0.75% of such 12b-1 Plan Fund's
average daily net assets. Currently NAS is waiving all of such Rule 12b-1 fees
for each 12b-1 Plan Fund until further written notice. NAS, as distributor, also
receives the proceeds of a contingent deferred sales charge imposed on certain
redemptions of shares of the 12b-1 Plan Funds, as described more fully below
under "COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES." No
contingent deferred sales charge will be imposed on shares of the Acquired Funds
surrendered as a part of the Reorganization. The Acquiring Fund Shares of the
Acquiring Funds pay no distribution fees or expenses although such Shares,
except those of the New Money Market Fund, are subject to a front-end sales load
as described below.
The expense ratios of the Acquiring Funds subsequent to the Reorganization
are expected to be lower than the current expense ratio of the corresponding
Acquired Fund, except with respect to the Growth Fund. See "THE PROPOSED
TRANSACTION -- REASONS FOR THE PROPOSED TRANSACTION." The chart below compares
the total annual operating expenses (as a percent of average net assets) of each
Acquired Fund for the fiscal year ended October 31, 1997, which includes the
Rule 12b-1 fee waiver, to the estimated total annual operating expenses (as a
percent of average net assets) of the corresponding Acquiring Fund for the
fiscal year ending October 31, 1998, assuming the same level of net assets for
such Acquiring Fund after the Reorganization:
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- --------------------------------------------- ---------------------------------------------
<S> <C>
Growth Fund New Mid Cap Growth Fund
0.96%* 0.98%
Cash Reserve Fund New Money Market Fund
0.68% 0.60%
Government Bond Fund New Long-Term Government Bond Fund
0.85%* 0.77%
Municipal Bond Fund New Tax-Free Income Fund
0.85%* 0.69%
</TABLE>
- ---------------
* As described above, NAS is currently waiving all of its fees under the Trust's
Rule 12b-1 Plan. Absent such fee waivers, the expense rates for the Growth Fund,
the Government Bond Fund and the Municipal Bond Fund would have been 1.71%,
1.60% and 1.60%, respectively.
For further information regarding the expense ratios of each of the
Acquiring and Acquired Funds, see "SUMMARY -- Comparative Expense Information"
above.
COMPARISON OF PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES. Shares of each
of the Acquired and Acquiring Funds are offered through NAS as principal
underwriter. Net asset value of each Fund is determined as of the close of
regular trading on the New York Stock Exchange (usually 4 p.m. Eastern Time)
each day that the exchange is open and on such other days as the Board of
Trustees determines and on days in which there is sufficient trading in the
portfolio securities of a Fund to affect materially the net asset value of that
Fund. The minimum initial investment in the New Mid Cap Growth Fund for
shareholders who receive Acquiring Fund
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<PAGE> 138
Shares in connection with the Reorganization is $250 (although such minimum is
lowered for investments made through certain plans) and the minimum subsequent
investment is $25. The minimum initial investment in each of the Acquired Funds,
the other Acquiring Funds and the New Mid Cap Growth Fund for shareholders who
did not receive Acquiring Fund Shares in connection with the Reorganization is
$1,000 (although such minimum is lowered for investments made through certain
plans) and the minimum subsequent investment is $100.
Shares of the Acquired Funds are offered at net asset value without any
sales charge. However, shares of each of the Acquired Funds, other than the Cash
Reserve Fund, are subject to a contingent deferred sales charge. A contingent
deferred sales charge is imposed on any redemption which causes the current
value of a shareholder's account to fall below the total amount of all purchases
made during the preceding six years. The contingent deferred sales charge is
never imposed on dividends, whether paid in cash or reinvested, or on
appreciation in value. The contingent deferred sales charge applies only to the
lesser of the original investment or current market value. Where the charge is
imposed, the amount of the charge depends upon the number of months since the
shareholder made the purchase payment from which an amount is being redeemed,
according to the following table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
73 &
Months since purchase payment was made:....... 0-12 13-24 25-36 37-48 49-60 61-72 over
Contingent deferred sales charge
percentage:................................. 5% 5% 4% 3% 2% 1% none
</TABLE>
No sales charge is imposed upon the purchase or redemption of shares of
either the Cash Reserve Fund or the New Money Market Fund.
A sales charge is imposed upon the sale of the Class D shares of each of
the New Mid-Cap Growth Fund, the New Long-Term Government Bond Fund and the New
Tax-Free Income Fund equal to 4.5% of the public offering price (4.71% of the
net amount invested). The sales charge is reduced on investments of $100,000 or
more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
AS A
PERCENTAGE
OF THE NET AS A PERCENTAGE
AMOUNT OF SINGLE TRANSACTION AMOUNT INVESTED OF OFFERING PRICE
- ---------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Less than $100,000.............................................. 4.71% 4.50%
$100,000 but less than $250,000................................. 3.63 3.50
$250,000 but less than $500,000................................. 2.56 2.50
$500,000 but less than $1,000,000............................... 1.52 1.50
$1,000,000 or more.............................................. 0.50 0.50
</TABLE>
NO FRONT END SALES CHARGE WILL BE IMPOSED ON ACQUIRING FUND SHARES RECEIVED
IN CONNECTION WITH THE REORGANIZATION.
With respect to the shares of each of the Acquired Funds and the Acquiring
Fund Shares, there is no sales charge imposed upon the reinvestment of dividends
and distributions. The front end sales charge on the Class D shares of the New
Mid Cap Growth Fund, the New Long-Term Government Bond Fund and the New Tax-Free
Income Fund may be waived under certain specified conditions.
Redemption orders for shares of both the Acquired Funds and the Acquiring
Funds must be placed with NAS. Investors may redeem shares of the Acquired Funds
or the Acquiring Funds at the net asset value per share next determined
following the receipt by NAS of the properly completed redemption request,
although as discussed above redemptions of shares of Growth Fund, Government
Bond Fund and Municipal Bond Fund may be subject to a contingent deferred sales
load. A request for redemption may be made by telephone or by mail or, with
respect to each of the Acquiring Funds, by fax. For the New Money Market Fund,
redemptions may also be made by check.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of an Acquired Fund may be
exchanged for shares of any other Acquired Fund.
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<PAGE> 139
Class D shares of an Acquiring Fund may generally be exchangeable without a
sales charge for Class D shares of any other Acquiring Fund or any other fund of
the New Trust which offers Class D shares or for shares of the New Money Market
Fund. Shares of the New Money Market Fund may be exchanged for shares of any
other fund of the New Trust, including the Acquiring Funds, upon payment of the
applicable sales charge unless a sales charge has already been paid for shares
subsequently exchanged for New Money Market Fund shares.
COMPARISON OF DIVIDEND POLICIES. Growth Fund declares and pays dividends
of net investment income semi-annually. The New Mid Cap Growth Fund declares and
pays dividends of net investment income quarterly. Each of the other Acquired
and Acquiring Funds declares dividends of net investment income daily and pays
such dividends monthly. Each of the Acquired Funds and Acquiring Funds will
distribute all capital gains, if any, at least annually. In addition,
shareholders of the Acquired Funds and the Acquiring Funds receive dividends and
distributions in the form of additional shares and not in cash unless otherwise
requested by the shareholder.
COMPARISON OF VOTING RIGHTS. Each shareholder of an Acquired Fund and an
Acquiring Fund is entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held on each matter
submitted to the vote of such Fund's shareholders, regardless of the net asset
value of such share.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies and strategies of each Acquired
Fund and the corresponding Acquiring Fund are substantially similar, the overall
level of investment risk should not materially change as a result of the
Reorganization. However, in some cases an Acquiring Fund may invest in certain
securities or instruments in which the corresponding Acquired Fund may not
invest. There can be no assurance that any Acquired Fund or Acquiring Fund will
achieve its investment objectives.
The following discussion is qualified in its entirety by the disclosure set
forth in the Acquiring Funds' Prospectus accompanying this Combined
Prospectus/Proxy Statement and in the Acquired Funds' Prospectus. For additional
information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION" below.
An investment in any of the Acquired Funds or the Acquiring Funds (except
for Cash Reserve Fund and the New Money Market Fund) involves the risk that the
net asset value of such Fund's shares will fluctuate in response to changes in
economic conditions, interest rates, and the market's perception of the
securities held by such Fund. An investment in Growth Fund and the New Mid Cap
Growth Fund is subject to stock market risk, which means that such an investment
is subject to the risk that stock prices in general will decline over short or
extended periods of time. Equity securities of smaller capitalized companies
generally are more volatile in price and may be less liquid than similar equity
securities of larger capitalized companies.
An investment in Government Bond Fund, the New Long-Term Government Bond
Fund, Municipal Bond Fund and the New Tax-Free Income Fund is subject to bond
market risk, i.e., the risk that the market price of bonds in general will
fluctuate. Bond prices fluctuate largely in response to changes in the level of
interest rate. When interest rates rise, bond prices generally fall; conversely,
when interest rates fall, bond prices generally rise. Although the fluctuation
in the price of bonds is normally less than that of common stocks, in the past
there have been extended periods of cyclical increases in interest rates 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 Municipal Bond Fund
and the New Tax-Free Income Fund may also be affected by the market's perception
of changes in an issuer's credit risk. As perceived credit risk increases, the
value of a specific security generally decreases, and the converse is also true.
Special Situation Companies. The New Mid Cap Growth Fund may invest in
securities of issuers in special situations. These securities 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
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<PAGE> 140
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 benefits of the "special situation" may not materialize and
therefore those companies' shares could significantly decline in value.
Warrants. The New Mid Cap Growth Fund may invest in warrants. A warrant is
an instrument which gives the holder the right to subscribe to a specified
amount of the issuer's securities at a set price for a specified period of time
or on a specified date. Warrants do not carry the right to dividends or voting
rights with respect to their underlying securities and do not represent any
rights in assets of the issuer. An investment in warrants may be considered
speculative. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have value
if it is not exercised prior to its expiration date.
Convertible Securities. Each of Growth Fund and the New Mid Cap Growth
Fund may invest in convertible securities, which are bonds, debentures, notes,
preferred stocks or other securities that may be converted into or exchanged for
a specified amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities have general characteristics similar to both debt obligations and
equity securities. Although to a lesser extent than with debt obligations
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying common stock and therefore will react to variations in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis and so may not experience
market value declines to the same extent as the underlying common stock. When
the market price of the underlying common stock increases, the prices of the
convertible securities tend also to rise as a reflection of the value of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than investment
in common stock of the same issuer.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all debt obligations, there can be no assurance of
current income because the issuers of the convertible securities may default on
their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of similar quality
because of the potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to benefit
from increases in the market price of the underlying common stock. There can be
no assurance of capital appreciation, however, because the market value of
securities will fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically are rated below investment grade or are not rated. The New
Mid Cap Growth Fund will limit its investment in convertible securities rated
below investment grade to less than 5% of its net assets.
Duration. The New Long-Term Government Bond Fund will attempt to limit its
exposure to interest rate risk by maintaining a duration which, on a weighted
average basis and under normal market conditions, will generally be greater than
six years. 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.
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<PAGE> 141
Traditionally, a debt security's "term-to-maturity" has been used as a
measure of the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term-to-maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Average dollar weighted maturity is calculated by averaging the
terms to maturity of each debt security held with each maturity "weighted"
according to the percentage of assets that it represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects
both principal and interest payments. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any debt security with interest payments
occurring prior to the payment of principal, duration is ordinarily less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a debt security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.
There are some situations where the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, NAS will use more sophisticated analytical
techniques to project the economic life of a security and estimate its interest
rate exposure. Since the computation of duration is based on predictions of
future events rather than known factors, there can be no assurance that the New
Long-Term Government Bond Fund will at all times achieve its targeted portfolio
duration.
The change in market value of U.S. Government fixed-income securities is
largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case). When interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfolios. With
respect to the composition of a fixed-income portfolio, the longer 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 the New Long-Term Government Bond Fund intends to maintain the
average duration described above under normal market conditions, there is no
limit as the maturity of any one security which the New Long-Term Government
Bond Fund may purchase.
U.S. Government Securities. As discussed above, each of the Acquiring and
the Acquired Funds may invest in securities which are issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. Securities issued by
the U.S. Government include U.S. Treasury obligations, such as Treasury bills,
notes, and bonds. Securities issued by U.S. Government agencies or
instrumentalities include, but are not limited to, obligations of the following:
the Federal Housing Administration; Farmers Home Administration; 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"); and 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. Each Acquiring Fund, other than the New Mid
Cap Growth 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; and 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.
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<PAGE> 142
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 securities and does not receive any
rights to periodic interest payments on the security.
Mortgage-Backed Securities. The Government Bond Fund and the New Long-Term
Government Bond Fund may each purchase mortgage-backed securities.
Mortgage-backed securities represent direct or indirect participation in, or are
secured by and payable from, mortgage loans secured by real property, and
include single-and multi-class pass-through securities and collateralized
mortgage obligations ("CMOs"). Such securities are issued or guaranteed by U.S.
Government, and its agencies or instrumentalities. The underlying mortgage
assets may have fixed rates or adjustable rates of interest. Mortgage-backed
securities in which the Government Bond Fund and the New Long-Term Government
Bond Fund may invest include both fixed-rate and adjustable-rate mortgage-backed
securities.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt obligations. Among the principal differences are that
interest and principal payments are made more frequently on mortgage-backed
securities, usually monthly and that principal may be prepaid at any time
because the underlying mortgage loans and other assets generally may be prepaid
at any time. As a result, if a Fund purchases these securities at a premium, a
prepayment rate that is higher than expected will reduce yield, while a
prepayment rate that is lower than expected will have the opposite effect of
increasing the yield. Conversely, if a Fund purchases these securities at a
discount, a prepayment rate that is faster than expected will increase yield,
while a prepayment rate that is slower than expected will reduce yield.
Accelerated prepayments on securities purchased by the Government Bond Fund or
the New Long-Term Government Bond Fund at a premium also poses a risk of loss of
principal because the premium may not have been fully amortized by the time the
principal is prepaid in full.
Unlike fixed rate mortgage-backed securities, adjustable rate
mortgage-backed securities are collateralized by or represent interests in
mortgage loans with variable rates of interest. These variable rates of interest
reset periodically to align themselves with market rates. The Government Bond
Fund and the New Long-Term Government Bond Fund will not benefit from increases
in interest rates to the extent that interest rates rise to the point where they
cause the current coupon of the underlying adjustable rate mortgages to exceed
any maximum allowable annual or lifetime reset limits (or "cap rates") for a
particular mortgage. In this event, the value of the adjustable rate
mortgage-backed securities in such Fund would likely decrease. Also, such a
Fund's net asset value could vary to the extent that current yields on
adjustable rate mortgage-backed securities are different than market yields
during interim periods between coupon reset dates or if the timing of changes to
the index upon which the rate for the underlying mortgage is based lags behind
changes in market rates. During periods of declining interest rates, income to
the Government Bond Fund or the New Long-Term Government Bond Fund derived from
adjustable rate mortgages which remain in a mortgage pool will decrease in
contrast to the income on fixed rate mortgages, which will remain constant.
Adjustable rate mortgages also have less potential for appreciation in value as
interest rates decline than do fixed rate investments.
Collateralized Mortgage Obligations. The Government Bond Fund and the New
Long-Term Government Bond Fund may also acquire CMOs, and the New Long-Term
Government Bond Fund may acquire stripped mortgage-backed securities. CMOs are
debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral collectively referred to an "Mortgage
Assets"). Payments of principal or interest on the Mortgage Assets, and any
reinvestment income thereon, provide the income to pay debt service on the CMOs.
CMOs purchased by such Funds will be issued by agencies or instrumentalities of
the U.S. Government.
Interest Only and Principal Only Securities. Stripped mortgage-backed
securities are securities representing interest in a pool of mortgages the cash
flow from which has been separated into interest and principal components. "IOs"
(interest only securities) receive the interest portion of the cash flow while
"POs" (principal only securities) receive the principal portion. Stripped
mortgage-backed securities in which the New Long-Term
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Government Bond Fund may invest are issued by U.S. Government agencies. As
interest rates rise and fall, the value of IOs tends to more 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.
The New Long-Term Government Bond Fund may purchase stripped
mortgage-backed securities for hedging purposes to protect that Fund against
interest rate fluctuations. For example, since an IO will tend to increase in
value as interest rates rise, it my be utilized to hedge against a decrease in
value of other fixed-income securities in a rising interest rate environment. If
the New Long-Term Government Bond Fund purchases a mortgage-related security at
a premium, all or part of the premium may be lost if there is a decline in the
market value of the security, whether resulting from changes in interest rates
or prepayments in the underlying mortgage collateral. With respect to IOs, if
the underling mortgage securities experience greater than anticipated
prepayments of principal, the New Long-Term Government Bond Fund may fail to
recoup fully its initial investment in these securities even if the securities
are rated in the highest rating category by an NRSRO. Stripped mortgage-backed
securities may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The market value of the class consisting entirely of principal
payments can be extremely volatile in response to changes in interest rates. The
yields on stripped mortgage-backed securities that receive all or most of the
interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be fully
recouped. No more than 10% of the New Long-Term Government Bond Fund's total
assets will be invested in IOs and in POs. The market for CMOs and other
stripped mortgage-backed securities may be less liquid if these securities lose
value as a result of changes in interest rates; in such an instance, the New
Long-Term Government Bond Fund may have difficulty selling such securities.
Municipal Securities. The two principal classifications of municipal
securities which may be held by the Municipal Bond Fund and the New Tax-Free
Income Fund are "general obligation" securities and "revenue" securities.
General obligations securities are secured by the issuer's pledge of its 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 Municipal Bond Fund and the
New Tax-Free Income Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
The Municipal Bond Fund and the New Tax-Free Income Fund may also invest in
"moral obligation" securities, which are normally issued by special purpose
public authorities. If the issuer of moral obligation securities is unable to
meet its debt service obligations from current revenue, it may draw on a reserve
fund, the restoration of which is a moral commitment, but not a legal
obligation, of the state or municipality which created the issuer.
Proposals to restrict or eliminate the Federal income tax exemption of
interest on municipal securities have been discussed from time to time and may
be enacted in the future.
Repurchase Agreements. Each of the Acquired Funds and the Acquiring Funds
may engage in repurchase agreement transactions as long as the underlying
securities are of the type that the Fund would be permitted to purchase
directly. Under the terms of a typical repurchase agreement, a Fund would
acquire an underlying security for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and the
Fund to resell, the obligation at an agreed upon price and time, thereby
determining the yield during the Fund's holding period. The Funds will enter
into repurchase agreements with member banks of the Federal Reserve System or
certain non-bank dealers. Under each repurchase agreement the selling
institution will be required to maintain the value of the securities subject to
the repurchase agreement at not less than their repurchase price (including
interest). Repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon a Fund's ability to dispose of the
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underlying securities. NAS, acting under the supervision of such Trust's Board
of Trustees, reviews the creditworthiness of those banks and non-bank dealers
with which the Fund enters into repurchase agreements to evaluate these risks.
Investment Companies. As permitted by the 1940 Act, each Acquiring Fund
may invest up to 10% of its total assets, calculated at the time of investment,
in the securities of other investment companies. No more than 5% of an Acquiring
Fund's total assets may be invested in the securities of any one investment
company nor may it acquire more than 3% of the voting securities of any other
investment company. Each Acquiring Fund will indirectly bear its proportionate
share of any management fees paid by an investment company in which it invests
in addition to the advisory fee paid by such Acquiring Fund.
When-Issued Securities. Each of the Government Bond Fund, the Municipal
Bond Fund and the Acquiring Funds may invest without limitation in securities
purchased on a when-issued or delayed delivery basis. Although the payment and
terms of these securities are established at the time the Acquiring Fund enters
into the commitment, these securities may be delivered and paid for at a future
date, generally within 45 days; for mortgage-backed securities the delivery date
may extend to as long as 120 days. Purchasing when-issued securities allows a
Fund to lock in a fixed price or yield on a security it intends to purchase.
However, when the Fund purchases a when-issued security, it immediately assumes
the risk of ownership, including the risk of price fluctuation until the
settlement date.
The greater a Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of that
Fund. Purchasing securities on a when-issued basis may involve the additional
risk that the yield available in the market when the delivery occurs may be
higher or the market price lower than that obtained at the time of commitment.
Although a Fund may be able to sell these securities prior to the delivery date,
it will purchase when-issued securities for the purpose of actually acquiring
the securities, unless after entering into the commitment a sale appears
desirable for investment reasons. Such Funds will set aside liquid assets in a
segregated account to secure its outstanding commitments for when-issued
securities.
Floating and Variable Rate Obligations. The New Money Market Fund and the
New Long-Term Government Bond Fund may each invest in floating and variable rate
obligations. Variable or floating rate obligations bear interest at rates that
are not fixed, but vary with changes in specified market rates or indices, such
as the prime rate, and at specified intervals. Interest rates on floating rate
obligations vary with changes in an underlying index whenever such index
changes, 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 such 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 credit risks, like other debt
instruments, but because the issuer may call the obligations, such 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
purchase by such 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. Each such Fund will limit its purchase of
floating and variable rate obligations to those of the same quality as it
otherwise is allowed to purchase. NAS will monitor on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand.
Although there may be no active secondary market with respect to a
particular variable or floating rate obligation purchased by the New Money
Market Fund or the New Long-Term Government Bond Fund, each such Fund may
attempt to resell the obligation at any time to a third party. The absence of an
active secondary market, however, could make it difficult for that Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations and the Fund would, as a result
or for other reasons, suffer a loss to the extent of the default. Variable or
floating rate obligations may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
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value of such obligation, on readjustment of its interest rate, will not
approximate its amortized cost or par value, as the case may be.
Variable and floating rate obligations for which no readily available
market exists and which are not subject to a demand feature that will permit a
Fund to receive payment of the principal within seven days after demand by that
Fund, will be considered illiquid and therefore, together with other illiquid
securities held by such Fund, will not exceed such Fund's limitation on
investments in illiquid securities.
Medium-Grade Securities. Each of the Municipal Bond Fund and the New
Tax-Free Income Fund 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, such Fund should take consistent with its investment objective; there is
no requirement that a Fund sell such downgraded securities.
Zero Coupon Securities. Government Bond Fund, the New Long-Term Government
Bond Fund and the New Tax-Free Income Fund may each invest in zero coupon
securities. Zero coupon securities are debt securities that pay no cash income
but are sold at substantial discounts from their value at maturity. When a zero
coupon security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Certain
zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. Zero coupon securities may have conversion features.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.
Current federal income tax law requires the holder of a zero coupon
security to accrue income with respect to these securities prior to the receipt
of cash payments. Accordingly, to avoid liability for federal income and excise
taxes, such Funds may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Canadian and Provincial Obligations. Cash Reserve Fund and the New Money
Market Fund may each invest in Canadian and Provincial obligations. Such
obligations are unsecured, discounted bills and notes that are issued in U.S.
currency. Obligations have a final maturity of 270 days or less from date of
issue and are exempt from registration under Section 3(a)(3) of the Securities
Act of 1933, as amended. Canada Bills constitute direct, unconditional
obligations of Her Majesty in right of Canada and are a direct charge on, and
payable out of the Consolidated Revenue Fund of Canada. Export Development
Company and Canadian Wheat Board are crown corporations and agents of Her
Majesty in right of Canada. Provincial obligations have the full faith and
credit of the provincial governments.
Lending Portfolio Securities. From time to time, each of the Acquiring
Funds (other than the New 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, an Acquiring Fund will receive collateral consisting of cash, U.S.
Government Securities or irrevocable letters of credit. Such collateral will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. An Acquiring Fund can increase its income
through the investment of such collateral and continues to
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be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned security and receives interest on the amount
of the loan. Such loans will be terminable at any time upon specified notice. An
Acquiring Fund might experience risk of loss if the institution with which it
has engaged in a portfolio loan transaction breaches its agreement with the
Acquiring Fund.
Derivative Instruments. NAS may use a variety of derivative instruments,
including options, futures contracts ("futures"), options on futures, stock
index options and forward currency contracts to hedge the New Mid Cap Growth
Fund's portfolio or for risk management. Derivatives are financial instruments
whose value and performance are based on the value and performance of another
security, financial instrument or index.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION. The Plan provides that all of the
assets of each Acquired Fund as of the Exchange Date (as defined in the Plan)
will be transferred to the corresponding Acquiring Fund in exchange for
Acquiring Fund Shares of that Acquiring Fund and the assumption by that
Acquiring Fund of all of the liabilities of the Acquired Fund. The Exchange Date
is expected to be on or about March 1, 1998; subject, however, to the receipt by
the Trust and the New Trust of any necessary order of exemption from the
Commission with respect to the Reorganization. A copy of the Plan is attached as
Exhibit A to this Combined Prospectus/Proxy Statement. Although portions of the
Plan are summarized below, this summary is qualified in its entirety by
reference to the Plan.
Promptly after the Exchange Date, each Acquired Fund will distribute the
Acquiring Fund Shares of the corresponding Acquiring Fund to the Acquired Fund's
shareholders of record as of 9:00 A.M. on the Exchange Date. The Acquiring Fund
Shares of the corresponding Acquiring Fund will be equal in aggregate value to
the shares of the corresponding Acquired Fund held as of the Valuation Time (as
defined in the Plan). All issued and outstanding shares of the Acquired Funds
will be cancelled on the Trust's books and any certificates representing such
shares will no longer be valid. Shares of the Acquiring Funds will be
represented only by book entries; no share certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of each of the Acquired Funds and approval of a similar plan of reorganization
by shareholders of Nationwide Investing Foundation. The Plan also may be
terminated and the Reorganization abandoned by the Acquired Funds and the
Acquiring Funds by mutual consent of their respective trustees.
The Reorganization will not be completed unless the Trust and the New Trust
obtain opinions of counsel to the effect that the Reorganization constitutes a
tax-free reorganization for federal income tax purposes and any necessary
written order of exemption from the Commission exempting the Reorganization from
the provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a
party in connection with the Plan will be paid by the party directly incurring
such costs. NAS will pay 50% of the costs associated with the Reorganization,
including 50% of the costs associated with this proxy solicitation. Each
Acquiring Fund will bear its own organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders and the Reorganization is
consummated, all shareholders of the Acquired Funds (as of 9:00 A.M. on the
Exchange Date) including those that voted against the approval of the Plan, will
receive Acquiring Fund Shares of the corresponding Acquiring Fund. All
shareholders of the Acquired Funds have the right at any time up to the next
business day preceding the Exchange Date to redeem their shares at net asset
value, subject to any applicable contingent deferred sales charge, according to
the procedures set forth in the Acquired Funds' Prospectus.
This summary does not purport to be a complete description of the Plan and
is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in 1988. The New Trust was organized as
a series investment company as of October 30, 1997, and on November 7, 1997, its
Board of Trustees created the Acquiring Funds with substantially similar
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investment objectives, policies and restrictions to those of the Acquired Funds.
Because of the similarity between the Acquired Funds and the Acquiring Funds,
the considerations and risks involved with an investment in an Acquiring Fund
are expected to be comparable to those associated with an investment in the
corresponding Acquired Fund. Each Acquiring Fund has been established for
purposes of effecting the Reorganization and will not commence operations prior
to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for its consideration at a meeting held on November 7,
1997. The Board of Trustees of the Trust concluded unanimously that the
Reorganization is in the best interests of the Trust, the Acquired Funds and
their shareholders and that the interests of the existing shareholders of the
Acquired Funds will not be diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Acquired Funds and the
Trust and the proposed costs of the Acquiring Funds and the New Trust as
provided by NAS, in light of their substantially similar investment objectives,
policies, restrictions, Boards of Trustees, officers and service providers. The
Trust's Board also considered the operating and compliance efficiencies that
could result from moving the operation of the Acquired Funds from the Trust to
corresponding separate portfolios of the New Trust, which has been organized
under a more flexible and modern declaration of trust. The investment
restrictions of the Acquiring Funds which were approved by the Board of Trustees
of the New Trust vary somewhat from the restrictions of the Acquired Funds;
however, such differences reflect a more uniform and flexible set of investment
restrictions that are currently in place for each of the other series or
portfolios of the New Trust. Such restrictions were approved to help achieve
greater compliance efficiencies by having each series of the New Trust have the
same or substantially the same investment restrictions and, in certain
instances, to provide greater flexibility to NAS in managing the Acquiring
Funds' portfolio assets.
One of the operating efficiencies expected is that certain fixed costs
associated with the operation of the Acquired Funds and the Trust when incurred
by the New Trust and the Acquiring Funds would decrease on a per share basis
since such costs would be spread over a larger pool of assets, e.g., certain
professional and regulatory fees and printing costs.
In particular, the Trust's Board considered the anticipated expense ratios
of the Acquiring Funds, the structure of the New Trust, including the provision
for multiple classes of shares, the experience of the service providers of the
Acquiring Funds and the level of service to be provided to the shareholders of
the Acquiring Funds, as represented by NAS, including the greater resources that
could be dedicated to managing the Acquiring Funds and providing administrative
and compliance services.
The Trust's Board also considered the fees charged to the Acquiring Funds
compared to those of the Acquired Funds. During its review of the fees for the
Acquiring Funds, the Trust's Board considered the following factors: (1) the
nature, scope and quality of the services provided by NAS, (2) the costs
incurred and revenues generated by NAS in rendering such services, (3) NAS'
profitability from its mutual fund activities, (4) the compensation paid to
investment advisers of mutual funds with similar investment objectives and
policies and asset sizes, (5) the quality of personnel at NAS, (6) comparative
expense and performance information, (7) pro forma expense ratios based upon the
proposed level of investment advisory and administration fees, (8) the need to
provide NAS with adequate financial incentives to maintain and improve its
services, and (9) NAS' planned and proposed additional expenditures in the area
of fund administration services.
More specifically, the Trust's Board considered the significant increases
in expenses that NAS will experience in connection with the general
administration and fund accounting for each of the Acquiring Funds and the fact
that the total expense ratios for each of the Acquiring Funds, other than the
New Mid Cap Growth Fund, would be lower than the current expense ratios of the
corresponding Acquired Fund (including NAS' current Rule 12b-1 fee waiver), and
will continue to be at least 27% lower than the average for comparable mutual
funds according to data from Lipper Analytical Services, Inc. as of September
30, 1997. In addition, the Trust's Board recognized that the expense ratio for
the New Mid Cap Growth Fund will be lower than the Growth Fund's expense ratios
assuming no waiver of Rule 12b-1 fees. The Board of Trustees of the Trust and
the New Trust also determined that the proposed breakpoints in the Acquiring
Funds' fees would allow shareholders of the Acquiring Funds to benefit from
certain economies of scale as a Fund's assets grow.
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The Board of Trustees of the Trust based its decision to approve the
proposed transaction upon its consideration of a number of factors, including,
among other things:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
(2) the similarity of the Acquired Funds' investment objectives,
strategies and policies with those of the corresponding Acquiring Funds, as
well as the views of NAS that any differences between the investment
objectives, policies and restrictions of the Acquired Funds and their
corresponding Acquiring Fund should not materially increase investment
risks;
(3) the experience and resources of NAS with respect to providing
investment management services, and the experience of and quality of
services to be provided by the Acquiring Funds' other service providers;
(4) the projected expense ratios and information regarding fees and
expenses of each Acquiring Fund, each Acquired Fund and other similar funds
and the services being offered to shareholders and the fact that the
overall expense ratios for each Acquiring Fund will be at least 27% lower
than the median expense ratio of its peer group of mutual funds;
(5) the continuity of certain of the portfolio managers for the
Acquired Funds;
(6) the conditioning of the Reorganization on the receipt of legal
opinions confirming the absence of any adverse federal tax consequences to
the Acquired Funds or their shareholders resulting from the Reorganization;
and
(7) other factors as it deemed relevant.
In particular, the Board considered the per share operating expense ratios
(total annual operating expenses expressed as a percentage of average net
assets) for shares of the Acquired Funds and as estimated for the Acquiring
Funds. The following are the per share operating expense ratios for shares of
the Acquired Funds for the year ended October 31, 1997, and as estimated for the
Acquiring Fund Shares of the corresponding Acquiring Funds for the period
following the effective date of the Reorganization and ending October 31, 1998,
after giving effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<S> <C>
ACQUIRED FUND ACQUIRING FUND
Growth Fund New Mid Cap Growth Fund
0.96%* 0.98%
Cash Reserve Fund New Money Market Fund
0.68% 0.60%
Government Bond Fund New Long-Term Government Bond Fund
0.85%* 0.77%
Municipal Bond Fund New Tax-Free Income Fund
0.85%* 0.69%
</TABLE>
- ---------------
* As described above, NAS is currently waiving all of its fees under the Trust's
Rule 12b-1 Plan. Absent such fee waivers, the expense rates for the Growth Fund,
the Government Bond Fund and the Municipal Bond Fund would have been 1.71%,
1.60% and 1.60%, respectively.
For further information regarding the expense ratios of each of the
Acquiring and Acquired Funds, see "SUMMARY -- Comparative Expense Information"
above.
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in each Acquiring
Fund is represented by units of beneficial interest, without par value, of
Nationwide Investing Foundation III, which is an open-end investment
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company of the management type, organized as Ohio business trust as of October
30, 1997. The Acquiring Funds are currently four of nine separate series of the
New Trust. Like the Acquired Funds, each Acquiring Fund is diversified, as that
term is defined in the 1940 Act. Currently there is only one class of shares for
the Acquired Funds. The New Money Market Fund of the New Trust offers only one
class of shares, which is without any class designation. However, each of the
Acquiring Funds, other than the New Money Market Fund, is expected to offer at
least three classes of shares -- Class A, Class B and Class D shares. Class A
shares of the New Trust will be sold with a front-end sales load and pay
expenses pursuant to a Rule 12b-1 plan. Class B shares of the New Trust will be
subject to a contingent deferred sales charge, will be sold without imposition
of a front-end sales load and will pay expenses pursuant to a Rule 12b-1 plan.
Class D shares will be sold with a front-end sales load but will not be subject
to any Rule 12b-1 plan. Except for Rule 12b-1 fees, Class A, Class B and Class D
shares of the New Trust will bear generally the same expenses.
All shareholders of an Acquiring Fund, regardless of class, will generally
vote on the same issues and in the aggregate with respect to matters submitted
to the shareholders of that Fund for their approval as a Fund. However, holders
of one class of shares of an Acquiring Fund will vote as a class and not with
holders of any other class of shares with respect to its respective Rule 12b-1
Plan, if any. The Acquiring Fund Shares which shareholders of the Acquired Funds
will receive pursuant to the Reorganization do not have a Rule 12b-1 Plan.
Shareholders of an Acquiring Fund are entitled to one vote for each share held
and a proportionate fractional vote for any fraction of a share held. See
"ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the New Trust must receive favorable opinions from
Baker & Hostetler LLP substantially to the effect that, for federal income tax
purposes: (a) the Reorganization will constitute a "tax-free" reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) no gain or loss will be recognized by the Acquiring
Funds or the Acquired Funds as a result of the Reorganization; (c) no gain or
loss will be recognized by shareholders of the Acquired Funds upon the exchange
of their shares of the Acquired Funds for Acquiring Fund Shares of the
corresponding Acquiring Funds; (d) the tax basis of the Acquiring Fund Shares
received by shareholders of the Acquired Funds pursuant to the Reorganization
will be the same as the basis of the shares of the corresponding Acquired Fund
held immediately prior to the Reorganization; (e) the holding period of the
Acquiring Funds Shares so received will include the period during which the
Acquired Fund shareholder held shares of the Acquired Fund, provided such shares
were held as a capital asset; (f) the tax basis of each Acquired Fund's assets
acquired by the corresponding Acquiring Fund will be the same as the basis of
such assets immediately prior to the Reorganization; and (g) the holding period
of such assets will include the period during which those assets were held by
the Acquired Fund.
Such opinions are not the equivalent of a ruling from the Internal Revenue
Service and may, upon audit, be challenged by the Internal Revenue Service. The
Acquiring Funds and the Acquired Funds do not intend to seek a private letter
ruling with respect to the tax effects of the Reorganization.
CAPITALIZATION. The following table shows the capitalization both of the
Acquired Funds as of October 31, 1997, and of the corresponding Acquiring Fund
on a pro forma basis. Except for certain organizational activities, the
Acquiring Funds have no, and will have no, assets or liabilities and will not
commence operations prior to the consummation of the Reorganization. Because the
Growth Fund and the Government Bond Fund are not combining with any other funds
of NIF or NIF II, the pro forma financial information giving effect to the
Reorganization provided below for the corresponding Acquiring Fund is the same.
GROWTH FUND/NEW MID CAP GROWTH FUND*
<TABLE>
<S> <C>
Net assets...................................................................... $ 9,540,707
Shares outstanding.............................................................. 417,133
Net asset value per share....................................................... $ 22.87
GOVERNMENT BOND FUND/NEW LONG-TERM GOVERNMENT BOND FUND*
Net assets...................................................................... $48,548,881
Shares outstanding.............................................................. 4,338,857
Net asset value per share....................................................... $ 11.19
</TABLE>
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<PAGE> 150
CASH RESERVE FUND/NEW MONEY MARKET FUND*
<TABLE>
<CAPTION>
CASH RESERVE FUND PRO FORMA COMBINED WITH
AS OF NIF MONEY MARKET FUND INTO
OCTOBER 31, 1997 THE NEW MONEY MARKET FUND
----------------- --------------------------
<S> <C> <C>
Net assets......................................... $ 4,050,789 $824,708,194
Shares outstanding................................. 4,050,907 824,708,144
Net asset value per share.......................... $ 1.00 $ 1.00
</TABLE>
MUNICIPAL BOND FUND/NEW TAX-FREE INCOME FUND*
<TABLE>
<CAPTION>
PRO FORMA COMBINED, WITHOUT PRO FORMA COMBINED WITH
MUNICIPAL BOND FUND NIF II TAX-FREE INCOME FUND, NIF II TAX-FREE INCOME FUND
AS OF INTO THE INTO THE NEW TAX-FREE INCOME
OCTOBER 31, 1997 NEW TAX-FREE INCOME FUND* FUND*
--------------------------------- ----------------------------
<S> <C> <C> <C>
Net assets................. $16,821,447 $16,821,447 $273,307,749
Shares outstanding......... 1,513,368 1,513,368 26,012,792
Net asset value per
share.................... $ 11.12 $ 11.12 $ 10.51
</TABLE>
- ---------------
* The capitalization information for each of the Acquiring Funds is provided on
a pro forma basis; that is, what the capitalization of the Acquiring Funds
would have been at October 31, 1997 had the Reorganization been completed.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of each Acquired Fund are generally similar to those of the corresponding
Acquiring Fund. The investment objectives and certain of the investment
restrictions of each Acquired Fund and Acquiring Fund are "fundamental," which
means that they may not be changed without the consent of a majority of such
Fund's outstanding shares, as defined in the 1940 Act. The investment policies
and certain of the investment restrictions of the Acquired Funds and the
Acquiring Funds are, however, non-fundamental. A "non-fundamental" policy may be
changed upon the vote of the Trustees but without shareholder approval.
The investment policies and strategies of each Acquired Fund are generally
the same as those of the corresponding Acquiring Fund, although there are some
differences in the investment policies and restrictions that shareholders should
consider.
GROWTH FUND/NEW MID CAP GROWTH FUND
The Growth Fund seeks long-term capital appreciation through investing in
equity securities with above average, long-term growth potential. The investment
objective of New Mid Cap Growth Fund is to achieve long-term capital
appreciation.
In order to achieve its objective, the Growth Fund focuses on investments
that are seen to unfold over the long term, and will avoid investing on the
basis of cyclical opportunity. Generally, long term would mean a period of
between two and five years. The Growth Fund looks at a long term investment as
one that will likely provide total return greater than that of the market in
general over the relevant investment horizon. This total return would be
composed of dividends paid plus increased price valuation of the security
compared to its purchase price valuation. In evaluating the prospects for the
earnings or asset growth that should provide increased price valuation, the
Growth Fund normally considers: (a) quality of management and sufficient
financial wherewithal to successfully exploit the company's business
opportunities, (b) social, economic, demographic, and/or technological trends
that present the company with significant future business opportunities, and (c)
the degree to which there are barriers to competition in the company's business,
with higher barriers tending to increase the company's opportunity to achieve
superior growth. While the Growth Fund generally intends to invest in common
stocks or in issues convertible to common stock, there are no restrictive
provisions covering the portion of one or another class of securities that may
be held which in any way inhibit management in the selection of appropriate
investments to reach objectives.
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<PAGE> 151
In seeking appreciation in price valuations, the Growth Fund may, for
example, invest in a developmental stage company. Such an investment may not pay
a dividend or produce the anticipated price valuation. It could even experience
a reduction in price valuation with no capital gain resulting from its sale. In
no event, however, may the Growth Fund invest more than 5% of its assets in
companies which have a record of less than three years continuous operation or
in securities for which market quotations are not readily available.
For the New Mid Cap Growth Fund, major emphasis in the selection of
securities is placed on companies which have capable management, and are in
fields where social and economic trends, technological developments, and new
processes or products indicate a potential for greater-than-average growth.
Under normal market conditions, the New Mid Cap Growth Fund will invest at least
65% of its total assets in equity securities of mid cap companies. The New Mid
Cap Growth Fund defines mid cap companies as those with market capitalization or
sales in the range between $300 million and $8 billion, but will generally focus
on companies between $300 million and $5 billion.
The equity securities in which the New Mid Cap Growth Fund may invest
include common stock, preferred stock, convertible securities and warrants of
both domestic and foreign issuers although the New Growth Fund will primarily
invest in common stocks or securities convertible into common stocks. Foreign
securities may be acquired directly or through depository receipts. In addition
to equity securities, the New Mid Cap Growth Fund may invest in index futures,
options and other derivatives, and securities which are not readily marketable
or are restricted as to disposition. The New Mid Cap Growth Fund may also invest
in U.S. Government securities, short-term fixed income securities and money
market obligations (collectively "Money Market Obligations"). The New Mid Cap
Growth Fund may also purchase shares of other investment companies, enter into
repurchase agreements, lend portfolio securities and purchase securities on a
when-issued or delayed-delivery basis. As a temporary defensive position, the
New Mid Cap Growth Fund may invest up to 100% of its total assets in cash and/or
Money Market Obligations.
GOVERNMENT BOND FUND/NEW LONG-TERM GOVERNMENT BOND FUND
The Government Bond Fund seeks as high a level of income as is consistent
with capital preservation from securities issued or guaranteed as to principal
and interest by the U.S. Government, its agencies, authorities or
instrumentalities. Such Fund seeks to achieve its objectives by normally
investing at least 65% of its assets in bonds issued by the U.S. Government, its
agencies and instrumentalities. These bonds pay interest at regular intervals,
usually semi-annually, and pay principal at maturity.
The investment objective of the New Long-Term Government Bond Fund is to
seek as high a level of current income as is consistent with the preservation of
capital. Such Fund will invest under normal market conditions at least 65% of
its net assets in bonds issued or guaranteed by the U.S. Government and its
agencies and instrumentalities. For purposes of this policy, bonds consist of
bonds of varying maturities, bills and notes. The New Long-Term 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 and a dollar
weighted average portfolio maturity greater than 10 years.
The Government Bond Fund may invest up to 35% of its assets in zero coupon
securities or mortgage-backed securities and up to 20% of its assets in
securities purchased on a "when-issued" or on a "forward delivery" basis. The
Government Bond Fund may also enter into repurchase agreements with respect to
any of the above mentioned securities. The Government Bond Fund will normally
invest no more than 20% of its assets in repurchase agreements or in U.S.
Government securities maturing in less than one year, although as a temporary
defensive position, such Fund may invest up to 100% of its assets in these
securities or in cash.
The New Long-Term Government Bond Fund normally will invest all or
substantially all of its net assets in securities issued by the U.S. Government
and its agencies and instrumentalities or in repurchase agreements
collateralized by these securities. The New Long-Term Government Bond may invest
in mortgage-related securities issued by U.S. Government agencies, which include
pass-through securities and CMOs. Pass-through securities represent part
ownership in a pool of mortgage loans. These securities differ from typical
bonds because principal is repaid monthly over the term of the loan rather than
returned in a lump sum at maturity. CMOs are fully collateralized by a pool of
mortgages on which payments of principal and interest are dedicated to payment
of principal and interest on the various classes of the CMOs. The New Long-Term
Government Bond
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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 New Long-Term Government Bond
Fund, NAS utilizes interest rate expectations, yield-curve analysis, economic
forecasting, market sector analysis, and other security selection techniques.
NAS concentrates on investing in areas of the long-term 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 New Long-Term Government Bond
Fund may invest include variable and floating rate securities, some of which may
be callable. The New Long-Term Government Bond 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 New Long-Term Government Bond Fund may invest up to 100%
of its total assets in cash and/or money market obligations.
MUNICIPAL BOND FUND/NEW TAX-FREE INCOME FUND
The Municipal Bond Fund seeks to provide as high a level of municipal
income as is consistent with the preservation of capital through investing in a
diversified portfolio of investment grade municipal bonds. Municipal income is
defined to mean income earned on municipal obligations. The Municipal Bond Fund
normally invests at least 65% of the value of its total assets in debt
securities generally called bonds and 80% of its assets in municipal bonds rated
within the four highest credit categories by Moody's or S&P, state and municipal
notes rated in the two highest credit categories for municipal notes by Moody's
and S&P, and other types of short-term municipal securities such as commercial
paper that is rated in the two highest credit categories by Moody's and S&P. The
Municipal Bond Fund will not normally invest more than 40% of its assets in
securities purchased on a "when-issued" basis or 20% of its assets in short-term
debt securities. The Municipal Bond Fund may also invest in securities affected
by alternative minimum tax to the extent that such investments would be
advantageous.
The investment objective of the New Tax-Free Income Fund is to seek as high
a level of current income exempt from Federal income tax (although investors may
be subject to state and local tax) as is consistent with the preservation of
capital through investing in investment grade municipal obligations. The New
Tax-Free Income Fund has adopted a fundamental investment policy that requires
it to invest at least 80% of its net assets in securities that generate income
that is exempt from Federal income taxes and that is not treated as a preference
item for purposes of the Federal alternative minimum tax. The New Tax-Free
Income Fund invests in municipal obligations that are rated within the four
highest rating categories (investment grade) assigned by an NRSRO, or, if not
rated, that are of equivalent investment quality as determined by NAS. Such
obligations include municipal securities backed the full faith and credit of the
United States, municipal bonds and notes rated within the four highest rating
categories by an NRSRO, and 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 New
Tax-Free Income Fund may invest include variable and floating rate securities.
Such Fund may also acquire securities on a when-issued or delayed-delivery
basis, zero coupon securities and securities of other investment companies and
enter into repurchase agreements. As a temporary defensive position, the New
Tax-Free Income Fund may also hold and invest up to 20% of its assets in cash or
taxable Money Market Obligations.
CASH RESERVE FUND/NEW MONEY MARKET FUND
The Cash Reserve Fund seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity through
investing in a diversified portfolio of high-quality money market instruments
maturing in 397 days or less. The investment objective of the New Money Market
Fund is to seek as high a level of current income as is consistent with the
preservation of capital and maintenance of liquidity.
Each of the Cash Reserve Fund and the New Money Market Fund are required to
maintain a dollar weighted average maturity of 90 days or less.
The Cash Reserve Fund intends to accomplish its investment objectives by
investing in instruments receiving a rating in one of the two highest categories
by the following six NRSROs: Duff and Phelps, Inc. ("D&P"); Fitch Investors
Services, Inc. ("Fitch"); Moody's; S&P; IBCA Limited and its affiliated, IBCA,
Inc. ("IBCA"); and
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<PAGE> 153
Thomson Bank Watch ("Thomson"). Subject to the quality limitations described
above, the types of instruments in which the Cash Reserve Fund may invest are
obligations of the U.S. Government, its agencies and its instrumentalities, U.S.
dollar denominated obligations of foreign governments or any federally chartered
corporation, obligations of domestic and foreign banks and savings and loan
associations (including certificates of deposit and bankers' acceptances),
taxable or partly taxable obligations issued by state, county, or municipal
governments, commercial paper, short term corporate obligations, bank loan
participation agreements and repurchase agreements collateralized by any of the
above.
The emphasis for the New Money Market Fund is on a diversified portfolio
having a dollar weighted average maturity of 90 days or less. The New Money
Market Fund's portfolio will consist of high-quality money market instruments
with a remaining maturity of 397 days or less including, but not limited to:
securities of the U.S. Government its agencies and instrumentalities, 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 that 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 in one of the two highest rating
categories by at least two NRSROs; corporate obligations and asset-backed
securities that at the time of purchase are rated in one of the two highest
rating categories assigned by an NRSRO and repurchase agreements collateralized
by any of the above. In addition, the New Money Market Fund may invest in
variable and floating rate obligations, some of which may have call features.
The New Money Market Fund may also purchase securities on a when-issued or
delayed-delivery basis and securities of other investment companies and may lend
portfolio securities.
FUNDAMENTAL INVESTMENT POLICIES. Each Acquired Fund and corresponding
Acquiring Fund have some fundamental investment policies that are the same and
some that are different. The primary purposes for adopting more flexible
investment restrictions for the Acquiring Funds are to promote standardization
of such restrictions among all of the Nationwide Funds and to provide the
portfolio managers with greater flexibility in managing the Acquiring Funds'
portfolios. The similarities and differences are described in the following
table.
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ACQUIRED FUNDS
ACQUIRING FUNDS
DIVERSIFICATION:
Each of the Acquired Funds has a fundamental policy against investing more
than 5% of its total assets (excluding cash and cash items) in the securities of
any one issuer or owning more than 10% of any class of voting or non-voting
securities of any issuer (except the U.S. Government, its agencies and
instrumentalities). However, 25% of Cash Reserve Fund's total assets may be
invested in any class of voting or non-voting securities of commercial banks. In
addition, up to 10% of Cash Reserve Fund's assets may be invested in First Tier
Securities, as defined in the 1940 Act, of any one issuer for a period of up to
three business days after the purchase so long as Cash Reserve Fund does not
make more than one such investment at a time.
Each of the Acquiring Funds has a fundamental policy against purchasing
securities of any one issuer, other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, if, immediately after such
purchase, more than 5% of such Fund's total assets would be invested in such
issuer or such Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that 25% or less of such Fund's total assets
may be invested without regard to these limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The New Money Market Fund will be deemed to be in compliance
with this investment 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.
CONCENTRATION:
Each of the Acquired Funds has a fundamental policy against investing 25%
or more of its total assets in securities of issuers that are in the same
industry, except that each Acquired Fund may invest more than 25% of its assets
in municipal notes and bonds and in obligations issued, escrowed in, or
guaranteed by the U.S. Government, its agencies, or instrumentalities. In
addition, Cash Reserve Fund may invest more than 25% of its assets in
obligations of domestic branches of U.S. commercial banks. For purposes of this
investment restriction, electric, natural gas distribution, natural gas
pipeline, combined electric and natural gas, captive borrowing conduit,
equipment finance, premium finance, leasing finance, consumer sales finance and
other finance are each considered separate industries.
Each of the Acquiring Funds has a fundamental policy against purchasing
securities of any one issuer if, as a result of such purchase, 25% or more
(taken at current value) of an Acquiring Fund's total assets would be invested
in securities of issuers the principal activities of which are in the same
industry. This investment restriction does not apply to securities issued by the
U.S. Government, its agencies, or instrumentalities or to securities issued by
state, county, or municipal governments. The following industries are considered
separate industries for purposes of this investment restriction: electric,
natural gas distribution, natural gas pipeline, combined electric and natural
gas, telephone utilities, captive borrowing conduit, equipment finance, premium
finance, leasing finance, consumer sales finance and other finance.
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ACQUIRED FUNDS
ACQUIRING FUNDS
ISSUING SENIOR SECURITIES / BORROWING MONEY:
Each of the Acquired Funds has a fundamental policy against issuing senior
securities or borrowing money, except that each Acquired Fund may borrow an
amount not in excess of 33 1/3% of its total assets (calculated when the loan is
made) from banks for temporary purposes to facilitate the orderly sale of
portfolio securities to accommodate unusually heavy redemption requests, if they
should occur. Such borrowing is not intended to be for investment purposes, and
the Acquired Funds will not purchase portfolio securities during periods in
which borrowings are outstanding. Each Acquired Fund may also borrow an amount
equal to no more than 5% of its total assets (calculated when the loan is made)
for temporary, emergency purposes or to clear transactions, provide NAS
additional flexibility in executing routine daily transactions or allow for more
efficient cash management. Such borrowing will not be used to leverage the
Acquired Funds, nor will such borrowing be for an extended period of time.
Each of the Acquiring Funds has a fundamental policy against borrowing
money or issuing senior securities except that each Acquiring 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.
Each of the Acquiring Funds, however, currently may only borrow money from
banks and in an amount no greater than 33- 1/3% of its total assets (including
the amount borrowed). In addition, an Acquiring Fund may borrow up to an
additional 5% of its total assets from banks for temporary or emergency
purposes.
LENDING MONEY OR SECURITIES TO OTHERS:
Each of the Acquired Funds has a fundamental policy against making loans to
others, except that each such Fund may purchase certain debt securities or enter
into certain repurchase agreements.
Each of the Acquiring Funds has a fundamental policy against lending
securities or making loans to others, except that each Acquiring Fund may
purchase or hold debt instruments and lend portfolio securities in accordance
with its investment objective and policies, make time deposits with financial
institutions, and enter into repurchase agreements.
PLEDGING ASSETS:
Each of the Acquired Funds has a fundamental policy against pledging more
than 10% of its assets or pledging such assets for any reason except to secure
temporary borrowings from banks.
Each of the Acquiring Funds has a non-fundamental policy against
mortgaging, pledging, or hypothecating more than one-third of its total assets.
ACTING AS UNDERWRITER:
Each of the Acquired Funds has a fundamental policy against acting as an
underwriter, except that in disposing of certain portfolio securities each such
Fund may be deemed to be an underwriter under certain federal securities laws.
Each of the Acquiring Funds has a fundamental policy against acting as an
underwriter of another issuer's securities, except to the extent that an
Acquiring Fund may be deemed to be an underwriter under the Securities Act of
1933, as amended, in connection with the purchase and sale of portfolio
securities.
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ACQUIRED FUNDS
ACQUIRING FUNDS
PURCHASING SECURITIES ON MARGIN:
Each of the Acquired Funds has a fundamental policy against purchasing
securities on margin; however, each Acquired Fund may obtain credits when
necessary to clear purchases and sales of securities.
Each of the Acquiring Funds has a non-fundamental policy against purchasing
securities on margin, except that each Acquiring Fund may obtain whatever
short-term credits are necessary to clear purchases and sales of securities and
to make margin payments in connection with derivative securities transactions.
ILLIQUID OR RESTRICTED SECURITIES:
Each of the Acquired Funds has a fundamental policy against purchasing
securities for which market quotations are not readily available. Each of the
Acquired Funds also has a fundamental policy against purchasing securities that
are restricted under the federal securities laws if, as a result, more than 5%
of an Acquired Fund's net assets would be invested in such securities.
The Acquiring Funds are not subject to any restriction in regard to
investing in securities for which market quotations are not available. Each of
the Acquiring Funds, however, has a non-fundamental investment policy against
purchasing or otherwise acquiring any security if, as a result, more than 15%
(10% with respect to the New Money Market Fund) of its net assets would be
invested in securities that are illiquid.
SELLING SECURITIES SHORT:
Each of the Acquired Funds has a fundamental policy against selling
securities short.
Each of the Acquiring Funds has a non-fundamental policy against selling
securities short, unless an Acquiring Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short or unless
an Acquiring Fund covers its short sale as required by the current rules and
positions of the Commission or its staff. Short positions in forward currency
contracts, options, futures contracts, options on futures contracts, and other
derivative instruments do not constitute selling securities short.
REAL ESTATE / COMMODITIES / FUTURES CONTRACTS:
Each of the Acquired Funds has a fundamental policy against purchasing or
selling real estate, real estate mortgage loans, commodities or futures
contracts.
Each of the Acquiring Funds has a fundamental policy against purchasing or
selling real estate, except that each Acquiring Fund may acquire real estate
through ownership of securities or instruments and may purchase or sell
securities issued by entities or investment vehicles that own or deal in real
estate (including interests therein) or instruments secured by real estate
(including interests therein). Each of the Acquiring Funds also has a
fundamental policy against purchasing or selling commodities or commodities
contracts, except to the extent disclosed in the Acquiring Fund's current
Prospectus.
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ACQUIRED FUNDS
ACQUIRING FUNDS
SECURITIES OF OTHER INVESTMENT COMPANIES:
Each of the Acquired Funds has a fundamental policy against purchasing or
selling securities of other investment companies except in connection with real
estate, real estate mortgage loans, commodities or future contracts.
Each of the Acquiring Funds has a non-fundamental policy against purchasing
securities of other investment companies except (a) in connection with a merger,
consolidation, acquisition, reorganization or offer of exchange, and (b) to the
extent permitted by the 1940 Act or any rules or regulations thereunder or
pursuant to any exemptions therefrom.
MORTGAGE-BACKED SECURITIES:
The Government Bond Fund has a fundamental policy against investing more
than 35% of its total assets in mortgage backed securities.
The Acquiring Funds are not subject to any such restriction.
INVESTING IN A COMPANY WITH LESS THAN THREE YEARS OF OPERATION:
Each of the Acquired Funds has a fundamental policy against investing more
than 5% of its total assets, taken at cost, in securities whose issuer, or whose
guarantor of principal and interest, including any predecessor, has been in
operation for less than three years.
The Acquiring Funds are not subject to any such restriction.
INVESTING IN PUTTS, CALLS, STRADDLES, AND SPREADS / OIL, GAS, MINERAL LEASES:
Each of the Acquired Funds has a fundamental policy against investing in
puts, calls, straddles, spreads or any combination thereof or in oil, gas or
other mineral leases, rights or royalty contracts.
The Acquiring Funds are not subject to any such restriction.
DEALING WITH TRUSTEES / SHORT-TERM TRADING PROFITS / CONTROL OF MANAGEMENT:
Each of the Acquired Funds has a fundamental policy against dealing with
the Trustees of the Trust in regard to the purchase and sale of securities and
investing for the purpose of making short-term trading profits or for exercising
control of management.
The Acquiring Funds are not subject to any such restriction.
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in each Acquiring Fund. For a more complete description of the
Acquiring Funds' investment policies and restrictions, including relevant risk
factors, see "OBJECTIVES AND MANAGEMENT" in the Acquiring Funds' Prospectus and
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments and Investment Policies" in the Acquiring Funds' Statement of
Additional Information. For a more complete description of the Acquired Funds'
investment policies and restrictions, including relevant risk factors, see
"INVESTMENT OBJECTIVES AND POLICIES" in the Acquired Funds' Prospectus and
Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE ACQUIRING FUNDS AND THE TRUST
Pursuant to the laws of Massachusetts and the Trust's Amended Declaration
of Trust, the responsibility for the management of the Trust is vested in its
Board of Trustees which, among other things, is empowered by the
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<PAGE> 158
Trust's Declaration of Trust to elect officers of the Trust and contract with
and provide for the compensation of agents, consultants, and other professionals
to assist and advise in such management.
Investment Adviser. The Acquired Funds are advised by Nationwide Advisory
Services, Inc. ("NAS"), Three Nationwide Plaza, Columbus, Ohio 43215, a wholly
owned subsidiary of Nationwide Life Insurance Company, which in turn is wholly
owned by Nationwide Financial Services, Inc., a holding company ("NFS"). NFS has
two classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all of the outstanding Class B common
stock) to control NFS. All of the common stock of Nationwide Corporation is held
by Nationwide Mutual Insurance Company (95.3%) and Nationwide Mutual Fire
Insurance Company (4.7%), each of which is a mutual company owned by its
policyholders. NAS is also the investment adviser, administrator, fund
accountant and distributor of each of the other funds of the Nationwide family
of funds. NAS was established as an Ohio corporation on June 28, 1960, and has
been providing investment advisory services to open-end investment management
companies like the Acquired Funds since 1965.
In its capacity as investment adviser, and subject to the ultimate
authority of the Trust's Board of Trustees, NAS, in accordance with the Acquired
Funds' investment objectives and policies, manages the Acquired Funds, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since August 29, 1997, John M. Schaffner, MBA, CFA, has
been primarily responsible for the day-to-day management of Growth Fund's
portfolio. Mr. Schaffner has been with Nationwide Insurance Enterprise since
1977. Mr. Schaffner graduated with a Bachelor of Arts in Economics from
Occidental College. He received his Master of Business Administration degree
from the University of Michigan and is a Chartered Financial Analyst.
Since March 11, 1997, Alpha Benson, MBA, has been primarily responsible for
the day-to-day management of Municipal Bond Fund's portfolio. Ms. Benson has
been with Nationwide Insurance Enterprise as a financial analyst in the
Securities Investment Department since 1977. Ms. Benson graduated with a
Bachelor of Science in Accounting from Central State University. She received
her Master of Business Administration degree from the University of Dayton.
Since March 11, 1997, Wayne Frisbee, CFA, Kimberly Bingle, CFA, FLMI, and
Gary Hunt, MBA, have been the portfolio co-managers of Government Bond Fund. Mr.
Frisbee had been the sole portfolio manager of the Government Bond from since
its inception to March 11, 1997. Mr. Frisbee joined Nationwide Insurance
Enterprise in 1981 as a securities analyst and has managed the Nationwide U.S.
Government Income Fund, another fund of the Nationwide Family of Funds, since
its inception in February of 1992. He received a Bachelor of Science from The
Ohio State University and is a Chartered Financial Analyst.
Ms. Bingle joined Nationwide Insurance Enterprise in 1986 as a securities
analyst. From April, 1992 to March 11, 1997, she managed the Fixed Income Fund
which is part of the Nationwide Insurance Enterprise incentive savings plan. Ms.
Bingle received a Bachelor of Arts in Finance from The Pennsylvania State
University. She is a Chartered Financial Analyst and a Fellow of the Life
Management Institute.
Mr. Hunt joined Nationwide Insurance Enterprise in 1992 as a securities
analyst. In his career at Nationwide Enterprise, Mr. Hunt has been responsible
for the analysis of agency CMOs and U.S. Treasury securities. In addition, he
has managed the commercial mortgage-backed securities sector for Nationwide Life
Insurance Company and its affiliates. Mr. Hunt received a Bachelor of Science in
Finance and a Master of Business Administration from The Ohio State University.
Since December, 1988, Cash Reserve Fund's inception, Karen G. Mader has
been primarily responsible for the day-to-day management of that Fund. She has
been a securities portfolio manager with Nationwide Insurance Enterprises since
1988. Ms. Mader received a Bachelor of Arts degree in Political Science and a
Masters degree in International Business and Political Science, both from The
Ohio State University.
In addition, pursuant to the Investment Advisory Agreement, NAS generally
assists in all aspects of the Acquired Funds' administration and operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Trust, NAS receives a fee from the Acquired Funds,
computed daily and paid monthly, at the following annual rates: for Cash Reserve
Fund, 0.40% of the value of its average daily net assets; and for each of the
other Acquired Funds, 0.65% of the value of its average daily net assets.
33
<PAGE> 159
For a complete description of the Acquired Funds' advisory arrangements,
see the section in the Acquired Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST."
Distributor. The Trust has entered into an Underwriting Agreement with
NAS, Three Nationwide Plaza, Columbus, Ohio 43215, pursuant to which shares of
the Acquired Funds continuously are offered on a best efforts basis by NAS and
dealers selected by NAS. Dimon Richard McFerson is Chairman of the Board and
Chief Executive Officer of NAS. Joseph J. Gasper, Robert A. Oakley, Gordon E.
McCutchan and Robert J. Woodward, Jr. are President and a director, Executive
Vice President -- Chief Financial Officer and a director, Executive Vice
President -- Law and Corporate Services and a director, and Executive Vice
President -- Chief Investment Officer and a director, respectively, of NAS.
James F. Laird, Jr. is Vice President -- General Manager of NAS. NAS receives no
compensation from the Acquired Funds in connection with its services under such
Underwriting Agreement but may retain some or all of the contingent deferred
sales charge, if any, imposed upon redemptions of Growth Fund's, Government Bond
Fund's or Municipal Bond Fund's shares. In addition, pursuant to the 12b-1 Plan,
each Acquired Fund, other than Cash Reserve Fund, is authorized to pay NAS
compensation accrued daily and paid monthly at a maximum annual rate of 0.75% of
such Acquired Fund's average daily net assets. Currently NAS is waiving all of
the Rule 12b-1 fees for each of these Acquired Funds. NAS will continue to waive
such fees until further written notice to shareholders.
Dividend and Transfer Agent. Nationwide Investors Service, Inc., a wholly
owned subsidiary of NAS ("NISI"), Three Nationwide Plaza, Columbus, Ohio 43215,
serves as the Acquired Funds' Dividend and Transfer Agent. In consideration of
such services, the Acquired Funds have agreed to pay NISI an annual fee, paid
monthly, equal to: $16 per account for Growth Fund, and $18 per account for
Government Bond Fund, Municipal Bond Fund, and Cash Reserve Fund, plus
out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Trust, see the section in the Acquired Funds' Prospectus entitled
"MANAGEMENT OF THE TRUST."
Custodian. The Acquired Funds have appointed The Fifth Third Bank ("Fifth
Third"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, as the Acquired
Funds' custodian. In such capacity Fifth Third will hold or arrange for the
holding of all portfolio securities and other assets acquired and owned by each
of the Acquired Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Acquired
Funds, and, as such, has audited the annual financial statements of the Acquired
Funds.
Management Discussion of Fund Performance.
GROWTH FUND
For the year ended October 31, 1997, Growth Fund had a total return of
23.66%, without sales charge, compared with 32.10% for the S&P 500 Index over
the same period.
The sectors that performed best for Growth Fund this fiscal year included
both drug and financial stocks. Bergen Brunswig, a drug distributor which is
currently the object of a takeover proposal, had excellent returns, as did
Schering-Plough, Merrill Lynch and Banc One. Other individual names that did
well included Schlumberger, Lucent Technologies, Biomet, and HBO & Company.
Unfortunately, these sectors and names were not weighted heavily enough in the
Fund to bring overall results up to the benchmark levels. Growth Fund, as part
of its strategy, has also held a significant portion of its assets in small and
mid-cap stocks. These stocks did very poorly during the first four months of
1997, relative to the S&P 500 Index, and although they made a tremendous
comeback after that, they began to trail off again near the end of the fiscal
year, and so, on balance, proved to be a drag on results.
NAS has made several changes in the Growth Fund's strategic focus since
August 1997. The changes are oriented toward emphasizing growth stocks to a
greater extent, and pruning away at some of the less attractive, value-oriented
stocks the Growth Fund holds. For example, the greatest concentration of new
investments has been in the computer services and software sector. This category
represented about 5.6% of Fund assets at
34
<PAGE> 160
June 30, 1997, and as of October 31, 1997, was up to 17.0%. NAS has added stocks
such as Advent software, BMC Software, First Data Corp., Gartner Group, Radiant
Systems and Template Software. The common thread NAS is looking for in these
stocks is that they all sell products or services that help other businesses
improve their own productivity and efficiency, and that they are focused on
solving their customers' problems with efficient solutions that are difficult to
obtain from other sources.
NAS believes that a more concentrated focus on growth, while retaining only
the best-positioned of the value-oriented Fund holdings will improve results
over time, and this will be the strategic thrust as Growth Fund goes forward.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) GROWTH FUND S&P 500
<S> <C> <C>
1988 10000 10000
1989 10583 12563
1990 8943 11624
1991 13118 15509
1992 13830 17052
1993 15847 19590
1994 16944 20347
1995 20598 25721
1996 24594 31899
1997 30413 42110
</TABLE>
Comparative performance of $10,000 invested in the Growth Fund since inception
(12/19/88) and the S&P 500* over the period since inception ended 10/31/97.
* The S&P 500 is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of these 500 stocks which represent all major
industries. Unlike the Growth Fund returns, the S&P 500 does not reflect any
fees, expenses or sales charges.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
1 YEAR 5 YEAR LIFE
------ ------ -----
<S> <C> <C> <C>
Without sales charge............................................... 23.66% 17.07% 13.36%
With sales charge.................................................. 18.66% 16.86% 13.36%
</TABLE>
- ---------------
The "without sales charge" returns do not reflect the effects of sales charges.
The "with sales charge" assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals, which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 8.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
CASH RESERVE FUND
At October 31, 1997, Cash Reserve Fund had assets of $4.1 million with an
average maturity of 20 days.
Cash Reserve Fund continued to invest in only first-tier money market
instruments. At October 31, 1997, commercial paper accounted for 94% of the
portfolio, followed by U.S. Government/Agency securities at 6%. The highest
portfolio weightings were in those segments which have a favorable yield
advantage including banking, consumer sales/finance and the broker/dealer
industries. These segments accounted for 14%, 11%, and 11% of the portfolio,
respectively.
A credit review is completed on all issuers prior to investment. The yield
on Cash Reserve Fund remained competitive with its peer average for the fiscal
year. The seven day effective yield at October 31, 1997, was 4.85%.
35
<PAGE> 161
This year marked the seventh year of expansion for the U.S. economy. Growth
for the third quarter was 3.5% compared to a Federal Reserve (Fed) target of
2.5%. Economists are surprised that inflationary pressures have not developed,
particularly with such a high growth rate coupled with low unemployment. The
Federal Open Market Committee raised interest rates in March 1997 by increasing
the Fed funds rate to 5.50% from 5.25%. This was the first increase since
January 1996.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CASH RESERVE FUND CPI
<S> <C> <C>
1988 10000 10000
1989 10659 10389
1990 11392 11051
1991 11993 11365
1992 12361 11738
1993 12614 12061
1994 12999 12384
1995 13703 12723
1996 14384 13104
1997 15094 13377
</TABLE>
Comparative performance of $10,000 invested in the Cash Reserve Fund since
inception (12/19/88) and the Consumer Price Index* (CPI) over the period since
inception ended 10/31/97.
* The CPI represents changes in prices of all goods and services purchased for
consumption by urban households. Unlike the Cash Reserve Fund returns, the CPI
does not reflect any fees or expenses.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
1 YEAR 5 YEAR LIFE
------ ------ ----
<S> <C> <C> <C>
Without sales charge*............................................... 4.93% 4.08% 4.75%
</TABLE>
- ---------------
* There are no sales charges in the Cash Reserve Fund. These results include
reinvestment of all dividends and capital gains distributions. The life of the
fund is 8.8 years.
An investment in the Cash Reserve Fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 a share. Past performance is no guarantee of
future results.
GOVERNMENT BOND FUND
Government Bond Fund's total return for the year ended October 31, 1997,
was 8.84%, without sales charge and assuming all distributions were reinvested,
while the Merrill Lynch Government Master Index returned 8.67%.
Shareholders who stayed in Government Bond Fund for the entire period were
rewarded after a difficult first six months when intermediate-term interest
rates rose 0.4%-0.5%. The second half of the period was more favorable as these
interest rates dropped 0.5%-0.9% and longer rates dropped by approximately 0.8%.
The higher prices for bonds in the second half were the result of several
factors. The most notable factor was the continued release of favorable
inflation reports in spite of low unemployment and significant growth in the
overall economy. Another important factor has been the perception that the
Federal Reserve will not act to raise rates until clear signs of inflationary
pressures are present. The Federal Reserve's stance combined with favorable
inflation reports has led to a significantly flatter yield curve. Finally, the
U.S. government market has been the beneficiary of a flight to quality as the
result of increased turmoil in world equity markets.
Government Bond Fund benefited from its weighting in the collateralized
mortgage obligation (CMO) market during the period and the shift out of callable
into non-callable Agency notes. Approximately 62% of portfolio assets were
invested in Treasury and Agency notes, and 35% of Fund assets were invested in
the CMO market as of October 31, 1997. The remainder of portfolio assets were in
repurchase agreements.
36
<PAGE> 162
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) GOVERNMENT BOND FUND MLGMI
<S> <C> <C>
1988 10000 10000
1989 11181 11287
1990 11955 11958
1991 13897 13708
1992 15416 15459
1993 17074 17469
1994 16263 16713
1995 18976 19289
1996 19926 20262
1997 21687 22019
</TABLE>
Comparative performance of $10,000 invested in the Government Bond Fund since
inception (12/19/88) and the Merrill Lynch Government Master Index* (MLGMI) over
the period since inception ended 10/31/97.
* The MLGMI is comprised of U.S. Treasury notes and bonds with one or more years
remaining to final maturity and at least $1 billion in face value outstanding,
and U.S. agencies with one or more years remaining to final maturity and at
least $100 million in face value outstanding. Unlike the Government Bond Fund
returns, the MLGMI does not reflect any fees, expenses or sales charges.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
1 YEAR 5 YEAR LIFE
------ ------ ----
<S> <C> <C> <C>
Without sales charge................................................ 8.84% 7.06% 9.12%
With sales charge................................................... 3.84% 6.76% 9.12%
</TABLE>
- ---------------
The "without sales charge" returns do not reflect the effects of sales charges.
The "with sales charge" assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals, which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 8.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
MUNICIPAL BOND FUND
For the year ended October 31, 1997, the Bond Buyer 11 Index moved from a
yield of 5.60% to 5.28%. Municipal bonds underperformed Treasuries during the
year. The yield on the most current 30-year Treasury Bonds dropped from 6.65% to
6.15%. Municipal Bond Fund returned 8.37%, without sales charge, while the
Lehman Brothers Municipal Bond Index returned 8.49%.
Net assets ended the year at $16.8 million. Municipal Bond Fund's average
coupon was 5.83% with average principal maturity of 18 years. Municipal Bond
Fund seeks to maximize income by having a long maturity schedule while investing
in high-quality issues averaging "AA" credit quality.
As the year began, a Democratic President and a Republican Majority were
returned to Washington and the economy was growing at a slow and manageable
noninflationary pace. The markets reacted favorably to these events with stable
to declining interest rates. However, during the first quarter of the calendar
year, economic statistics began to show signs of an economy that may be
overheating and on March 25, in a preemptive move against inflationary concerns,
the Federal Reserve raised the Fed funds rate 0.25%. The move appeared to be
justified as, during the months that followed, inflationary measures remained
remarkably tame. In late April the announcement of a balanced budget agreement
also overshadowed concerns about the growth rate.
During the latter part of October, the equity markets experienced a
sell-off that prompted investors to a flight to quality into U.S. Treasury
securities. This movement helped to sustain the lower yields and higher prices
in the bond markets. This volatility in the worldwide financial markets,
however, has significantly reduced the threat of another preemptive rate hike
from the Federal Reserve to slow the growth in U.S. economy.
37
<PAGE> 163
Municipal issuers continued to take advantage of the lower interest rates
and propelled municipal volume up 17% for the first 10 months of the calendar
year. This increased supply has kept municipal securities from fully
participating in the bond market rally. As a consequence, particularly in the
long end, municipals have cheapened when compared to treasury securities.
FUND PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MUNICIPAL BOND FUND LBMBI
<S> <C> <C>
1988 10000 10000
1989 10712 10909
1990 11230 11719
1991 12691 13145
1992 13523 14249
1993 15847 16254
1994 14244 15546
1995 16309 17854
1996 17078 18872
1997 18508 20475
</TABLE>
Comparative performance of $10,000 invested in the Municipal Bond Fund since
inception (12/19/88) and the Lehman Brothers Municipal Bond Index* (LBMBI) over
the period since inception ended 10/31/97.
* The LBMBI consists of investment grade tax-exempt bonds and includes
securities with at least one year to maturity and at least $100 million in par
value outstanding. Unlike the Municipal Bond Fund returns, the LBMBI does not
reflect any fees, expenses or sales charges.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
1 YEAR 5 YEAR LIFE
------ ------ ----
<S> <C> <C> <C>
Without sales charge................................................ 8.37% 6.48% 7.19%
With sales charge................................................... 3.37% 6.16% 7.19%
</TABLE>
- ---------------
The "without sales charge" returns do not reflect the effects of sales charges.
The "with sales charge" assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals, which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 8.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
THE ACQUIRING FUNDS AND THE NEW TRUST
Except where shareholder action is required by law, all of the authority of
the New Trust is exercised under the direction of the New Trust's Trustees, who
are elected by the shareholders of the New Trust's series or portfolios,
including the Acquiring Funds, and who are empowered to elect officers and
contract with and provide for the compensation of agents, consultants, and other
professionals to assist and advise in its day-to-day operations. The New Trust
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
Investment Adviser. The Acquiring Funds are also advised by NAS. It is
intended that upon completion of the Reorganization, Mr. Schaffner will be
responsible for the day-to-day management of the New Mid Cap Growth Fund's
portfolio, Ms. Benson will be responsible for the day-to-day management of the
New Tax-Free Income Fund's portfolio, and Messrs. Frisbee and Hunt and Ms.
Bingle will be responsible for the day-to-day management of the New Long-Term
Government Bond Fund's portfolio. In addition, it is anticipated that Patricia
Mynster will be responsible for the day-to-day management of the New Money
Market Fund's portfolio. Ms. Mynster, Director of Short-Term Investments, has
managed short-term investments for over 20 years. She received a Bachelor of
Arts degree in Business Administration from Otterbein College. She has held her
current position as Director of Short-Term Investments for the Nationwide
Insurance Enterprise since 1991.
38
<PAGE> 164
For its services as investment adviser, NAS receives a fee for each
Acquiring Fund, which is calculated daily and paid monthly, at the following
annual rates: for the New Mid Cap Growth Fund, 0.60% of such Fund's average net
assets up to $250 million, 0.575% of such Fund's average net assets of $250
million up to $1 billion, 0.55% of such Fund's average net assets of $1 billion
up to $2 billion, 0.525% of such Fund's average net assets of $2 billion up to
$5 billion, and 0.50% of such Fund's average net assets of $5 billion or more;
for each of the New Long-Term Government Bond Fund and the New Tax-Free Income
Fund, 0.50% of such Fund's average net assets up to $250 million, 0.475% of such
Fund's average net assets of $250 million up to $1 billion, 0.45% of such Fund's
average net assets of $1 billion up to $2 billion, 0.425% of such Fund's average
net assets of $2 billion up to $5 billion, and 0.40% of such Fund's average net
assets of $5 billion or more; and for the New Money Market Fund, 0.40% of such
Fund's average net assets up to $1 billion, 0.38% of such Fund's average net
assets of $1 billion up to $2 billion, 0.36% of such Fund's average net assets
of $2 billion up to $5 billion, and 0.34% of such Fund's average net assets of
$5 billion or more. The New Trust's Investment Advisory Agreement was approved
by the New Trust's Board of Trustees on November 7, 1997, and will be approved
by each Acquiring Fund's initial sole shareholder, NAS, prior to the
Reorganization.
The New Trust on behalf of the Acquiring Funds has also entered into an
Administration Agreement with NAS whereby NAS provides certain administration
and fund accounting services to the Acquiring Funds. For such services, NAS
receives a fee from each Acquiring Fund, calculated daily and paid periodically
at the following annual rate: 0.07% of such Fund's average net assets up to $250
million; 0.05% of such Fund's average net assets of $250 million up to $1
billion, and 0.04% of such Fund's average net assets of $1 billion or more. Such
Administration Agreement was approved by the New Trust's Board of Trustees on
November 7, 1997.
For a complete description of the Acquiring Funds' advisory arrangements,
see the section in the Acquiring Funds' Prospectus entitled "MANAGEMENT OF THE
TRUST -- Investment Management."
Dividend and Transfer Agent. NISI also serves as the Acquiring Funds'
Dividend and Transfer Agent. In consideration of such services, the Acquiring
Funds have each agreed to pay NAS an annual fee, paid monthly, equal to: $16 per
account for the New Mid Cap Growth Fund; $18 per account for the New Long-Term
Government Bond Fund and the New Tax-Free Income Fund; and $27 per account for
the New Money Market Fund, plus out-of-pocket expenses.
For a complete description of these arrangements and the other expenses
borne by the Acquiring Funds, see the sections in the Acquiring Funds'
Prospectus entitled "MANAGEMENT OF THE TRUST -- Other Services."
Distributor. NAS also serves as the distributor of the Acquiring Funds'
shares pursuant to a distribution agreement. Pursuant to such agreement, NAS may
retain all or a portion of the front end sales charge, if any, imposed upon
purchases of Class D shares of the New Mid Cap Growth Fund, the New Long-Term
Government Bond Fund and the New Tax-Free Income Fund.
In addition, NAS may enter into, from time to time, agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of the Acquiring Funds' Class D shares.
For a complete description of these arrangements, see the sections in the
Acquiring Funds' Prospectus entitled "HOW TO PURCHASE SHARES."
Custodian. The Acquiring Funds have also appointed Fifth Third as the
Acquiring Funds' custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Funds.
Counsel. Druen, Dietrich, Reynolds & Koogler, One Nationwide Plaza,
Columbus, Ohio 43215, serves as counsel to the New Trust.
Independent Accountants. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Funds, and, as such, will audit the annual financial
statements of the Acquiring Funds.
Management Discussion of Fund Performance. No management discussion of
fund performance is included since the Acquiring Funds have not yet commenced
operations.
39
<PAGE> 165
CERTAIN FINANCIAL INFORMATION.
The Prospectus for the Trust contains information on per share income,
capital changes and performance calculations under the caption "FINANCIAL
HIGHLIGHTS."
The Acquiring Funds have not yet commenced operations and have no and will
have no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE ADVERTISING FOR THE FUNDS" in
the Acquiring Funds' Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS.
The Trust is a Massachusetts business trust, registered under the 1940 Act
as an open-end investment company of the management type and established under a
Declaration of Trust dated May 9, 1988. The Declaration of Trust was amended
March 1, 1993. The New Trust is an Ohio business trust, registered under the
1940 Act as an open-end investment company of the management type and
established under a Declaration of Trust dated as of October 30, 1997.
The Acquiring Funds are four of nine series of the New Trust. The other
five series of the New Trust are the Nationwide Growth Fund, the Nationwide
Fund, the Nationwide Bond Fund, the Nationwide Intermediate U.S. Government Bond
Fund, and the Nationwide S&P 500 Index Fund.
Both the Trust and the New Trust are authorized to issue an unlimited
number of shares of beneficial interest and to divide their shares of beneficial
interest into one or more series. The New Trust is also authorized to divide its
shares of beneficial interest into one or more classes or sub-series. Each share
of a series of the Trust or New Trust represents a beneficial interest in the
assets of only that series. The consideration received by the Trust or New Trust
for the issuance of shares of a particular series, the assets in which such
consideration is invested, and all income and proceeds from the holding or sale
of such assets belong to that series, subject only to the rights of creditors.
Each share of beneficial interest of a series of the Trust and New Trust
represents an equal proportionate interest in that series of the Trust and New
Trust, respectively, with each other share of the same series. Each such share
is entitled to share on a pro rata basis in any dividends or distributions out
of the income or assets belonging to the particular series of the Trust and New
Trust, as applicable. Such dividends or distributions are declared at the
discretion of the Trustees of the Trust and New Trust. Upon any liquidation of a
series of the Trust or New Trust, shareholders are entitled to share pro rata in
the net assets that belong to that series and that are available for
distribution.
Shares of the Acquiring Funds, once properly issued and outstanding, are
fully paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
Shareholders of both the Trust and the New Trust are entitled to one vote
for each full share held and a proportionate fractional vote for each fractional
share held regardless of the net asset value of such shares.
Voting rights for Trust shareholders are not cumulative, so that the
holders of more than 50% of the Trust voting in the election of its Trustees
have the power to elect all of the Trustees of the Trust. The Trust is not
required to hold an annual meeting of shareholders and currently does not do so.
Shareholders of the New Trust have no cumulative voting rights; the holders
of a plurality of the shares voting for the election of the New Trust's Board of
Trustees can elect all of the New Trust's Board of Trustees if they choose to do
so. The New Trust does not intend to hold annual meetings of shareholders,
except as required under its Declaration of Trust or the 1940 Act. Shareholders
of the Acquiring Funds will vote in the aggregate with other shareholders of the
New Trust and not by series or class except as otherwise expressly required by
law. For example, shareholders of an Acquiring Fund will vote in the aggregate
with other shareholders of the New Trust with respect to the election of
Trustees and ratification of the selection of independent accountants. However,
shareholders of an Acquiring Fund will vote as a Fund, and not in the aggregate
with other shareholders of the New Trust, for purposes of approval of amendments
to the Investment Advisory Agreement as it relates to that Acquiring Fund or any
of that Acquiring Fund's fundamental policies.
40
<PAGE> 166
The Trustees of the New Trust 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 New Trust, and the New Trust will assist in communications with
other shareholders as required by Section 16(c) of the 1940 Act. At such
meeting, a quorum of shareholders, by majority vote, has the power to remove one
or more Trustees.
For a complete description of the respective attributes of the Trust's and
the New Trust's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Acquired Funds or the Acquiring
Funds, as the case may be, and its shareholders, and dividend and distribution
policies, see the sections in the Acquired Funds' and the Acquiring Funds'
respective Prospectuses entitled "HOW TO INVEST," "HOW TO PURCHASE SHARES," "HOW
TO REDEEM SHARES," "PRIVILEGES AND SERVICES," "INVESTOR SERVICES," "NET INCOME
AND DISTRIBUTIONS" and "DISTRIBUTIONS AND TAXES." Additional information about
the Trust is included in its Prospectus, dated February 28, 1997, as
supplemented on December 8, 1997, which is incorporated herein by reference, and
in the Trust's Statement of Additional Information dated February 28, 1997.
Copies of the Prospectus and the Statement of Additional Information may be
obtained without charge by calling the Trust at 1-800-848-0920.
Additional information about the Acquiring Funds is included in their
Prospectus dated January 6, 1998, which accompanies this Combined
Prospectus/Proxy Statement and Statement of Additional Information dated January
6, 1998, copies of which may be obtained without charge by calling the New Trust
at 1-800-848-0920.
Additional information regarding the Reorganization is contained in the
Statement of Additional Information, dated January , 1998, to this Combined
Prospectus/Proxy Statement. The Statement of Additional Information is
incorporated by reference herein and may be obtained by calling the New Trust at
1-800-848-0920.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the New Trust are each subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act, and in accordance therewith each
files reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne 50% by the Trust
and 50% by NAS. Proxies will be solicited initially, and in any supplemental
solicitation, by mail and may be solicited in person, by telephone, or other
electronic means by officers of the Trust or by proxy solicitors hired by the
Trustees.
SUBSTANTIAL SHAREHOLDERS. As of December 18, 1997, to the knowledge of the
Trust, the only person who owns of record or beneficially five percent or more
of the outstanding shares of any Acquired Fund is Nationwide Life and Annuity
Insurance Company, One Nationwide Plaza, Columbus, Ohio 43215, which owns,
through one of its separate accounts, 73.5% of Cash Reserve Fund and 5.3% of the
Growth Fund.
As of the close of business on December 18, 1997, the officers and Trustees
of the Trust as a group beneficially owned less than 1% of the outstanding
shares of the Trust or of any Acquired Fund.
As of the close of business on December 18, 1997, there were no issued and
outstanding shares of the New Trust. As of such date, there were no shareholders
of the Acquiring Funds. It is anticipated, however, that those persons who are
beneficial holders of Growth Fund's and Government Bond Fund's shares
immediately prior to the Reorganization will be beneficial holders of the same
percentage of the corresponding Acquiring Fund's shares immediately after the
Reorganization. Because Cash Reserve Fund and Municipal Bond Fund will be
combining with substantially larger funds to form the New Money Market Fund and
the New Tax-Free Income
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Fund, respectively, it is anticipated that shareholders of such Acquired Funds
will hold a substantially smaller percentage of the outstanding shares of the
corresponding Acquiring Fund immediately after the Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Funds dated January 6, 1998, is incorporated by reference into this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
February 28, 1997, as supplemented December 8, 1997, is incorporated by
reference into this Combined Prospectus/Proxy Statement and may be obtained by
writing the Trust at Three Nationwide Plaza, Columbus, Ohio 43215 or by calling
the Trust at 1-800-848-0920. Copies of documents requested will be sent by
first-class mail to the requesting shareholder within one business day of
receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in accordance
with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to introduce
at such meeting. Any shareholder proposals must be presented a reasonable time
before the proxy materials for the next meeting are sent to shareholders. The
submission of a proposal does not guarantee its inclusion in the Trust's proxy
statement and is subject to limitations under the 1934 Act. It is not presently
anticipated that the New Trust will hold regular meetings of shareholders, and
no anticipated date of the next meeting can be provided.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Agreement") dated as of November 24,
1997, as amended as of December 30, 1997, by and between Financial Horizons
Investment Trust, a Massachusetts business trust ("FHIT"), and Nationwide
Investing Foundation III, an Ohio business trust ("NIF III").
WHEREAS, FHIT is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end investment company of the management type
and has issued and outstanding shares of beneficial interest, par value $1.00
per share, of the following four series: Growth Fund ("FHIT Growth Fund"),
Municipal Bond Fund ("FHIT Municipal Bond Fund"), Government Bond Fund ("FHIT
Government Bond Fund") and Cash Reserve Fund ("FHIT Cash Reserve Fund", and,
together with each of the FHIT's other three series described in this paragraph,
the "Acquired Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end investment
company of the management type, and has authorized the issuance of Class D
shares of beneficial interest, without par value, of the following series
(Nationwide Money Market Fund will only issue shares of beneficial interest,
without par value, without any class designation): Nationwide Mid-Cap Growth
Fund ("NIF III Mid-Cap Fund"), Nationwide Tax-Free Income Fund ("NIF III
Tax-Free Income Fund"), Nationwide Long-Term U.S. Government Bond Fund ("NIF III
Long-Term U.S. Government Bond Fund"), and Nationwide Money Market Fund ("NIF
III Money Market Fund", and, together with each of NIF III's other three series
described in this paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without assets
or liabilities, created for the purpose of acquiring the assets and liabilities
of the corresponding Acquired Shares; and
WHEREAS, Each of the Acquired Series plans to transfer all assets belonging
to such series, and to assign all of the liabilities belonging to such series,
to the corresponding Acquiring Series, in exchange for Class D shares (or, in
the case of NIF III Money Market Fund, shares of beneficial interest, without
par value, without any class designation) of the corresponding Acquiring Series
("Acquiring Series Shares"), which are voting securities, followed by the
distribution of the Acquiring Series Shares by each Acquired Series to the
shareholders of the Acquired Series in connection with the dissolution of FHIT
and the Acquired Series, all upon the terms and provisions of this Agreement
(individually and together, the "Reorganization"); and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: FHIT Growth Fund corresponds to NIF III Mid-Cap Fund, FHIT
Municipal Bond Fund corresponds to NIF III Tax-Free Income Fund, FHIT Government
Bond Fund corresponds to NIF III Long-Term U.S. Government Bond Fund, and FHIT
Cash Reserve Fund corresponds to NIF III Money Market Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring Series
intends to be, a regulated investment company as described in Section 851 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of FHIT has determined that the
Reorganization is in the best interests of FHIT, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of FHIT and to the other terms and conditions
contained herein (including the condition that each Acquired Series shall
distribute to its shareholders all of its investment company taxable income
and net capital gain as
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described in Section 9(h) herein), FHIT and the Acquired Series agree to
assign, convey, transfer and deliver to NIF III and the Acquiring Series,
and NIF III and the Acquiring Series agree to acquire from FHIT and the
Acquired Series on the Exchange Date (as defined below), all of the
Investments (as defined below), cash and other assets of FHIT in exchange
for that number of full and fractional Acquiring Series Shares of the
corresponding Acquiring Series having an aggregate net asset value equal to
the value of all assets of FHIT transferred to the Acquiring Series, as
provided in Section 4, less the liabilities of FHIT assumed by the
Acquiring Series.
(b) Assets Acquired. The assets to be acquired by the Acquiring
Series from FHIT shall consist of all of FHIT's property, including,
without limitation, all Investments (as defined below), cash and dividends
or interest receivables which are owned by FHIT and any deferred or prepaid
expenses shown as an asset on the books of FHIT as of the Valuation Time
described in Section 4.
(c) Liabilities Assumed. Prior to the Exchange Date, FHIT will
endeavor to discharge or cause to be discharged, or make provision for the
payment of, all of its known liabilities and obligations. The Acquiring
Series shall assume all liabilities, expenses, costs, charges and reserves
of FHIT, contingent or otherwise, including liabilities reflected in the
unaudited statements of assets and liabilities of FHIT as of the Valuation
Time, prepared by or on behalf of FHIT as of the Valuation Time in
accordance with generally accepted accounting principles consistently
applied from and after October 31, 1996, and including all liabilities of
FHIT under its registration statement on Form N-1A filed with the
Securities and Exchange Commission ("Commission") under the Securities Act
of 1933, as amended ("1933 Act").
(d) Liquidation and Dissolution. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, each Acquired
Series shall distribute to its shareholders of record as of the Exchange
Date the Acquiring Series Shares received by it, each Acquired Series
shareholder of record being entitled to receive that number of Acquiring
Series Shares equal to the proportion which the number of shares of
beneficial interest, par value $1.00 per share, of the Acquired Series held
by such shareholder bears to the total number of such shares of the
Acquired Series outstanding on such date, and shall take such further
action as may be required, necessary or appropriate under FHIT's Amended
Declaration of Trust, Massachusetts law and the Code to effect the complete
liquidation and dissolution of FHIT. FHIT will fulfill all reporting
requirements under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FHIT. FHIT represents and
warrants to and agrees with NIF III and the Acquiring Series that:
(a) FHIT is a business trust validly existing under the laws of the
Commonwealth of Massachusetts and has power to own all of its properties
and assets and to carry out its obligations under this Agreement.
(b) FHIT is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. FHIT has elected to qualify
and has qualified each of the Acquired Series as a regulated investment
company under Part I of Subchapter M of the Code as of and since its first
taxable year, and each such Acquired Series qualified and intends to
continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. Each Acquired Series has been a regulated
investment company under such sections of the Code (and predecessors of the
Code) at all times since its inception.
(c) The statements of assets and liabilities, including the statements
of investments as of October 31, 1996, and the related statements of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for FHIT, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of FHIT, have been furnished to NIF III. Such statements of assets
and liabilities fairly present the financial position of FHIT as of such
date and such statements of operations and changes in net assets fairly
reflect the results of operations and changes in net assets for the periods
covered thereby in conformity with generally accepted accounting
principles, and there are no known material liabilities of FHIT as of such
dates which are not disclosed therein.
(d) The Prospectus of FHIT dated February 28, 1997, as amended by
supplements dated March 17, 1997, March 17, 1997 and September 5, 1997, and
its related Statement of Additional Information dated February 28, 1997
(together, the "FHIT Prospectus"), in the form filed under the 1933 Act
with the
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Commission and previously furnished to NIF III, did not as of their date
and do not as of the date hereof contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) Except as may have been previously disclosed to NIF III, there are
no material legal, administrative or other proceedings pending or, to the
knowledge of FHIT, threatened against FHIT.
(f) There are no material contracts outstanding to which FHIT is a
party, other than as disclosed in the FHIT Prospectus, and there are no
such contracts or commitments (other than this Agreement) which will be
terminated with liability to FHIT on or prior to the Exchange Date.
(g) FHIT has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statements of
assets and liabilities at October 31, 1996 and those incurred in the
ordinary course of FHIT's business as an investment company since that
date.
(h) As used in this Agreement, the term "Investments" shall mean
FHIT's investments shown on the statements of assets and liabilities at
October 31, 1996 referred to in Section 2(g) hereof, as supplemented with
such changes as FHIT shall make after October 31, 1996 in the ordinary
course of its business.
(i) FHIT has filed or will file all federal and state tax returns
which, to the knowledge of FHIT's officers, are required to be filed by
FHIT and has paid or will pay all federal and state taxes shown to be due
on said returns or on any assessments received by FHIT. All tax liabilities
of FHIT have been adequately provided for on its books, and no tax
deficiency or liability of FHIT has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), FHIT will
have full right, power and authority to assign, transfer and deliver the
Investments and any other of its assets and liabilities to be transferred
to NIF III and the Acquiring Series pursuant to this Agreement. On the
Exchange Date, subject only to the delivery of the Investments and any such
other assets and liabilities as contemplated by this Agreement, NIF III and
the Acquiring Series will acquire the Investments and any such other assets
subject to no encumbrances, liens or security interests in favor of any
third party creditor of FHIT and, except as described in Section 2(k),
without any restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject of a
public distribution by either of FHIT or NIF III, except as previously
disclosed to NIF III by FHIT prior to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FHIT of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the 1940 Act, state securities or blue sky laws (which term as
used herein shall include the laws of the District of Columbia and of
Puerto Rico) or state laws applicable to business trusts.
(m) The registration statement (the "N-14 Registration Statement") to
be filed with the Commission by NIF III on Form N-14 relating to the
Acquiring Series Shares issuable hereunder, and the proxy statement of FHIT
included therein (the "Proxy Statement"), on the effective date of the N-14
Registration Statement and insofar as they relate to FHIT and the Acquired
Series, (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in the N-14 Registration Statement
of which the Proxy Statement is a part, as amended or supplemented by any
amendments or supplements filed with the Commission by NIF III, (together,
the "N-14 Prospectus") insofar as it relates to FHIT and the Acquired
Series, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the
representations and warranties in this Section 2(m) shall apply only to
statements of fact relating to FHIT and the Acquired Series contained in
the N-14 Registration Statement,
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the N-14 Prospectus or and the Proxy Statement, or omissions to state in
any thereof a material fact relating to FHIT or any Acquired Series, as
such Registration Statement, N-14 Prospectus and Proxy Statement shall be
furnished to FHIT in definitive form as soon as practicable following
effectiveness of the N-14 Registration Statement and before any public
distribution of the N-14 Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III represents
and warrants to and agrees with FHIT that:
(a) NIF III is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement.
(b) NIF III is registered under the 1940 Act as an open-end investment
company of the management type. The Acquiring Series expect to qualify as
regulated investment companies under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to be
dated as of a date in December, 1997 or January, 1998, and the related
Statement of Additional Information for the Acquiring Series to be dated as
of such date (together, the "Acquiring Series Prospectus"), in the forms to
be filed by NIF III with the Commission, will be furnished to FHIT promptly
upon the completion thereof and will not as of their date contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of NIF III or its Acquiring Series threatened
against NIF III or the Acquiring Series, which assert liability on the part
of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF III or
the Acquiring Series is a party, other than this Agreement and material
contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and state
tax returns which, to the knowledge of NIF III's officers, are required to
be filed by NIF III and the Acquiring Series and will pay all federal and
state taxes shown to be due on such returns or on any assessments received
by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
blue sky laws or state laws applicable to business trusts.
(i) As of both the Valuation Time and the Exchange Date and otherwise
as described in Section 3(h), NIF III and the Acquiring Series will have
full right, power and authority to acquire the Investments and any other
assets and assume the liabilities of FHIT to be transferred to the
Acquiring Series pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and the Proxy
Statement, on the effective date of the N-14 Registration Statement and
insofar as they relate to NIF III and the Acquiring Series: (i) will comply
in all material respects with the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, and (ii) will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Exchange Date, the N-14
Prospectus, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that none of
the representations and warranties in this subsection shall apply to
statements in or omissions from the N-14 Registration Statement, the N-14
Prospectus or the Proxy Statement made in reliance upon and in conformity
with information furnished by FHIT or any Acquired Series for use in the
N-14 Registration Statement, the N-14 Prospectus or the Proxy Statement.
(k) NIF III has no plan or intention to issue additional shares of the
Acquiring Series following the Reorganization except for shares issued in
the ordinary course of NIF III's business as an open-end
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investment company, nor does NIF III have any plan or intention to redeem
or otherwise reacquire any shares of the Acquiring Series issued to FHIT
shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business. NIF III will actively
continue FHIT's business in the same manner that FHIT conducted it
immediately before the Reorganization and has no plan or intention to sell
or otherwise dispose of any of the assets to be acquired by NIF III in the
Reorganization, except for dispositions made in the course of its business
and dispositions necessary to maintain the status of each Acquiring Series
as a regulated investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have been duly
authorized and when issued and delivered by NIF III to FHIT pursuant to
this Agreement will be legally and validly issued by NIF III and will be
fully paid and nonassessable and no shareholder of NIF III will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities
laws.
(n) Each Acquiring Series, upon filing of its first income tax return
at the completion of its first taxable year, will elect to be a regulated
investment company and until such time will take all steps necessary to
ensure its qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will deliver
to FHIT a number of corresponding Acquiring Series Shares having an
aggregate net asset value equal to the value of the assets of FHIT acquired
by the respective Acquiring Series, less the value of the liabilities of
FHIT assumed, determined as hereafter provided in this Section 4.
(a) The net assets of FHIT and each Acquired Series will be computed
as of the Valuation Time, using the valuation procedures set forth in the
FHIT Prospectus.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of the corresponding Acquired Series
as of the Valuation Time, provided that the net asset value per share of
the NIF III Tax-Free Income Fund shares utilized to acquire the assets and
liabilities of FHIT Municipal Bond Fund shall be set at the net asset value
per share of the NIF III Tax-Free Income Fund shares utilized to acquire
the assets and liabilities of Nationwide Tax-Free Income Fund, a series of
Nationwide Investing Foundation II and provided further that in the event
NIF III Tax-Free Income Fund does not acquire the assets and liabilities of
Nationwide Tax-Free Income Fund, a series of Nationwide Investing
Foundation II, the net asset value per share of the NIF III Tax-Free Income
Fund shares utilized to acquire the assets and liabilities of FHIT
Municipal Bond Fund shall be set at the net asset value per share of FHIT
Municipal Bond Fund as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on
February 28, 1998, or such earlier or later day as may be mutually agreed
upon in writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to
FHIT on a share deposit receipt registered in the name of FHIT. FHIT shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to NIF III's transfer agent, which will as soon as practicable make
such modifications to the accounts for each former FHIT shareholder as may
be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of FHIT, whether
accrued or contingent, described in subsection l(c) hereof in connection
with the acquisition of assets and subsequent dissolution of FHIT or
otherwise, except that recourse for assumed liabilities relating to an
Acquired Series shall be limited to the corresponding Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of FHIT and NIF III
shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs; and
FHIT will be responsible for proxy solicitation and other costs associated
with the special meeting. Notwithstanding the foregoing, Nationwide
Advisory Services, Inc., investment adviser of FHIT and NIF III, will be
responsible for 50% of FHIT's and NIF III's fees and expenses of the
Reorganization and 50% of FHIT's proxy solicitation and other costs
associated with the special meeting.
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6. EXCHANGE DATE. Delivery of the assets of FHIT to be transferred,
assumption of the liabilities of FHIT to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of FHIT,
at 9:00 A.M. on March 1, 1998, or at such other time, date, and location
agreed to by FHIT and NIF III, the date and time upon which such delivery
is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) FHIT agrees to call a special meeting of its shareholders as soon
as is practicable for the purpose of considering the transfer of all of the
assets of FHIT to, and the assumption of all of the liabilities of FHIT by,
the Acquiring Series as herein provided, authorizing and approving this
Agreement, and authorizing and approving the liquidation and dissolution of
FHIT, and it shall be a condition to the obligations of each of the parties
hereto that the holders of shares of beneficial interest, par value $1.00
per share, of FHIT shall have approved this Agreement, and the transactions
contemplated herein, including the liquidation and dissolution of FHIT, in
the manner required by law and FHIT's Amended Declaration of Trust at such
a meeting on or before the Valuation Time.
(b) FHIT agrees that the liquidation and dissolution of FHIT will be
effected in the manner provided in FHIT's Amended Declaration of Trust and
in accordance with applicable law, and that it will not make any
distribution of any Acquiring Series Shares to the shareholders of FHIT
without first paying or adequately providing for the payment of all of
FHIT's known debts, obligations and liabilities.
(c) Each of FHIT and NIF III will cooperate with the other, and each
will furnish to the other the information relating to itself required by
the 1934 Act and 1940 Act and the rules and regulations thereunder to be
set forth in the N-14-Registration Statement, including the N-14 Prospectus
and N-14 Proxy Statement included therein.
8. CONDITIONS OF FHIT'S OBLIGATIONS. The obligations of FHIT hereunder shall
be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of FHIT,
shall have been approved by the trustees and shareholders of FHIT in the
manner required by law.
(b) NIF III shall have executed and delivered to FHIT an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of FHIT, contingent or otherwise, including liabilities existing
at the Valuation Time and described in Section 1(c) hereof in connection
with the transactions contemplated by this Agreement; provided that
recourse for assumed liabilities relating to an Acquired Series shall be
limited to the corresponding Acquiring Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are true
and correct in all material respects as if made at and as of such dates,
NIF III and the Acquiring Series have complied with all of the agreements
and satisfied all of the conditions on their part to be performed or
satisfied at or prior to each of such dates, and NIF III shall have
furnished to FHIT a statement, dated the Exchange Date, signed by NIF III's
Chairman and Treasurer (or other financial officer) certifying those facts
as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) FHIT shall have received an opinion of Druen, Dietrich, Reynolds &
Koogler in form reasonably satisfactory to FHIT, and dated the Exchange
Date, to the effect that (i) NIF III is a business trust validly existing
under the laws of the State of Ohio, (ii) the Acquiring Series Shares to be
delivered to FHIT as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be fully paid and
nonassessable by NIF III and no shareholder of NIF III has any preemptive
right to subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by NIF III, and assuming
due authorization, execution and delivery of this Agreement by FHIT, is a
valid and binding obligation of NIF III, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
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creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which NIF III or the Acquiring Series is a party or by
which it is bound, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by NIF III or the Acquiring Series of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws or as may be required under state laws
applicable to business trusts laws. In rendering such opinion Druen,
Dietrich, Reynolds & Koogler may rely on certain reasonable assumptions and
certifications of fact received from NIF III and its officers.
(f) FHIT shall have received an opinion of Baker & Hostetler LLP
addressed to FHIT, NIF III and each Acquiring Series and in a form
reasonably satisfactory to FHIT dated the Exchange Date, with respect to
the matters specified in Section 9(e) of this Agreement. In rendering such
opinion Baker & Hostetler LLP may rely on certain reasonable assumptions
and certifications of fact received from NIF III, FHIT and certain of its
shareholders.
(g) All necessary proceedings taken by NIF III in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to FHIT,
Druen, Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of FHIT, contemplated by the Commission or any state regulatory
authority.
(i) NIF III and FHIT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and FHIT, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
(j) The Agreement and Plan of Reorganization dated as of November 24,
1997 between Nationwide Investing Foundation, a Michigan business trust
("NIF"), and NIF III shall have been approved by the shareholders of NIF as
required by law and all other conditions in such agreement shall have been
satisfied as of the Exchange Date.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of FHIT,
shall have been approved by the trustees and shareholders of FHIT in the
manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of FHIT made in this Agreement are true and
correct in all material respects as if made at and as of such dates, FHIT
has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to each of such dates,
and FHIT shall have furnished to NIF III a statement, dated the Exchange
Date, signed by FHIT's Chairman and Treasurer (or other financial officer)
certifying those facts as of such dates.
(c) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and dated
the Exchange Date, to the effect that (i) FHIT is a business trust validly
existing under the laws of the Commonwealth of Massachusetts, (ii) this
Agreement has been duly authorized, executed and delivered by FHIT and,
assuming due authorization, execution and delivery of this Agreement by NIF
III, is a valid and binding obligation of FHIT, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally and other equitable principles, (iii) FHIT
has power to assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation
A-7
<PAGE> 175
of the transactions contemplated hereby in accordance with the terms of
this Agreement, FHIT will have duly assigned, conveyed, transferred and
delivered such Investments and other assets to NIF III, (iv) the execution
and delivery of this Agreement did not and the consummation of the
transactions contemplated hereby will not, violate FHIT's Amended
Declaration of Trust or its Amended Bylaws, as amended, or any provision of
any agreement known to such counsel to which FHIT is a party or by which it
is bound, and (v) to the knowledge of such counsel no consent, approval,
authorization or order of any court or governmental authority is required
for the consummation by FHIT of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, 1934 Act and 1940 Act
and such as may be required under state securities or blue sky laws or
state laws applicable to business trusts. In rendering such opinion, Druen,
Dietrich, Reynolds & Koogler may rely upon certain reasonable and customary
assumptions and certifications of fact received from FHIT and its officers.
(e) NIF III shall have received an opinion of Baker & Hostetler LLP,
addressed to NIF III, each Acquiring Series and FHIT, in form reasonably
satisfactory to NIF III and dated the Exchange Date, to the effect that for
Federal income tax purposes (i) the transfer of all or substantially all of
Acquired Series' assets in exchange for the Acquiring Series Shares
followed by the distribution of the Acquiring Series Shares to the
shareholders of the Acquired Series and the assumption by the Acquiring
Series of the liabilities of Acquired Series will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and each
of the Acquiring Series and Acquired Series is a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no
gain or loss will be recognized by Acquired Series upon the transfer of the
assets of the Acquired Series in exchange for Acquiring Series Shares and
the assumption by the Acquiring Series of the liabilities of Acquired
Series or upon the distribution of Acquiring Series Shares by Acquired
Series to its shareholders in liquidation; (iii) no gain or loss will be
recognized by the shareholders of Acquired Series upon the exchange of
their shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) an Acquired Series shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the
period for which he or she held Acquired Series Shares exchanged therefor,
provided that he or she held such Shares as capital assets; (vi) no gain or
loss will be recognized by the Acquiring Series upon the receipt of the
assets of the corresponding Acquired Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of the corresponding Acquired Series (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of the
assets in the hands of the corresponding Acquired Series immediately prior
to the transfer and (viii) the Acquiring Series' holding periods of the
assets of the corresponding Acquired Series will include the period for
which such assets of the corresponding Acquired Series were held by the
corresponding Acquired Series. In rendering such opinion, Baker & Hostetler
LLP may rely upon certain reasonable and customary assumptions and
certifications of fact received from NIF III, FHIT, and certain of its
shareholders.
(f) The N-14 Registration Statement shall have become effective under
the 1933 Act and applicable Blue Sky provisions, and no stop order
suspending such effectiveness shall have been instituted or, to the
knowledge of NIF III, contemplated by the Commission or any state
regulatory authority.
(g) All necessary proceedings taken by FHIT in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to NIF III,
Druen Dietrich, Reynolds & Koogler and Baker & Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income for its taxable year ended October
31, 1997 and the short taxable year beginning on November 1, 1997 and
ending on the Valuation Time (computed without regard to any deduction for
dividends paid), and all of its net capital gain realized in its taxable
year ended October 31, 1997 and the short taxable year beginning November
1, 1997 and ending on the Valuation Time (after reduction for any capital
loss carryover).
A-8
<PAGE> 176
(i) FHIT shall have duly executed and delivered to NIF III a bill of
sale, assignment, certificate and other instruments of transfer ("Transfer
Documents") as NIF III may deem necessary or desirable to transfer all of
FHIT's entire right, title and interest in and to the Investments and all
other assets of FHIT to the Acquiring Series.
(j) NIF III and FHIT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and substance
to NIF III and FHIT, exempting the Reorganization from the provisions of
Section 17(a) of the 1940 Act.
(k) The Agreement and Plan of Reorganization dated as of November 24,
1997 between Nationwide Investing Foundation, a Michigan business trust
("NIF"), and NIF III shall have been approved by the shareholders of NIF as
required by law and all other conditions in such agreement shall have been
satisfied as of this Exchange Date.
10. TERMINATION. NIF III and FHIT may, by mutual consent of their respective
trustees, terminate this Agreement, and NIF III or FHIT, after consultation
with counsel and by consent of their respective trustees or an officer
authorized by such trustees may, subject to Section 11 of this Agreement,
waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding
with respect to such subject matter and shall be construed in accordance
with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officer of NIF III and
FHIT; provided, however, that following the special meeting of FHIT's
shareholders called by FHIT pursuant to Section 7 of this Agreement, no such
amendment may have the effect of altering or changing the amount or kind of
shares received by FHIT, or altering or changing to any material extent the
amount or kind of liabilities assumed by NIF III and the Acquiring Series, or
altering or changing any other terms and conditions of the Reorganization if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect FHIT's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
FINANCIAL HORIZONS INVESTMENT TRUST
By /s/ JAMES F. LAIRD, JR.
------------------------------------
NATIONWIDE INVESTING FOUNDATION III
By /s/ CHRISTOPHER A. CRAY
------------------------------------
A-9
<PAGE> 177
PROXY
FINANCIAL HORIZONS INVESTMENT TRUST
GROWTH FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of FINANCIAL
HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned is entitled
to vote, at the Special Meeting of Shareholders of the Trust to be held
Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 178
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 179
PROXY
FINANCIAL HORIZONS INVESTMENT TRUST
CASH RESERVE FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of FINANCIAL
HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned is entitled
to vote, at the Special Meeting of Shareholders of the Trust to be held
Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 180
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 181
PROXY
FINANCIAL HORIZONS INVESTMENT TRUST
GOVERNMENT BOND FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of FINANCIAL
HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned is entitled
to vote, at the Special Meeting of Shareholders of the Trust to be held
Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 182
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 183
PROXY
FINANCIAL HORIZONS INVESTMENT TRUST
MUNICIPAL BOND FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
The undersigned hereby appoints Craig Carver, Chris Cray and Craig Alvey,
and each of them, with full power of substitution, proxies to vote and act
with respect to all Shares of the above named Fund (the "Fund") of FINANCIAL
HORIZONS INVESTMENT TRUST (the "Trust"), which the undersigned is entitled
to vote, at the Special Meeting of Shareholders of the Trust to be held
Monday, February 16, 1998, in Jeffers Auditorium, One Nationwide Plaza,
Columbus, Ohio, at 2:00 P.M. E.S.T. and at any and all adjournments thereof,
on the proposal listed on the reverse side and any other matters that may
properly come before the meeting.
The Shares represented by this proxy will be voted upon the proposal listed
hereon in accordance with the instructions given by the shareholder, but if
no instructions are given, and this proxy is properly executed and returned,
this proxy will be voted FOR the proposal and in accordance with the best
judgment of the proxies on any other matter which properly comes before the
meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders dated January __, 1998, and the Combined Prospectus/Proxy
Statement attached thereto.
</TABLE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
If the certificate or certificates are
registered in joint name, both parties
must sign the proxy. If the
registration is as attorney, executor,
administrator, trustee, or guardian,
please sign full title as such.
DATED: _______________________________
______________________________________
(Signature of Shareholder)
______________________________________
(Signature of Shareholder)
<PAGE> 184
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST. If no
instructions are given, this proxy will be voted FOR the following proposal.
Please mark your vote in the box below using blue or black ink.
Example: [X]
(1) To approve the Agreement and Plan of Reorganization
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE DATE, SIGN AND MAIL PROMPTLY
<PAGE> 185
STATEMENT OF ADDITIONAL INFORMATION
NATIONWIDE GROWTH FUND
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE FUND
NATIONWIDE BOND FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE MONEY MARKET FUND
Eight Funds of
NATIONWIDE INVESTING FOUNDATION III
This Statement of Additional Information is not a prospectus and
contains information which may be of interest to investors but which is not
included in the Combined Prospectus/Proxy Statements (the "Prospectuses") of
Nationwide Investing Foundation III (the "Trust") dated January __, 1998,
relating to the transfer of assets from Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund and Nationwide Money Market Fund of Nationwide Investing
Foundation ("NIF"), Nationwide Tax-Free Income Fund and Nationwide U.S.
Government Income Fund of Nationwide Investing Foundation II ("NIF II"), and the
Growth Fund, the Cash Reserve Fund, the Government Bond Fund and the Municipal
Bond Fund of Financial Horizons Investment Trust ("FHIT") (collectively the
"Acquired Funds") to Nationwide Growth Fund, Nationwide Mid-Cap Growth Fund,
Nationwide Fund, Nationwide Bond Fund, Nationwide Long-Term U.S. Government Bond
Fund, Nationwide Intermediate U.S. Government Bond Fund, Nationwide Tax-Free
Income Fund and Nationwide Money Market Fund of Nationwide Investing Foundation
III (collectively the "Acquiring Funds") in the manner described in the
Prospectuses. The Statements of Additional Information for the Acquired Funds
each dated February 28, 1997, the Statement of Additional Information for the
Acquiring Funds dated January __, 1998, and the Annual Reports for the Acquired
Funds as of October 31, 1997, have been filed with the Securities and Exchange
Commission and are incorporated herein by reference. This Statement of
Additional Information is not a Prospectus and is authorized for distribution
only when it accompanies or follows delivery of the Prospectuses. This Statement
of Additional Information should be read in conjunction with the Prospectuses.
Copies of the January __, 1998 Prospectuses may be obtained, without charge, by
writing the Trust, Three Nationwide Plaza, Columbus, Ohio 43215, or by calling
1-800-848-0920.
The date of this Statement of Additional Information is January __,
1998.
B-1
<PAGE> 186
TABLE OF CONTENTS
<TABLE>
<S> <C>
PRO FORMA ADJUSTMENT INFORMATION FOR CERTAIN
ACQUIRED AND ACQUIRING FUNDS B-3
FINANCIAL STATEMENTS OF CERTAIN OF THE ACQUIRED
AND ACQUIRING FUNDS ON A PRO FORMA BASIS FOR THE
YEAR ENDED OCTOBER 31, 1997 B-6
</TABLE>
B-2
<PAGE> 187
NATIONWIDE GROWTH FUND,
NATIONWIDE FUND AND NATIONWIDE BOND FUND
of the Trust
and
NATIONWIDE GROWTH FUND,
NATIONWIDE FUND AND NATIONWIDE BOND FUND
of NIF
Each of Nationwide Growth Fund, Nationwide Fund and Nationwide Bond
Fund of the Trust (collectively, the "NIF Acquiring Funds") propose to acquire
all of the assets and liabilities of Nationwide Growth Fund, Nationwide Fund and
Nationwide Bond Fund (collectively, the "NIF Acquired Funds"), respectively, of
NIF. Because none of the NIF Acquiring Funds will have any assets or liabilities
prior to the Reorganization (as that term is defined in the Prospectuses) and
because the assets and liabilities of the NIF Acquired Funds immediately after
the Reorganization will constitute all or substantially all of the assets and
liabilities of the NIF Acquiring Funds and the NIF Acquiring Funds will be
deemed the survivors of the corresponding NIF Acquired Funds for accounting
purposes, full pro forma financial statements of the NIF Acquiring Funds
reflecting the effects of the Reorganization are not provided. However, the
following table sets forth those fees, on a pro forma basis, which the NIF
Acquiring Funds would have incurred for the fiscal year ended October 31, 1997
had the Reorganization been completed as of November 1, 1996. Said another way,
the purpose of the following table is to set forth the material differences in
fees between the NIF Acquiring Funds and the NIF Acquired Funds on a pro forma
basis based upon the fiscal year of the NIF Acquired Funds ended October 31,
1997.
<TABLE>
<CAPTION>
====================================================================================================================================
Fund Manage- Manage- Rule 12b- Rule 12b- Admini- Admini-
ment Fee ment Fee 1 Fee 1 Fee stration stration
10/31/97 Pro Forma 10/31/97 Pro Forma Fee Fee
10/31/97 Pro
Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nation- $3,750,599 $4,375,689 $0 $0 $0 $425,060
wide
Growth
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Nation- $5,938,011 $6,844,312 $0 $0 $0 $625,041
wide
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Nation- $629,068 $629,068 $0 $0 $0 $88,069
wide
Bond
Fund
====================================================================================================================================
</TABLE>
B-3
<PAGE> 188
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
of the Trust
and
NATIONWIDE U.S. GOVERNMENT INCOME FUND
of NIF II
Nationwide Intermediate U.S. Government Bond Fund of the Trust (the
"NIF II Acquiring Fund") proposes to acquire all of the assets and liabilities
of Nationwide U.S. Government Income Fund (the "NIF II Acquired Fund") of NIF
II. Because the NIF II Acquiring Fund will have no assets or liabilities prior
to the Reorganization (as that term is defined in the Prospectuses) and because
the assets and liabilities of the NIF II Acquired Fund immediately after the
Reorganization will constitute all or substantially all of the assets and
liabilities of the NIF II Acquiring Fund and the NIF II Acquiring Fund will be
deemed the survivor of the NIF II Acquired Fund for accounting purposes, full
pro forma financial statements of the NIF II Acquiring Fund reflecting the
effects of the Reorganization are not provided. However, the following table
sets forth those fees, on a pro forma basis, which the NIF II Acquiring Fund
would have incurred for the fiscal year ended October 31, 1997 had the
Reorganization been completed as of November 1, 1996. Said another way, the
purpose of the following table is to set forth the material differences in fees
between the NIF II Acquiring Fund and the NIF II Acquired Fund on a pro forma
basis based upon the fiscal year of the NIF II Acquired Funds ended October 31,
1997.
<TABLE>
<CAPTION>
================================================================================================================================
Fund Manage- Manage- Rule Rule Administr- Administr-
ment Fee ment Fee 12b-1 12b-1 ation Fee ation Fee
10/31/97 Pro Forma Fee Fee 10/31/97 Pro Forma
10/31/97 Pro
Forma
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nationwide $256,016 $196,955 $137,861 $0 $0 $27,574
Intermedi-
ate U.S.
Govern-
ment
Income
Fund
================================================================================================================================
</TABLE>
B-4
<PAGE> 189
NATIONWIDE MID CAP GROWTH FUND AND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
of the Trust
and
GROWTH FUND AND GOVERNMENT BOND FUND
of FHIT
Each of Nationwide Mid Cap Growth Fund and Nationwide Long-Term U.S.
Government Bond Fund of the Trust (collectively, the "FHIT Acquiring Funds")
propose to acquire all of the assets and liabilities of the Growth Fund and the
Government Bond Fund, respectively, of FHIT (collectively, the "FHIT Acquired
Funds"). Because none of the FHIT Acquiring Funds will have any assets or
liabilities prior to the Reorganization (as that term is defined in the
Prospectuses) and because the assets and liabilities of the FHIT Acquired Funds
immediately after the Reorganization will constitute all or substantially all of
the assets and liabilities of the FHIT Acquiring Funds and the FHIT Acquiring
Funds will be deemed the survivors of the corresponding FHIT Acquired Funds for
accounting purposes, full pro forma financial statements of the FHIT Acquiring
Funds reflecting the effects of the Reorganization are not provided. However,
the following table sets forth those fees, on a pro forma basis, which the FHIT
Acquiring Funds would have incurred for the fiscal year ended October 31, 1997
had the Reorganization been completed as of November 1, 1996. Said another way,
the purpose of the following table is to set forth the material differences in
fees between the FHIT Acquiring Funds and the FHIT Acquired Funds on a pro forma
basis based upon the fiscal year of the FHIT Acquired Funds ended October 31,
1997.
<TABLE>
<CAPTION>
==================================================================================================================================
Fund Manage- Manage- Rule Rule 12b- Administr Administr
ment Fee ment Fee 12b-1 1 Fee ation Fee ation Fee
10/31/97 Pro Forma Fee Pro Forma 10/31/97 Pro
10/31/97 Forma
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nation- $63,883 $58,976 $73,712 $0 $0 $6,880
wide Mid
Cap
Growth
Fund
- ----------------------------------------------------------------------------------------------------------------------------------
Nationwide $343,259 $264,045 $396,061 $0 $0 $36,966
Long Term
U.S. Gov-
ernment
Bond Fund
==================================================================================================================================
</TABLE>
B-5
<PAGE> 190
NATIONWIDE MONEY MARKET FUND
of the Trust
NATIONWIDE MONEY MARKET FUND
of NIF
CASH RESERVE FUND
of FHIT
-----------------------------
The accompanying unaudited Pro Forma Financial Statements consisting of
a Combined Statement of Investments, Statement of Assets and Liabilities and
Statements of Operations reflect the combined accounts of Nationwide Money
Market Fund of NIF and Cash Reserve Fund of FHIT at and for the period ended
October 31, 1997. These statements have been derived from such Funds' books and
records utilized in calculating daily net asset values at October 31, 1997.
B-6
<PAGE> 191
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION (NIF) MONEY MARKET FUND AND (Unaudited)
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) CASH RESERVE FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CANADIAN OBLIGATIONS (3.4%)
---------------------------
British Columbia (Providence Of)
$ - $ 8,325,000 $ 8,325,000 5.47%, 01/26/98 $ - $ 8,216,215 $ 8,216,215
Canadian Treasury Bills
- 7,714,000 7,714,000 5.43%, 11/14/97 - 7,698,874 7,698,874
Canadian Wheat Board
- 2,900,000 2,900,000 5.50%, 12/15/97 - 2,880,506 2,880,506
- 5,000,000 5,000,000 5.50%, 12/16/97 - 4,965,625 4,965,625
Export Development Corp.
- 4,500,000 4,500,000 5.56%, 01/22/98 - 4,443,010 4,443,010
-------------------------------------------
TOTAL CANADIAN OBLIGATIONS - 28,204,230 28,204,230
-------------------------------------------
COMMERCIAL PAPER (92.7%)
------------------------
AGRICULTURE/SUPPLIES (0.9%)
- Deere & Co.
- 7,029,000 7,029,000 5.51%, 11/05/97 - 7,024,697 7,024,697
- John Deere Capital Corp.
116,000 - 116,000 5.48%, 11/26/97 115,559 - 115,559
-------------------------------------------
115,559 7,024,697 7,140,256
-------------------------------------------
AUTO/FINANCE (7.1%)
Ford Motor Credit Co.
- 1,995,000 1,995,000 5.49-5.52%, 11/04/97 - 1,994,087 1,994,087
160,000 - 160,000 5.49%, 11/07/97 159,854 - 159,854
- 4,000,000 4,000,000 5.50%, 11/21/97 - 3,987,778 3,987,778
- 3,000,000 3,000,000 5.48%, 11/26/97 - 2,988,583 2,988,583
- 10,000,000 10,000,000 5.51%, 01/06/98 - 9,898,983 9,898,983
- 3,000,000 3,000,000 5.53%, 01/13/98 - 2,966,359 2,966,359
- 5,500,000 5,500,000 5.56%, 01/20/98 - 5,432,044 5,432,044
</TABLE>
B-7
<PAGE> 192
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
General Motors Acceptance Corp.
- 6,060,000 6,060,000 5.55%, 11/19/97 - 6,043,184 6,043,184
- 6,497,000 6,497,000 5.54%, 11/25/97 - 6,473,004 6,473,004
- 13,908,000 13,908,000 5.54%, 12/12/97 - 13,820,248 13,820,248
- 4,923,000 4,923,000 5.54-5.59%, 12/18/97 - 4,887,393 4,887,393
-----------------------------------------
159,854 58,491,663 58,651,517
-----------------------------------------
BANKS (9.7%)
Banc One Corp.
- 10,000,000 10,000,000 5.50%, 11/21/97 - 9,969,444 9,969,444
- 1,930,000 1,930,000 5.51%, 11/26/97 - 1,922,615 1,922,615
- 7,140,000 7,140,000 5.51%, 12/02/97 - 7,106,123 7,106,123
- 2,114,000 2,114,000 5.53%, 12/18/97 - 2,098,738 2,098,738
CoreStates Capital Corp.
132,000 5,000,000 5,132,000 5.51%, 11/03/97 131,959 4,998,470 5,130,429
J.P. Morgan & Co.
122,000 - 122,000 5.49%, 11/21/97 121,628 - 121,628
- 5,000,000 5,000,000 5.50%, 11/14/97 - 4,990,070 4,990,070
National City Credit Corp.
- 3,000,000 3,000,000 5.51%, 11/04/97 - 2,998,623 2,998,623
- 8,000,000 8,000,000 5.51%, 11/10/97 - 7,988,980 7,988,980
- 3,000,000 3,000,000 5.52%, 11/12/97 - 2,994,940 2,994,940
- 10,000,000 10,000,000 5.53-5.55%, 12/01/97 - 9,953,917 9,953,917
- 5,000,000 5,000,000 5.51%, 12/08/97 - 4,971,685 4,971,685
160,000 - 160,000 5.51%, 12/09/97 159,069 - 159,069
- 5,000,000 5,000,000 5.50%, 12/19/97 - 4,963,333 4,963,333
SunTrust Banks, Inc.
- 5,000,000 5,000,000 5.57%, 01/08/98 - 4,947,394 4,947,394
160,000 - 160,000 5.53%, 11/20/97 159,533 - 159,533
Toronto-Dominion USA
- 10,000,000 10,000,000 5.52-5.54%, 01/07/98 - 9,897,267 9,897,267
--------------------------------------------
572,189 79,801,597 80,373,786
--------------------------------------------
BROKER-DEALERS (11.0%)
Bear Stearns Company
</TABLE>
B-8
<PAGE> 193
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- 5,000,000 5,000,000 5.52%, 11/03/97 - 4,998,467 4,998,467
- 14,000,000 14,000,000 5.51-5.52%, 11/26/97 - 13,946,368 13,946,368
- 4,000,000 4,000,000 5.50%, 12/09/97 - 3,977,152 3,977,152
140,000 - 140,000 5.52%, 12/08/97 139,206 - 139,206
- 2,603,000 2,603,000 5.52%, 12/16/97 - 2,585,039 2,585,039
- 5,000,000 5,000,000 5.60%, 01/09/98 - 4,946,333 4,946,333
Goldman Sachs Group
- 6,221,000 6,221,000 5.49-5.52%, 11/17/97 - 6,205,778 6,205,778
- 15,053,000 15,053,000 5.50%, 11/18/97 - 15,013,904 15,013,904
142,000 - 142,000 5.50%, 11/14/97 141,718 - 141,718
Merrill Lynch & Co., Inc.
162,000 - 162,000 5.50%, 11/03/97 161,951 - 161,951
- 4,000,000 4,000,000 5.53%, 11/19/97 - 3,988,940 3,988,940
- 5,500,000 5,500,000 5.50-5.53%, 12/12/97 - 5,465,361 5,465,361
- 5,000,000 5,000,000 5.53%, 01/05/98 - 4,950,076 4,950,076
- 8,000,000 8,000,000 5.57-5.61%, 01/12/98 - 7,910,640 7,910,640
- 4,400,000 4,400,000 5.60%, 01/16/98 - 4,347,982 4,347,982
- 2,000,000 2,000,000 5.55%, 02/05/98 - 1,970,400 1,970,400
Smith Barney, Inc.
- 10,000,000 10,000,000 5.51%, 11/12/97 - 9,983,164 9,983,164
-----------------------------------------
442,875 90,289,604 90,732,479
-----------------------------------------
CHEMICALS (4.1%)
Monsanto Co.
- 3,000,000 3,000,000 5.50-5.53%, 11/05/97 - 2,998,167 2,998,167
- 2,000,000 2,000,000 5.51%, 11/12/97 - 1,996,633 1,996,633
- 10,000,000 10,000,000 5.50%, 12/03/97 - 9,951,111 9,951,111
- 13,450,000 13,450,000 5.48-5.49%, 12/04/97 - 13,382,390 13,382,390
- 3,750,000 3,750,000 5.50%, 12/08/97 - 3,728,802 3,728,802
PPG Industries, Inc.
130,000 1,374,000 1,504,000 5.47-5.55%, 11/24/97 129,546 1,369,198 1,498,744
-----------------------------------------
129,546 33,426,301 33,555,847
-----------------------------------------
CONSUMER SALES FINANCE (14.3%)
</TABLE>
B-9
<PAGE> 194
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Express Credit Corp.
- 10,000,000 10,000,000 5.51%, 11/06/97 - 9,992,347 9,992,347
- 5,469,000 5,469,000 5.51%, 11/14/97 - 5,458,118 5,458,118
156,000 - 156,000 5.49%, 12/01/97 155,286 - 155,286
- 1,291,000 1,291,000 5.53%, 12/18/97 - 1,281,679 1,281,679
Associates Corp. of North America
- 6,010,000 6,010,000 5.48%, 11/04/97 - 6,007,256 6,007,256
- 5,000,000 5,000,000 5.51%, 11/05/97 - 4,996,939 4,996,939
- 5,000,000 5,000,000 5.51%, 01/05/98 - 4,950,257 4,950,257
- 3,915,000 3,915,000 5.55%, 01/09/98 - 3,873,354 3,873,354
Avco Financial Services, Inc.
- 9,060,000 9,060,000 5.57%, 02/05/98 - 8,925,429 8,925,429
Beneficial Corp.
- 14,737,000 14,737,000 5.51%, 12/01/97 - 14,669,333 14,669,333
- 7,000,000 7,000,000 5.49%, 12/17/97 - 6,950,895 6,950,895
Commercial Credit Corp.
160,000 - 160,000 5.51%, 11/12/97 159,731 - 159,731
- 10,000,000 10,000,000 5.50%, 11/20/97 - 9,970,972 9,970,972
- 3,042,000 3,042,000 5.49%, 11/24/97 - 3,031,330 3,031,330
- 10,000,000 10,000,000 5.48%, 12/09/97 - 9,942,156 9,942,156
- 6,000,000 6,000,000 5.50%, 12/24/97 - 5,951,417 5,951,417
Norwest Financial Inc.
116,000 6,412,000 6,528,000 5.51%, 11/03/97 115,964 6,410,037 6,526,001
- 10,000,000 10,000,000 5.48%, 11/19/97 - 9,972,600 9,972,600
- 5,000,000 5,000,000 5.50-5.54%, 12/17/97 - 4,964,861 4,964,861
------------------------------------------
430,981 117,348,980 117,779,961
------------------------------------------
CORPORATE CREDIT UNIONS (2.4%)
U.S. Central Credit Union
- 15,000,000 15,000,000 5.49%, 12/15/97 - 14,900,388 14,900,388
- 5,000,000 5,000,000 5.495%, 01/16/98 - 4,941,997 4,941,997
------------------------------------------
- 19,842,385 19,842,385
------------------------------------------
DATA SERVICES (3.6%)
First Data Corp.
</TABLE>
B-10
<PAGE> 195
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- 12,652,000 12,652,000 5.51%, 11/25/97 - 12,605,525 12,605,525
162,000 7,000,000 7,162,000 5.51%, 12/09/97 161,058 6,959,287 7,120,345
- 2,000,000 2,000,000 5.55%, 01/13/98 - 1,977,492 1,977,492
- 8,000,000 8,000,000 5.59%, 02/24/98 - 7,857,144 7,857,144
-----------------------------------------
161,058 29,399,448 29,560,506
-----------------------------------------
DIVERSIFIED FINANCE (3.6%)
General Electric Capital Corp.
- 7,000,000 7,000,000 5.52%, 11/07/97 - 6,993,560 6,993,560
- 5,000,000 5,000,000 5.52%, 11/12/97 - 4,991,567 4,991,567
- 4,000,000 4,000,000 5.49%, 11/19/97 - 3,989,020 3,989,020
- 5,115,000 5,115,000 5.53-5.57%, 11/21/97 - 5,099,172 5,099,172
144,000 - 144,000 5.50%, 12/03/97 143,296 - 143,296
- 3,000,000 3,000,000 5.55%, 01/13/98 - 2,966,238 2,966,238
- 3,000,000 3,000,000 5.56-5.54%, 01/09/98 - 2,968,145 2,968,145
- 3,000,000 3,000,000 5.60%, 03/19/98 - 2,935,600 2,935,600
-----------------------------------------
143,296 29,943,302 30,086,598
-----------------------------------------
ENTERTAINMENT (0.5%)
Walt Disney Company
150,000 - 150,000 5.50%, 11/04/97 149,931 - 149,931
- 3,814,000 3,814,000 5.52%, 01/02/98 - 3,777,742 3,777,742
-----------------------------------------
149,931 3,777,742 3,927,673
-----------------------------------------
FINANCIAL SERVICE/UTILITIES (2.6%)
National Rural Utilities Cooperative Finance Corp.
- 5,000,000 5,000,000 5.48%, 11/10/97 - 4,993,150 4,993,150
163,000 - 163,000 5.50%, 11/18/97 162,577 - 162,577
- 7,887,000 7,887,000 5.53%, 12/02/97 - 7,849,714 7,849,714
- 5,000,000 5,000,000 5.51%, 12/05/97 - 4,973,981 4,973,981
- 2,800,000 2,800,000 5.52-5.58%, 01/08/98 - 2,770,488 2,770,488
- 1,000,000 1,000,000 5.54-5.58%, 01/12/98 - 988,840 988,840
-----------------------------------------
162,577 21,576,173 21,738,750
-----------------------------------------
</TABLE>
B-11
<PAGE> 196
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOOD & BEVERAGES (10.0%)
CPC International, Inc.
- 5,000,000 5,000,000 5.52%, 11/10/97 - 4,993,176 4,993,176
- 9,000,000 9,000,000 5.49-5.50%, 11/13/97 - 8,983,506 8,983,506
- 7,000,000 7,000,000 5.50%, 12/11/97 - 6,957,222 6,957,222
Campbell Soup 144-A *
- 5,000,000 5,000,000 5.46%, 12/22/97 - 4,961,325 4,961,325
Campbell Soup Co.
- 4,000,000 4,000,000 5.49%, 11/04/97 - 3,998,170 3,998,170
- 1,540,000 1,540,000 5.51%, 12/09/97 - 1,531,043 1,531,043
- 10,000,000 10,000,000 5.48%, 12/19/97 - 9,926,933 9,926,933
- 5,000,000 5,000,000 5.52%, 01/07/98 - 4,948,633 4,948,633
Heinz "H.J." Co.
- 4,000,000 4,000,000 5.48%, 11/17/97 - 3,990,258 3,990,258
- 10,990,000 10,990,000 5.48%, 11/18/97 - 10,961,560 10,961,560
- 5,000,000 5,000,000 5.50%, 11/24/97 - 4,982,431 4,982,431
- 1,300,000 1,300,000 5.52%, 12/05/97 - 1,293,223 1,293,223
McDonalds Corp.
- 10,000,000 10,000,000 5.52%, 11/04/97 - 9,995,400 9,995,400
Sysco Corp.
- 5,000,000 5,000,000 5.52%, 11/18/97 - 4,986,967 4,986,967
-----------------------------------------
- 82,509,847 82,509,847
-----------------------------------------
HEAVY EQUIPMENT/FINANCE (3.8%)
Caterpillar Financial Services, Inc.
- 12,000,000 12,000,000 5.52%, 11/07/97 - 11,988,960 11,988,960
- 2,500,000 2,500,000 5.53%, 11/14/97 - 2,495,008 2,495,008
- 12,000,000 12,000,000 5.49-5.52%, 11/17/97 - 11,970,720 11,970,720
150,000 5,000,000 5,150,000 5.49-5.50%, 11/18/97 149,610 4,987,038 5,136,648
-----------------------------------------
149,610 31,441,725 31,591,335
-----------------------------------------
INSURANCE (4.2%)
MetLife Funding, Inc.
- 4,000,000 4,000,000 5.49%, 11/05/97 - 3,997,560 3,997,560
</TABLE>
B-12
<PAGE> 197
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- 8,000,000 8,000,000 5.50%, 11/06/97 - 7,993,889 7,993,889
- 3,000,000 3,000,000 5.51%, 11/21/97 - 2,990,817 2,990,817
- 3,000,000 3,000,000 5.48%, 12/02/97 - 2,985,843 2,985,843
- 10,000,000 10,000,000 5.48%, 12/05/97 - 9,948,244 9,948,244
100,000 - 100,000 5.49%, 12/09/97 99,420 - 99,420
Old Republic Capital Corp.
- 7,000,000 7,000,000 5.50%, 12/11/97 - 6,957,870 6,957,870
-----------------------------------------
99,420 34,874,224 34,973,644
-----------------------------------------
MISCELLANEOUS MANUFACTURING (1.2%)
Illinois Tool Works Inc.
- 10,000,000 10,000,000 5.70%, 11/03/97 - 9,996,833 9,996,833
-----------------------------------------
OFFICE EQUIPMENT AND SUPPLIES (1.2%)
Pitney Bowes Credit
- 10,000,000 10,000,000 5.59-5.65%, 11/04/97 - 9,995,317 9,995,317
150,000 - 150,000 5.54%, 12/02/97 149,284 - 149,284
-----------------------------------------
149,284 9,995,317 10,144,601
-----------------------------------------
OIL & GAS (1.5%)
Chevron Transport Corp.
- 2,000,000 2,000,000 5.50%, 11/17/97 - 1,995,111 1,995,111
- 5,000,000 5,000,000 5.51-5.52%, 12/02/97 - 4,976,276 4,976,276
- 5,000,000 5,000,000 5.52%, 12/16/97 - 4,965,500 4,965,500
-----------------------------------------
- 11,936,888 11,936,888
-----------------------------------------
PACKAGING/CONTAINERS (1.1%)
Bemis Co., Inc,
- 3,975,000 3,975,000 5.49-5.55%, 11/04/97 - 3,973,181 3,973,181
150,000 - 150,000 5.52%, 11/17/97 149,632 - 149,632
- 5,000,000 5,000,000 5.50%, 12/03/97 - 4,975,556 4,975,556
-----------------------------------------
149,632 8,948,737 9,098,369
-----------------------------------------
PAPER AND FOREST PRODUCTS (1.3%)
</TABLE>
B-13
<PAGE> 198
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- ------------------------------------------------ ---------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sonoco Products Co.
- 10,500,000 10,500,000 5.49-5.68%, 11/04/97 - 10,495,196 10,495,196
150,000 - 150,000 5.48%, 11/18/97 149,612 - 149,612
------------------------------------------
149,612 10,495,196 10,644,808
------------------------------------------
PHARMACEUTICALS/PERSONAL CARE (5.7%)
Abbott Laboratories
140,000 - 140,000 5.46%, 11/13/97 139,766 - 139,766
- 19,758,000 19,758,000 5.45-5.46%, 11/13/97 - 19,722,074 19,722,074
- 14,935,000 14,935,000 5.45%, 11/20/97 - 14,892,041 14,892,041
Becton Dickinson & Co.
110,000 - 110,000 5.52%, 11/07/97 109,899 - 109,899
Glaxo Wellcome PLC
- 1,300,000 1,300,000 5.52%, 11/05/97 - 1,299,203 1,299,203
- 6,000,000 6,000,000 5.49%, 11/24/97 - 5,978,955 5,978,955
- 5,000,000 5,000,000 5.50%, 12/11/97 - 4,970,101 4,970,101
Schering Corp.,
126,000 - 126,000 5.50%, 11/05/97 125,923 - 125,923
------------------------------------------
375,588 46,862,374 47,237,962
------------------------------------------
PREMIUM FINANCE (2.2%)
A.I. Credit Corp.
- 15,267,000 15,267,000 5.50%, 12/08/97 - 15,180,699 15,180,699
160,000 - 160,000 5.53%, 01/13/98 158,206 - 158,206
- 2,416,000 2,416,000 5.51%, 01/14/98 - 2,388,636 2,388,636
------------------------------------------
158,206 17,569,335 17,727,541
------------------------------------------
PRINTING &
PUBLISHING
(0.7%)
McGraw-Hill,
Inc.
- 5,500,000 5,500,000 5.49%, 11/24/97 - 5,480,709 5,480,709
------------------------------------------
TELEPHONE SERVICES (0.0%)
Ameritech Corp.,
120,000 - 120,000 5.50%, 11/17/97 119,707 - 119,707
------------------------------------------
</TABLE>
B-14
<PAGE> 199
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97 10/31/97 10/31/97 10/31/97
FHIT NIF (PRO FORMA) FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS') FUND FUND FUNDS')
- -------------------------------------------- ------------------------------------------ ------------------------------------------
PRINCIPAL SECURITY DESCRIPTION VALUE
- -------------------------------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL COMMERCIAL PAPER 3,818,925 761,033,076 764,852,001.2
--------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (4.0%)
---------------------------------------------
Federal Farm Credit Bank
- 10,000,000 10,000,000 5.35%, variable rate, 03/03/98 - 10,000,000 10,000,000
Federal Home loan Mortgage Corp., 149,910 - 149,910
150,000 - 150,000 5.38%, 11/05/97
Federal National Mortgage Association
- 8,000,000 8,000,000 5.50%, 11/13/97 - 7,985,333 7,985,333
- 5,000,000 5,000,000 5.47%, 01/29/98 - 4,932,385 4,932,385
U.S. Treasury Bills
85,000 - 85,000 4.77%, 11/13/97 84,865 - 84,865
- 4,900,000 4,900,000 5.20%, 12/11/97 - 4,871,689 4,871,689
- 5,000,000 5,000,000 4.895%, 01/15/98 - 4,949,571 4,949,571
----------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 234,775 32,738,978 32,973,753
----------------------------------------
TOTAL INVESTMENTS 4,053,700 821,976,286 826,029,986
========================================
(COST - CASH RESERVE $ 4,053,700, MONEY MARKET $821,976,286 )
<FN>
----------------------
*Security is subject to contractual or legal restrictions on its resale.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages indicated are based on net
assets of $4,050,789 for the Cash Reserve Fund and
$820,657,405 for the Money Market Fund, for a combined
total net assets of $824,708,194.
</TABLE>
B-15
<PAGE> 200
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION (NIF) MONEY MARKET FUND AND (UNAUDITED)
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) CASH RESERVE FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
NATIONWIDE INVESTING FOUNDATION III (NIF III)
NATIONWIDE MONEY MARKET FUND
OCTOBER 31, 1997 OCTOBER 31, 1997 OCTOBER 31, 1997
FHIT NIF (PRO FORMA)
CASH RESERVE MONEY MARKET (COMBINED
FUND FUND FUNDS')
<S> <C> <C> <C>
ASSETS
Investments in securities, at value (cost $4,053,700 $ 4,053,700 $ 821,976,286 $ 826,029,986
and $821,976,286, respectively)
Cash 2,390 - 2,390
Receivable for Fund shares sold - 2,665,412 2,665,412
Accrued interest and dividends receivable - 90,653 90,653
-----------------------------------------------------------------
TOTAL ASSETS $ 4,056,090 $ 824,732,351 $ 828,788,441
-----------------------------------------------------------------
LIABILITIES
Bank loan - 329,061 329,061
Payable for Fund shares redeemed 134 3,162,284 3,162,418
Accrued management fees 1,379 310,704 312,083
Accrued transfer agent fees 149 56,030 56,179
Dividends payable 1,206 142,739 143,945
Other accrued expenses 2,433 74,128 76,561
-----------------------------------------------------------------
TOTAL LIABILITIES $ 5,301 $ 4,074,946 $ 4,080,247
-----------------------------------------------------------------
NET ASSETS $ 4,050,789 $ 820,657,405 $ 824,708,194
=================================================================
NET ASSETS REPRESENTED BY:
Capital Shares $ 4,050,907 $ 820,657,237 $ 824,708,144
Capital paid in excess of par value (113) - (113)
Accumulated undistributed net realized gain (loss) (5) 1,103 1,098
Accumulated distributions in excess of net investment
income - (935) (935)
-----------------------------------------------------------------
NET ASSETS $ 4,050,789 $ 820,657,405 $ 824,708,194
=================================================================
Shares outstanding (unlimited number
of shares authorized) 4,050,907 820,657,237 824,708,144
=================================================================
Net asset value and offering price per share $ 1.00 $ 1.00 $ 1.00
=================================================================
</TABLE>
B-16
<PAGE> 201
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION (NIF) MONEY MARKET FUND AND (UNAUDITED)
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) CASH RESERVE FUND
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NATIONWIDE INVESTING FOUNDATION III (NIF III)
NATIONWIDE MONEY MARKET FUND
YEAR ENDED OCTOBER 31, 1997
----------------------------------------------------------------------------------
FHIT NATIONWIDE (PRO FORMA)
CASH RESERVE MONEY MARKET PRO FORMA (COMBINED
FUND FUND ADJUSTMENTS FUNDS')
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest $ 234,362 $ 43,228,323 $ - $ 43,462,685
EXPENSES:
Investment management fees 17,011 3,891,866 (778,340) (1) 3,130,537
Transfer agent fees 1,001 663,006 - 664,007
Administration fees - - 441,317 (2) 441,317
Shareholders' reports 811 287,309 35,142 (3) 323,262
Registration fees 2,164 - - 2,164
Professional services 1,235 32,169 8,784 (3) 42,188
Custodian fees 6,040 54,656 - 60,696
Trustees' fees and expenses 705 19,798 - 20,503
Other 325 23,400 - 23,725
----------------------------------------------------------------------------------
Total expenses before waived expenses 29,292 4,972,204 (293,097) 4,708,399
Total waived expenses - (389,150) 389,150 (4) -
----------------------------------------------------------------------------------
Net expenses 29,292 4,583,054 96,053 4,708,399
----------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 205,070 $ 38,645,269 $ (96,053) $ 38,754,286
==================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments - 1,103 - 1,103
Net change in unrealized appreciation
(depreciation) - - - -
Net realized and unrealized gain (loss)
----------------------------------------------------------------------------------
on investments $ - $ 1,103 $ - $ 1,103
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 205,070 $ 38,646,372 $ (96,053) $ 38,755,389
==================================================================================
<FN>
(1) To adjust Investment management fees to replace the fee structure for the
combined assets in NIF III.
(2) To include an Adminstration fee on the combined assets in NIF III.
(3) To include estimated reorganization costs.
(4) To remove waived expenses.
</TABLE>
B-17
<PAGE> 202
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE MONEY MARKET FUND
FINANCIAL HORIZONS INVESTMENT TRUST
CASH RESERVE FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MONEY MARKET FUND
(UNAUDITED)
1. BASIS OF COMBINATION
The pro forma combined statement of assets and liabilities, including the pro
forma combined schedule of investments reflect the accounts of the Financial
Horizons Investment Trust Cash Reserve Fund and the Nationwide Investing
Foundation Nationwide Money Market Fund as of October 31, 1997 and the related
pro forma combined statement of operations for the Nationwide Investing
Foundation III Nationwide Money Market Fund for the year ended October 31, 1997.
The pro forma combined financial statements give effect to the proposed transfer
of the assets and liabilities of the Financial Horizons Investment Trust Cash
Reserve Fund and the Nationwide Investing Foundation Nationwide Money Market
Fund in exchange for shares of the Nationwide Investing Foundation III
Nationwide Money Market Fund. Under the terms of the Agreement and Plan of
Reorganization between Financial Horizons Investment Trust, on behalf of the
Cash Reserve Fund, and Nationwide Investing Foundation III, and the Agreement
and Plan of Reorganization between Nationwide Investing Foundation, on behalf of
the Nationwide Money Market Fund, and Nationwide Investing Foundation III, the
combination of the Cash Reserve Fund and the Nationwide Money Market Fund will
be treated as a tax-free business combination. Accordingly, the historical cost
of the investment securities will be carried forward to the surviving fund and
the results of operation of the surviving fund for the pre-combining periods
will not be restated.
Each Fund has a similar investment objective which will remain unchanged as a
result of the combination.
The pro forma financial statements should be read in conjunction with the
historical financial statements of each Fund incorporated by reference to the
respective prospectuses or statements of additional information. The pro forma
combined statement of assets and liabilities has been prepared as if the
combination had taken place at October 31, 1997.
2. PRO FORMA OPERATIONS
The pro forma combined statement of operations assumes similar rates of gross
investment income from the investments of each Fund. Accordingly, the combined
gross investment income is equal to the sum of the gross investment income of
each Fund.
Pro forma operating expenses reflect the expected expenses of the Nationwide
Investing Foundation III Nationwide Money Market Fund after combination. As
such, pro forma fees for investment advisory, administration, and distribution
were calculated based on the fee schedules proposed for the Nationwide Investing
Foundation III Nationwide Money Market Fund.
The pro forma combined statement of operations has been prepared as if the
combination had taken place on November 1, 1996.
3. SURVIVING ENTITY
The Nationwide Investing Foundation Nationwide Money Market Fund will be the
surviving entity for accounting purposes. This determination was based upon (i)
the continued use of such Fund's portfolio manager and investment policies and
(ii) the relative size of each Fund.
B-18
<PAGE> 203
NATIONWIDE TAX-FREE INCOME FUND
of the Trust
NATIONWIDE TAX-FREE INCOME FUND
of NIF II
MUNICIPAL BOND FUND
of FHIT
-----------------------------
The accompanying unaudited Pro Forma Financial Statements consisting of
a Combined Statement of Investments, Statements of Assets and Liabilities and
Statements of Operations reflect the combined accounts of Nationwide Tax-Free
Income Fund of NIF II and Municipal Bond Fund of FHIT at and for the period
ended October 31, 1997. These statements have been derived from such Funds'
books and records utilized in calculating daily net asset values at October 31,
1997.
B-19
<PAGE> 204
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- --------------------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (99.1%)
ALABAMA (4.8%)
$ - $ 3,000,000 $ 3,000,000 Alabama Housing Finance Authority Single-Family Mortgage
Revenue Bonds (Collateralized Home Mortgage Revenue
Bond Program), 1996 Series D, 6.00%, 2016
- 1,100,000 1,100,000 Birmingham, Alabama General Obligation Parking Warrants,
Series 1995-A, 5.90%, 2018
1,000,000 2,500,000 3,500,000 Birmingham, Alabama General Obligation Refunding
Revenue, Series 1992 B, 6.25%, 2016
- 2,480,000 2,480,000 Birmingham, Alabama Water Works & Sewer Board Refunding
Revenue, Series 1992, 6.125%, 2012
- 2,500,000 2,500,000 Huntsville, Alabama General Obligation Limited Tax
Warrants, Series 1992 A, 6.00%, 2012
ARIZONA (1.0%)
- 2,500,000 2,500,000 Salt River Project Agricultural Improvement & Power
District, Arizona Electric System Revenue Bonds,
Series 1992 C, 6.20%, 2012
COLORADO (0.1%)
- 340,000 340,000 Colorado Housing Finance Authority Single-Family Housing
Revenue Refunding Bonds, Series 1991-A, 7.15%, 2014
CONNECTICUT (1.7%)
- 4,220,000 4,220,000 Connecticut Housing Finance Authority Housing Mortgage
Finance Program Bonds, Series 1992-B, 6.70%, 2012
FLORIDA (1.3%)
- 2,400,000 2,400,000 Jacksonville, Florida Electric Authority Bulk Power Revenue Bonds,
(Scherer 4 Project, Issue One, Series 1991-A), 7.00%, 2012
1,000,000 - 1,000,000 Orlando, Florida Utilities Commission Water and
Electric Subordinated Revenue Refunding Bonds,
Series 1993-A ,5.25%, 2014
GEORGIA (2.5%)
- 1,250,000 1,250,000 Columbus, Georgia Building Authority Lease Revenue Bonds,
Series 1997A, 5.65%, 2017
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
------------------------------------------------------------------------------------------------------------------------------
SECURITY DESCRIPTION VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (99.1%)
ALABAMA (4.8%)
Alabama Housing Finance Authority Single-Family Mortgage
Revenue Bonds (Collateralized Home Mortgage Revenue
Bond Program), 1996 Series D, 6.00%, 2016 $ - $ 3,142,500 $ 3,142,500
Birmingham, Alabama General Obligation Parking Warrants,
Series 1995-A, 5.90%, 2018 - 1,139,875 $ 1,139,875
Birmingham, Alabama General Obligation Refunding
Revenue, Series 1992 B, 6.25%, 2016 1,061,250 2,653,125 $ 3,714,375
Birmingham, Alabama Water Works & Sewer Board Refunding
Revenue, Series 1992, 6.125%, 2012 - 2,604,000 $ 2,604,000
Huntsville, Alabama General Obligation Limited Tax
Warrants, Series 1992 A, 6.00%, 2012 - 2,650,000 $ 2,650,000
-----------------------------------------------------------
1,061,250 12,189,500 $ 13,250,750
-----------------------------------------------------------
ARIZONA (1.0%)
Salt River Project Agricultural Improvement & Power
District, Arizona Electric System Revenue Bonds,
Series 1992 C, 6.20%, 2012 - 2,662,500 2,662,500
-----------------------------------------------------------
COLORADO (0.1%)
Colorado Housing Finance Authority Single-Family Housing
Revenue Refunding Bonds, Series 1991-A, 7.15%, 2014 - 364,225 364,225
-----------------------------------------------------------
CONNECTICUT (1.7%)
Connecticut Housing Finance Authority Housing Mortgage
Finance Program Bonds, Series 1992-B, 6.70%, 2012 - 4,547,050 4,547,050
-----------------------------------------------------------
FLORIDA (1.3%)
Jacksonville, Florida Electric Authority Bulk Power Revenue Bonds,
(Scherer 4 Project, Issue One, Series 1991-A), 7.00%, 2012 - 2,622,000 2,622,000
Orlando, Florida Utilities Commission Water and
Electric Subordinated Revenue Refunding Bonds,
Series 1993-A ,5.25%, 2014 986,250 - 986,250
-----------------------------------------------------------
986,250 2,622,000 3,608,250
-----------------------------------------------------------
GEORGIA (2.5%)
Columbus, Georgia Building Authority Lease Revenue Bonds,
Series 1997A, 5.65%, 2017 - 1,282,812 1,282,812
</TABLE>
B-20
<PAGE> 205
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND (Unaudited)
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- ---------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C>
- 1,210,000 1,210,000 Dekalb County, Georgia General Obligation Refunding Bonds,
6.00%, 2012
- 2,750,000 2,750,000 Georgia Municipal Electric Authority Power Revenue Bonds,
Series 1991-V, 6.60%, 2018
- 955,000 955,000 Georgia Residential Financial Authority Revenue Bonds,
Series A, 7.50%, 2017
ILLINOIS (10.6%)
1,000,000 2,050,000 3,050,000 Chicago Park District, Illinois General Obligation
Unlimited Tax Park Bonds, Series 1996,
5.60%, 2021
- 2,185,000 2,185,000 Illinois Educational Facility Authority Revenue, Series
1991-A, Loyola University, 7.125%, 2021
1,000,000 - 1,000,000 Illinois Housing Development Authority Homeowner
Mortgage Revenue Bonds, Series 1994-A-1,
6.45%, 2017
1,000,000 - 1,000,000 Illinois Regional Transportation Authority, General
Obligation Refunding Bonds, Series 1996,
5.40%, 2015
- 2,500,000 2,500,000 Illinois State Build Illinois Bonds Sales Tax Revenue,
Series V, 6.375%, 2017
- 7,500,000 7,500,000 Illinois State Build Illinois Bonds Sales Tax Revenue,
Series O, 6.00%, 2018
- 1,000,000 1,000,000 Palatine, Illinois Corporate Purpose General Obligation
Bonds, Series 1985, 9.90%, 2016
- 2,500,000 2,500,000 Illinois State General Obligation Bonds,
Series of December 1995, 5.125%, 2017
- 4,000,000 4,000,000 Illinois State General Obligation Bonds,
Series of May 1996, 5.75%, 2017
- 3,000,000 3,000,000 Illinois State General Obligation Bonds,
Series of March 1994, 5.80%, 2019
INDIANA (2.7%)
- 5,335,000 5,335,000 Indiana State Toll Road Commission East-West Toll Road
Revenue Bonds, Series 1980, 9.00%, 2015
KENTUCKY (1.3%)
- 3,250,000 3,250,000 Jefferson County, Kentucky Jewish Hospital Healthcare Services
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
------------------------------------------------------------------------------------------------------------------------------
SECURITY DESCRIPTION VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dekalb County, Georgia General Obligation Refunding Bonds,
6.00%, 2012 - 1,278,062 1,278,062
Georgia Municipal Electric Authority Power Revenue Bonds,
Series 1991-V, 6.60%, 2018 - 3,162,500 3,162,500
Georgia Residential Financial Authority Revenue Bonds,
Series A, 7.50%, 2017 - 1,013,494 1,013,494
---------------------------------------------------------------
- 6,736,868 6,736,868
---------------------------------------------------------------
ILLINOIS (10.6%)
Chicago Park District, Illinois General Obligation
Unlimited Tax Park Bonds, Series 1996,
5.60%, 2021 1,012,500 2,075,625 3,088,125
Illinois Educational Facility Authority Revenue, Series
1991-A, Loyola University, 7.125%, 2021 - 2,439,006 2,439,006
Illinois Housing Development Authority Homeowner
Mortgage Revenue Bonds, Series 1994-A-1,
6.45%, 2017 1,063,750 - 1,063,750
Illinois Regional Transportation Authority, General
Obligation Refunding Bonds, Series 1996,
5.40%, 2015 1,015,000 - 1,015,000
Illinois State Build Illinois Bonds Sales Tax Revenue,
Series V, 6.375%, 2017 - 2,703,125 2,703,125
Illinois State Build Illinois Bonds Sales Tax Revenue,
Series O, 6.00%, 2018 - 7,818,750 7,818,750
Palatine, Illinois Corporate Purpose General Obligation
Bonds, Series 1985, 9.90%, 2016 - 1,128,750 1,128,750
Illinois State General Obligation Bonds,
Series of December 1995, 5.125%, 2017 - 2,459,375 2,459,375
Illinois State General Obligation Bonds,
Series of May 1996, 5.75%, 2017 - 4,155,000 4,155,000
Illinois State General Obligation Bonds,
Series of March 1994, 5.80%, 2019 - 3,082,500 3,082,500
---------------------------------------------------------------
3,091,250 25,862,131 28,953,381
---------------------------------------------------------------
INDIANA (2.7%)
Indiana State Toll Road Commission East-West Toll Road
Revenue Bonds, Series 1980, 9.00%, 2015 - 7,475,669 7,475,669
---------------------------------------------------------------
KENTUCKY (1.3%)
Jefferson County, Kentucky Jewish Hospital Healthcare Services
</TABLE>
B-21
<PAGE> 206
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- --------------------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C>
Health Facilities Revenue Bonds, Series 1995, 6.50%, 2015
MASSACHUSETTS (2.2%)
- 2,525,000 2,525,000 Massachusetts State General Obligation Bonds Consolidated
Loan, Series 1992-B, 6.50%, 2013
- 3,000,000 3,000,000 Massachusetts State General Obligation Refunding Bonds,
1997 Series A, 5.75%, 2010
MICHIGAN (3.2%)
- 3,500,000 3,500,000 Cheboygan, Michigan Area Schools General Obligation
Unlimited Tax, 5.60%,2021
- 3,500,000 3,500,000 Michigan State General Obligation Bonds, Environmental
Protection Program, Series 1992, 6.25%, 2012
- 1,150,000 1,150,000 University of Michigan Higher Education Housing Revenue
Bonds, Series 1996A, 5.125%, 2015
MINNESOTA (2.3%)
- 2,095,000 2,095,000 Minnesota Housing Finance Agency Rental Housing Revenue
Bonds, Series 1995 D, 5.90%, 2015
- 3,790,000 3,790,000 Minnesota State Housing Finance Agency Single Family
Mortgage Revenue Bonds, Series 1994 K, 6.40%, 2015
MISSOURI (0.8%)
- 2,000,000 2,000,000 Missouri State Environmental Improvement & Energy
Resources Authority Water Pollution Control Revenue
Bonds, 6.55%, 2014
NEBRASKA (2.0%)
- 5,000,000 5,000,000 Nebraska Public Power District Power Supply System
Revenue Bonds, Series 1993, 6.125%, 2015
NEVADA (0.4%)
1,000,000 - 1,000,000 Nevada State General Obligation, Nevada
Municipal Bond Bank Project,
Numbers 49 & 50, 5.50%, 2016
NEW JERSEY (0.4%)
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
-------------------------------------------------------------------------- -----------------------------------------------------
SECURITY DESCRIPTION VALUE
-------------------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C>
Health Facilities Revenue Bonds, Series 1995, 6.50%, 2015 - 3,522,187 3,522,187
-----------------------------------------------------
MASSACHUSETTS (2.2%)
Massachusetts State General Obligation Bonds Consolidated
Loan, Series 1992-B, 6.50%, 2013 - 2,780,656 2,780,656
Massachusetts State General Obligation Refunding Bonds,
1997 Series A, 5.75%, 2010 - 3,262,500 3,262,500
-----------------------------------------------------
- 6,043,156 6,043,156
-----------------------------------------------------
MICHIGAN (3.2%)
Cheboygan, Michigan Area Schools General Obligation
Unlimited Tax, 5.60%,2021 - 3,561,250 3,561,250
Michigan State General Obligation Bonds, Environmental
Protection Program, Series 1992, 6.25%, 2012 - 4,007,500 4,007,500
University of Michigan Higher Education Housing Revenue
Bonds, Series 1996A, 5.125%, 2015 - 1,151,438 1,151,438
-----------------------------------------------------
- 8,720,188 8,720,188
-----------------------------------------------------
MINNESOTA (2.3%)
Minnesota Housing Finance Agency Rental Housing Revenue
Bonds, Series 1995 D, 5.90%, 2015 - 2,173,563 2,173,563
Minnesota State Housing Finance Agency Single Family
Mortgage Revenue Bonds, Series 1994 K, 6.40%, 2015 - 4,022,137 4,022,137
-----------------------------------------------------
- 6,195,700 6,195,700
-----------------------------------------------------
MISSOURI (0.8%)
Missouri State Environmental Improvement & Energy
Resources Authority Water Pollution Control Revenue
Bonds, 6.55%, 2014 - 2,162,500 2,162,500
-----------------------------------------------------
NEBRASKA (2.0%)
Nebraska Public Power District Power Supply System
Revenue Bonds, Series 1993, 6.125%, 2015 - 5,331,250 5,331,250
-----------------------------------------------------
NEVADA (0.4%)
Nevada State General Obligation, Nevada
Municipal Bond Bank Project,
Numbers 49 & 50, 5.50%, 2016 1,017,500 - 1,017,500
-----------------------------------------------------
NEW JERSEY (0.4%)
</TABLE>
B-22
<PAGE> 207
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- -----------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- -----------------------------------------------------------------
<S> <C> <C> <C>
1,000,000 - 1,000,000 New Jersey Turnpike Authority Turnpike
Revenue Bonds, Series 1991-C, 6.50%, 2016
NEW YORK (0.4%)
1,000,000 - 1,000,000 New York Local Government Assistance
Corporation, Refunding Bonds,
Series 1993-E, 6.00%, 2014
NORTH CAROLINA (8.4%)
- 5,000,000 5,000,000 Charlotte-Mecklenburg Hospital Authority, North
Carolina, Carolinas Healthcare System, Health Care
Revenue Bonds, Series 1997A, 5.125%, 2022
1,000,000 - 1,000,000 Charlotte-Mecklenburg Hospital Authority, North
Carolina Health Care System Revenue Bonds,
Series 1992, 6.25%, 2020
- 3,460,000 3,460,000 North Carolina Housing Finance Agency Multi-Family Revenue
Refunding Bonds, Series H, 5.95%, 2021
- 2,185,000 2,185,000 North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series GG, 5.90%, 2013
- 2,020,000 2,020,000 North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series AA, 6.25%, 2017
- 1,745,000 1,745,000 North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series J, 7.40%, 2022
- 1,695,000 1,695,000 North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series N, 7.40%, 2028
- 2,000,000 2,000,000 North Carolina Medical Care Commission Hospital Revenue
Refunding Bonds, Series 1992 A (North Carolina Baptist
Hospitals Project), 6.375%, 2014
- 1,000,000 1,000,000 North Carolina Medical Care Commission Hospital Revenue Bonds,
Duke University Hospital Project, Series C, 5.25%, 2017
- 1,080,000 1,080,000 University of North Carolina at Chapel Hill Dining System
Revenue Bonds, Series 1997, 5.40%, 2016
- 1,140,000 1,140,000 University of North Carolina at Chapel Hill Dining System
Revenue Bonds, Series 1997, 5.40%, 2017
OHIO (2.4%)
- 1,760,000 1,760,000 Columbus, Ohio General Obligation Various Purpose Bonds,
8.125%, 2006
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
----------------------------------------------------------------- -----------------------------------------------
SECURITY DESCRIPTION VALUE
----------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
New Jersey Turnpike Authority Turnpike 1,118,750 - 1,118,750
-----------------------------------------------
Revenue Bonds, Series 1991-C, 6.50%, 2016
NEW YORK (0.4%)
New York Local Government Assistance
Corporation, Refunding Bonds,
Series 1993-E, 6.00%, 2014 1,088,750 - 1,088,750
-----------------------------------------------
NORTH CAROLINA (8.4%)
Charlotte-Mecklenburg Hospital Authority, North
Carolina, Carolinas Healthcare System, Health Care
Revenue Bonds, Series 1997A, 5.125%, 2022 - 4,800,000 4,800,000
Charlotte-Mecklenburg Hospital Authority, North
Carolina Health Care System Revenue Bonds,
Series 1992, 6.25%, 2020 1,058,750 1,058,750
North Carolina Housing Finance Agency Multi-Family Revenue
Refunding Bonds, Series H, 5.95%, 2021 - 3,611,375 3,611,375
North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series GG, 5.90%, 2013 - 2,283,325 2,283,325
North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series AA, 6.25%, 2017 - 2,153,825 2,153,825
North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series J, 7.40%, 2022 - 1,821,344 1,821,344
North Carolina Housing Finance Agency Single-Family
Revenue Bonds, Series N, 7.40%, 2028 - 1,794,581 1,794,581
North Carolina Medical Care Commission Hospital Revenue
Refunding Bonds, Series 1992 A (North Carolina Baptist
Hospitals Project), 6.375%, 2014 - 2,135,000 2,135,000
North Carolina Medical Care Commission Hospital Revenue Bonds,
Duke University Hospital Project, Series C, 5.25%, 2017 - 985,000 985,000
University of North Carolina at Chapel Hill Dining System
Revenue Bonds, Series 1997, 5.40%, 2016 - 1,113,750 1,113,750
University of North Carolina at Chapel Hill Dining System
Revenue Bonds, Series 1997, 5.40%, 2017 - 1,159,950 1,159,950
-----------------------------------------------
1,058,750 21,858,150 22,916,900
-----------------------------------------------
OHIO (2.4%)
Columbus, Ohio General Obligation Various Purpose Bonds,
8.125%, 2006 - 2,204,400 2,204,400
</TABLE>
B-23
<PAGE> 208
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- --------------------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C>
- 1,100,000 1,100,000 Franklin County, Ohio Hospital Refunding and Improvement
Revenue Bonds (The Children's Hospital Project),
1996 Series A, 5.75%, 2020
- 1,225,000 1,225,000 Ohio Housing Finance Agency Mortgage Revenue Bonds
Residential Mortgage Backed Securities, Series A-1, 5.70%, 2017
- 2,000,000 2,000,000 Ohio Turnpike Commission Turnpike Revenue Bonds,
1996 Series A, 5.70%, 2017
PENNSYLVANIA (5.9%)
- 2,000,000 2,000,000 Pennsylvania General Obligation Bonds,
Second Series of 1995, 5.00%, 2012
- 4,500,000 4,500,000 Pennsylvania Higher Educational Facilities Authority,
The University of Pennsylvania Health Services
Revenue Bonds, Series A of 1996, 5.875%, 2015
- 1,500,000 1,500,000 Pennsylvania Housing Finance Agency Rental Housing
Refunding Revenue Bonds, Issue 1992, 6.25%, 2007
- 4,055,000 4,055,000 Pennsylvania Housing Finance Agency Rental Housing
Refunding Revenue Bonds, Issue 1992, 6.40%, 2012
- 2,000,000 2,000,000 Pennsylvania State Turnpike Commission Oil Franchise Tax
Revenue, Series A, 6.00%, 2014
- 1,500,000 1,500,000 Pittsburgh, Pennsylvania Water and Sewer Authority, Water and
Sewer System First Lien Revenue Bonds, Series A
of 1995, 5.50%, 2015
SOUTH CAROLINA (5.2%)
- 4,980,000 4,980,000 Charleston, South Carolina Waterworks & Sewer System
Refunding & Capital Improvement Revenue Bonds,
Series 1991, 6.00%, 2018
- 1,400,000 1,400,000 Greenville, South Carolina Hospital System Revenue Bonds
Hospital Facilities, Series B, 5.25%, 2017
- 1,500,000 1,500,000 South Carolina State Housing Finance & Development
Authority Multi-Family Development Revenue Refunding,
Series 1992-A, 6.875%, 2023
1,000,000 2,075,000 3,075,000 South Carolina State Housing Finance & Development Authority
Homeownership Mortgage Purchase
Bonds, Series 1994 A, 6.375%, 2016
- 1,500,000 1,500,000 Spartanburg, South Carolina Water System Improvement &
Refunding Revenue Bonds, Series 1992, 6.25%, 2017
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
-------------------------------------------------------------------------- --------------------------------------------
SECURITY DESCRIPTION VALUE
-------------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
Franklin County, Ohio Hospital Refunding and Improvement
Revenue Bonds (The Children's Hospital Project),
1996 Series A, 5.75%, 2020 - 1,122,000 1,122,000
Ohio Housing Finance Agency Mortgage Revenue Bonds
Residential Mortgage Backed Securities, Series A-1, 5.70%, 2017 - 1,252,563 1,252,563
Ohio Turnpike Commission Turnpike Revenue Bonds,
1996 Series A, 5.70%, 2017 - 2,067,500 2,067,500
--------------------------------------------
- 6,646,463 6,646,463
--------------------------------------------
PENNSYLVANIA (5.9%)
Pennsylvania General Obligation Bonds,
Second Series of 1995, 5.00%, 2012 - 1,990,000 1,990,000
Pennsylvania Higher Educational Facilities Authority,
The University of Pennsylvania Health Services
Revenue Bonds, Series A of 1996, 5.875%, 2015 - 4,708,125 4,708,125
Pennsylvania Housing Finance Agency Rental Housing
Refunding Revenue Bonds, Issue 1992, 6.25%, 2007 - 1,591,875 1,591,875
Pennsylvania Housing Finance Agency Rental Housing
Refunding Revenue Bonds, Issue 1992, 6.40%, 2012 - 4,267,888 4,267,888
Pennsylvania State Turnpike Commission Oil Franchise Tax
Revenue, Series A, 6.00%, 2014 - 2,122,500 2,122,500
Pittsburgh, Pennsylvania Water and Sewer Authority, Water and
Sewer System First Lien Revenue Bonds, Series A
of 1995, 5.50%, 2015 - 1,520,625 1,520,625
--------------------------------------------
- 16,201,013 16,201,013
--------------------------------------------
SOUTH CAROLINA (5.2%)
Charleston, South Carolina Waterworks & Sewer System
Refunding & Capital Improvement Revenue Bonds,
Series 1991, 6.00%, 2018 - 5,210,325 5,210,325
Greenville, South Carolina Hospital System Revenue Bonds
Hospital Facilities, Series B, 5.25%, 2017 - 1,379,000 1,379,000
South Carolina State Housing Finance & Development
Authority Multi-Family Development Revenue Refunding,
Series 1992-A, 6.875%, 2023 - 1,588,125 1,588,125
South Carolina State Housing Finance & Development Authority
Homeownership Mortgage Purchase
Bonds, Series 1994 A, 6.375%, 2016 1,048,750 2,176,156 3,224,906
Spartanburg, South Carolina Water System Improvement &
Refunding Revenue Bonds, Series 1992, 6.25%, 2017 - 1,626,519 1,626,519
</TABLE>
B-24
<PAGE> 209
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- --------------------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C>
- 1,000,000 1,000,000 Spartanburg, South Carolina Water System Revenue Bonds,
Series 1996, 6.10%, 2021
TENNESSEE (1.4%)
- 1,430,000 1,430,000 Nashville & Davidson County, Tennessee Health &
Educational Facilities Revenue Bonds, Series 1979,
7.875%, 2004
200,000 1,000,000 1,200,000 Nashville & Davidson County, Tennessee General Obligation
Multi-Purpose Improvement Bonds, Series 1994,
6.125%, 2014
- 1,000,000 1,000,000 Shelby County, Tennessee General Obligation Public Improvement
Bonds, 1996 Series A, 5.85%, 2017
TEXAS (18.4%)
- 2,325,000 2,325,000 Beaumont Independent School District, Texas Unlimited
Tax School Building, Series 1996, 5.00%, 2016
- 1,000,000 1,000,000 Carrollton-Farmers Branch Independent School District,
Texas General Obligation Permanent School Fund
Guarantee, Series 1996, 5.70%, 2017
1,000,000 - 1,000,000 Carrollton - Farmers Branch Independent School
District, Texas General Obligation School
Building Unlimited Tax Bonds, Series 1995, 5.00%, 2016
- 1,100,000 1,100,000 Cypress-Fairbanks Independent School District, Texas General
Obligation Permanent School Fund Guarantee,
Series 1996, 5.375%, 2019
- 2,300,000 2,300,000 Fort Bend Independent School District, Texas General Obligation
Permanent School Fund Guarantee, Series 1996, 5.00%, 2018
- 1,350,000 1,350,000 Fort Worth, Texas General Obligation Limited Tax
Bonds, 5.625%, 2017
1,000,000 - 1,000,000 Grand Prairie Independent School District, Texas
General Obligation Unlimited Tax School
Building and Refunding Bonds, Series 1996, 5.20%, 2017
- 5,325,000 5,325,000 Harris County, Texas Health Facilities Development Corporation
Revenue School Health Care Systems, Series B, 5.75%, 2027
- 2,500,000 2,500,000 Houston Independent School District, Texas Limited Tax School
House Refunding Bonds, Series 1997, 5.375%, 2017
- 7,720,000 7,720,000 Houston, Texas Water & Sewer Junior Lien Revenue
Refunding, Series 1991-C, 6.375%, 2017
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
-------------------------------------------------------------------------- ---------------------------------------------
SECURITY DESCRIPTION VALUE
-------------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
Spartanburg, South Carolina Water System Revenue Bonds,
Series 1996, 6.10%, 2021 - 1,112,500 1,112,500
---------------------------------------------
1,048,750 13,092,625 14,141,375
---------------------------------------------
TENNESSEE (1.4%)
Nashville & Davidson County, Tennessee Health &
Educational Facilities Revenue Bonds, Series 1979,
7.875%, 2004 - 1,605,175 1,605,175
Nashville & Davidson County, Tennessee General Obligation
Multi-Purpose Improvement Bonds, Series 1994,
6.125%, 2014 218,250 1,091,250 1,309,500
Shelby County, Tennessee General Obligation Public Improvement
Bonds, 1996 Series A, 5.85%, 2017 - 1,038,750 1,038,750
---------------------------------------------
218,250 3,735,175 3,953,425
---------------------------------------------
TEXAS (18.4%)
Beaumont Independent School District, Texas Unlimited
Tax School Building, Series 1996, 5.00%, 2016 - 2,258,156 2,258,156
Carrollton-Farmers Branch Independent School District,
Texas General Obligation Permanent School Fund
Guarantee, Series 1996, 5.70%, 2017 - 1,026,250 1,026,250
Carrollton - Farmers Branch Independent School
District, Texas General Obligation School
Building Unlimited Tax Bonds, Series 1995, 5.00%, 2016 971,250 - 971,250
Cypress-Fairbanks Independent School District, Texas General
Obligation Permanent School Fund Guarantee,
Series 1996, 5.375%, 2019 - 1,097,250 1,097,250
Fort Bend Independent School District, Texas General Obligation
Permanent School Fund Guarantee, Series 1996, 5.00%, 2018 - 2,205,125 2,205,125
Fort Worth, Texas General Obligation Limited Tax
Bonds, 5.625%, 2017 - 1,383,750 1,383,750
Grand Prairie Independent School District, Texas
General Obligation Unlimited Tax School
Building and Refunding Bonds, Series 1996, 5.20%, 2017 988,750 - 988,750
Harris County, Texas Health Facilities Development Corporation
Revenue School Health Care Systems, Series B, 5.75%, 2027 - 5,451,469 5,451,469
Houston Independent School District, Texas Limited Tax School
House Refunding Bonds, Series 1997, 5.375%, 2017 - 2,506,250 2,506,250
Houston, Texas Water & Sewer Junior Lien Revenue
Refunding, Series 1991-C, 6.375%, 2017 - 8,327,600 8,327,600
</TABLE>
B-25
<PAGE> 210
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- --------------------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C>
- 490,000 490,000 Lower Colorado River Authority Texas Junior Lien Refunding
Revenue Bonds, Series 1992 (ETM), 6.00%, 2017
- 2,630,000 2,630,000 Lower Colorado River Authority Texas Junior Lien Refunding
Revenue Bonds, Series 1992 (Unrefunded), 6.00%, 2017
- 4,000,000 4,000,000 San Antonio, Texas General Obligation General Improvement and
Refunding Bonds, Series 1996A, 5.00%, 2016
- 2,000,000 2,000,000 Texas A&M University System Board of Regents Revenue
Financing System Bonds, Series 1996, 5.375%, 2014
- 3,175,000 3,175,000 Texas State Water Development Bonds,
Series 1994, 6.90%, 2017
- 2,810,000 2,810,000 Texas State Water Development Board State Revolving Fund Senior
Lien Revenue Bonds, Program Series 1997A, 5.25%, 2019
- 1,000,000 1,000,000 Texas State Public Finance Authority General Obligation Refunding
Bonds, Series 1995A, 6.00%, 2014
1,000,000 - 1,000,000 Texas State Public Finance Authority Building
Revenue Refunding, Series 1992-B, 5.75%, 2012
- 2,000,000 2,000,000 University of Texas System Permanent University Fund Bonds,
Series 1992B, 6.25%, 2013
- 1,090,000 1,090,000 Weatherford, Texas Independent School District Unlimited
Tax School Building and Refunding Bonds,
Series 1994, 6.40%, 2012
- 3,000,000 3,000,000 Weatherford, Texas Independent School District Unlimited
Tax School Building and Refunding Bonds,
Series 1994, 6.50%, 2015
UTAH (0.7%)
- 1,080,000 1,080,000 Intermountain Power Agency, Utah Power Supply Revenue
Refunding Bonds, Series 1993-A, 5.50%, 2020
1,000,000 - 1,000,000 Utah Housing Finance Agency, Multi-Family Housing
Revenue Refunding Bonds, (Cottonwood
Apartments Project), Issue 1995, 6.30%, 2015
VIRGINIA (11.0%)
- 1,500,000 1,500,000 Fairfax County, Virginia Water Authority Water Refunding
Revenue Series 1992, 6.00%, 2022
- 4,250,000 4,250,000 Henrico County, Virginia Water and Sewer System Refunding
Revenue Bonds, Series 1994, 5.875%, 2014
- 1,985,000 1,985,000 Newport News, Virginia General Improvement Bonds,
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- -------------------------------------------------------------------------- ---------------------------------------------
SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
Lower Colorado River Authority Texas Junior Lien Refunding
Revenue Bonds, Series 1992 (ETM), 6.00%, 2017 - 539,000 539,000
Lower Colorado River Authority Texas Junior Lien Refunding
Revenue Bonds, Series 1992 (Unrefunded), 6.00%, 2017 - 2,695,750 2,695,750
San Antonio, Texas General Obligation General Improvement and
Refunding Bonds, Series 1996A, 5.00%, 2016 - 3,895,000 3,895,000
Texas A&M University System Board of Regents Revenue
Financing System Bonds, Series 1996, 5.375%, 2014 - 2,040,000 2,040,000
Texas State Water Development Bonds,
Series 1994, 6.90%, 2017 - 3,544,094 3,544,094
Texas State Water Development Board State Revolving Fund Senior
Lien Revenue Bonds, Program Series 1997A, 5.25%, 2019 - 2,781,900 2,781,900
Texas State Public Finance Authority General Obligation Refunding
Bonds, Series 1995A, 6.00%, 2014 - 1,056,250 1,056,250
Texas State Public Finance Authority Building
Revenue Refunding, Series 1992-B, 5.75%, 2012 1,027,500 - 1,027,500
University of Texas System Permanent University Fund Bonds,
Series 1992B, 6.25%, 2013 - 2,162,500 2,162,500
Weatherford, Texas Independent School District Unlimited
Tax School Building and Refunding Bonds,
Series 1994, 6.40%, 2012 - 1,181,287 1,181,287
Weatherford, Texas Independent School District Unlimited
Tax School Building and Refunding Bonds,
Series 1994, 6.50%, 2015 - 3,270,000 3,270,000
---------------------------------------------
2,987,500 47,421,631 50,409,131
---------------------------------------------
UTAH (0.7%)
Intermountain Power Agency, Utah Power Supply Revenue
Refunding Bonds, Series 1993-A, 5.50%, 2020 - 1,069,200 1,069,200
Utah Housing Finance Agency, Multi-Family Housing
Revenue Refunding Bonds, (Cottonwood
Apartments Project), Issue 1995, 6.30%, 2015 1,027,500 - 1,027,500
---------------------------------------------
1,027,500 1,069,200 2,096,700
---------------------------------------------
VIRGINIA (11.0%)
Fairfax County, Virginia Water Authority Water Refunding
Revenue Series 1992, 6.00%, 2022 - 1,628,775 1,628,775
Henrico County, Virginia Water and Sewer System Refunding
Revenue Bonds, Series 1994, 5.875%, 2014 - 4,372,188 4,372,188
Newport News, Virginia General Improvement Bonds,
</TABLE>
B-26
<PAGE> 211
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- --------------------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ----------------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1993 E, 5.20%, 2013
- 3,000,000 3,000,000 Richmond, Virginia General Obligation Public Improvement
Refunding Bonds, Series 1991-B, 6.25%, 2018
- 1,000,000 1,000,000 Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series B Subseries B-2, 6.50%, 2010
- 1,080,000 1,080,000 Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1995-D, Subseries D-1, 5.95%, 2013
900,000 2,000,000 2,900,000 Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1992 C Subseries C-7, 6.30%, 2015
- 1,000,000 1,000,000 Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1995 B Subseries B-3, 6.35%, 2015
- 1,930,000 1,930,000 Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1995 B Subseries B-3, 6.35%, 2016
- 5,500,000 5,500,000 Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1992 A, 7.10%, 2022
- 2,000,000 2,000,000 Virginia Public School Authority School Financing Bonds
(1991 Resolution), Series 1994 A, 6.20%, 2013
- 2,595,000 2,595,000 Virginia Public School Authority School Financing Bonds
(1991 Resolution), Series 1995 C, 5.00%, 2016
WASHINGTON (4.5%)
- 1,500,000 1,500,000 King County, Washington Limited Tax General Obligation
Refunding Bonds, 1996 Series C, 5.25%, 2021
1,000,000 - 1,000,000 Seattle, Washington Limited Tax, General
Obligation Bonds, Series 1995, 5.125%, 2015
- 6,150,000 6,150,000 Seattle, Washington Water System and Refunding
Revenue Bonds, 1993, 5.50%, 2018
- 3,500,000 3,500,000 Washington State Motor Vehicle Fuel Tax General Obligation
Bonds, Series 1997 D, 5.375%, 2022
WISCONSIN (3.4%)
- 1,000,000 1,000,000 Wisconsin Housing and Economic Development Authority
Home Ownership Revenue Bonds, Series A, 5.65%, 2010
- 2,000,000 2,000,000 Wisconsin State General Obligation, Series 1992-A,
6.30%, 2011
- 2,000,000 2,000,000 Wisconsin State General Obligation Bonds of 1994,
Series A, 5.00%, 2014
- 1,500,000 1,500,000 Wisconsin State Transportation Revenue Bonds,1994
<CAPTION>
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
-------------------------------------------------------------------------- ---------------------------------------------
SECURITY DESCRIPTION VALUE
-------------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
Series 1993 E, 5.20%, 2013 - 2,017,256 2,017,256
Richmond, Virginia General Obligation Public Improvement
Refunding Bonds, Series 1991-B, 6.25%, 2018 - 3,157,500 3,157,500
Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series B Subseries B-2, 6.50%, 2010 - 1,100,000 1,100,000
Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1995-D, Subseries D-1, 5.95%, 2013 - 1,125,900 1,125,900
Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1992 C Subseries C-7, 6.30%, 2015 939,375 2,087,500 3,026,875
Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1995 B Subseries B-3, 6.35%, 2015 - 1,065,000 1,065,000
Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1995 B Subseries B-3, 6.35%, 2016 - 2,055,450 2,055,450
Virginia Housing Development Authority Commonwealth
Mortgage Bonds, Series 1992 A, 7.10%, 2022 - 5,864,375 5,864,375
Virginia Public School Authority School Financing Bonds
(1991 Resolution), Series 1994 A, 6.20%, 2013 - 2,147,500 2,147,500
Virginia Public School Authority School Financing Bonds
(1991 Resolution), Series 1995 C, 5.00%, 2016 - 2,526,881 2,526,881
---------------------------------------------
939,375 29,148,325 30,087,700
---------------------------------------------
WASHINGTON (4.5%)
King County, Washington Limited Tax General Obligation
Refunding Bonds, 1996 Series C, 5.25%, 2021 - 1,501,875 1,501,875
Seattle, Washington Limited Tax, General
Obligation Bonds, Series 1995, 5.125%, 2015 997,500 - 997,500
Seattle, Washington Water System and Refunding
Revenue Bonds, 1993, 5.50%, 2018 - 6,196,125 6,196,125
Washington State Motor Vehicle Fuel Tax General Obligation
Bonds, Series 1997 D, 5.375%, 2022 - 3,513,125 3,513,125
---------------------------------------------
997,500 11,211,125 12,208,625
---------------------------------------------
WISCONSIN (3.4%)
Wisconsin Housing and Economic Development Authority
Home Ownership Revenue Bonds, Series A, 5.65%, 2010 - 1,051,250 1,051,250
Wisconsin State General Obligation, Series 1992-A,
6.30%, 2011 - 2,162,500 2,162,500
Wisconsin State General Obligation Bonds of 1994,
Series A, 5.00%, 2014 - 1,970,000 1,970,000
Wisconsin State Transportation Revenue Bonds,1994
</TABLE>
B-27
<PAGE> 212
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND
PRO FORMA COMBINED STATEMENT OF INVESTMENTS - NATIONWIDE INVESTING FOUNDATION III (NIF III) (unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- ----------------------------------------- --------------------------------------------------------------------------
PRINCIPAL SECURITY DESCRIPTION
- ---------------------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C>
Series A, 5.50%, 2011
- 2,500,000 2,500,000 Wisconsin State Transportation Revenue Bonds, Series A,
5.50%, 2012
<CAPTION>
TOTAL LONG-TERM MUNICIPAL SECURITIES
(COST - MUNICIPAL $16,066,278, TAX-FREE $239,111,498)
(Unaudited)
10/31/97 10/31/97 10/31/97
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
- -------------------------------------------------------------------------- ---------------------------------------------
SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
Series A, 5.50%, 2011 - 1,522,500 1,522,500
Wisconsin State Transportation Revenue Bonds, Series A,
5.50%, 2012 - 2,546,875 2,546,875
---------------------------------------------
- 9,253,125 9,253,125
---------------------------------------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(COST - MUNICIPAL $16,066,278, TAX-FREE $239,111,498) $ 16,641,375 $ 254,071,756 $ 270,713,131
=============================================
- --------------------------------------------------------------
</FN>
----------------------
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages indicated are based on net
assets of $16,821,447 for the Municipal Bond Fund and
$256,486,302 for the Tax-Free Fund, for a combined total
net assets of $273,307,749.
</TABLE>
B-28
<PAGE> 213
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND (UNAUDITED)
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENTS OF ASSET AND LIABILITIES
NATIONWIDE INVESTING FOUNDATION III (NIF III)
NATIONWIDE TAX-FREE INCOME FUND
OCTOBER 31, 1997 OCTOBER 31, 1997 OCTOBER 31, 1997
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX-FREE (COMBINED
BOND FUND INCOME FUND FUNDS')
<S> <C> <C> <C>
ASSETS
Investments in securities, at value (cost $16,066,278 $ 16,641,375 $ 254,071,756 $ 270,713,131
and $239,111,498, respectively)
Receivable for Fund shares sold 200 26,658 26,858
Receivable for investment securities sold 222,493 1,255,406 1,477,899
Accrued interest and dividends receivable 261,276 4,872,882 5,134,158
--------------------------------------------------------------
TOTAL ASSETS $ 17,125,344 $ 260,226,702 $ 277,352,046
--------------------------------------------------------------
LIABILITIES
Bank Loan 210,307 490,255
Payable for Fund shares redeemed 42,339 746,841 789,180
Payable for investment securities purchased - 1,969,091 1,969,091
Accrued management fees 9,774 141,411 151,185
Accrued transfer agent fees 980 12,614 13,594
Accrued distribution fees - 43,581 43,581
Dividends payable 30,222 290,851 321,073
Other accrued expenses 10,275 45,756 56,031
--------------------------------------------------------------
TOTAL LIABILITIES $ 303,897 $ 3,740,400 $ 4,044,297
--------------------------------------------------------------
NET ASSETS $ 16,821,447 $ 256,486,302 $ 273,307,749
==============================================================
NET ASSETS REPRESENTED BY:
Capital Shares $ 1,513,368 $ 24,412,274 $ 25,925,642
Capital paid in excess of par value 15,524,635 218,017,515 233,542,150
Net unrealized appreciation 575,097 14,960,258 15,535,355
Accumulated undistributed net realized loss (791,653) (903,745) (1,695,398)
==============================================================
NET ASSETS $ 16,821,447 $ 256,486,302 $ 273,307,749
==============================================================
Shares outstanding (unlimited number
of shares authorized) 1,513,368 24,412,274 26,012,792
==============================================================
Net asset value and offering price per share $ 11.12 $ 10.51 $ 10.51
==============================================================
</TABLE>
B-29
<PAGE> 214
<TABLE>
<CAPTION>
NATIONWIDE INVESTING FOUNDATION II (NIF II) TAX-FREE INCOME FUND AND (UNAUDITED)
FINANCIAL HORIZONS INVESTMENT TRUST (FHIT) MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NATIONWIDE INVESTING FOUNDATION III (NIF III)
NATIONWIDE TAX-FREE INCOME FUND
YEAR ENDED OCTOBER 31, 1997
-------------------------------------------------------------------------------------
FHIT NIF II (PRO FORMA)
MUNICIPAL TAX-FREE PRO FORMA (COMBINED
BOND FUND INCOME FUND ADJUSTMENTS FUNDS')
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Interest $ 1,069,550 $ 15,160,450 $ - $ 16,230,000
EXPENSES:
Distribution fees 139,464 911,855 (1,051,319) (1) -
Investment management fees 121,837 1,688,233 (420,979) (2) 1,389,091
Administration fees - - 189,641 (3) 189,641
Transfer agent fees 11,000 135,800 - 146,800
Shareholders' reports 5,000 97,996 11,353 (4) 114,349
Registration fees 3,510 23,453 - 26,963
Professional services 5,870 19,428 2,838 (4) 28,136
Custodian fees 7,000 17,001 - 24,001
Trustees' fees and expenses 3,323 2,740 - 6,063
Other 466 8,107 - 8,573
-------------------------------------------------------------------------------------
Total expenses before waived expenses 297,470 2,904,613 (1,268,466) 1,933,617
Total waived expenses (137,225) (390,795) 528,020 (5) -
-------------------------------------------------------------------------------------
Net expenses 160,245 2,513,818 (740,446) 1,933,617
-------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 909,305 $ 12,646,632 $ 740,446 $ 14,296,383
=====================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 159,282 2,342,626 - 2,501,908
Net change in unrealized appreciation 416,404 4,275,526 - 4,691,930
Net realized and unrealized gain
-------------------------------------------------------------------------------------
on investments $ 575,686 $ 6,618,152 $ - $ 7,193,838
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,484,991 $ 19,264,784 $ 740,446 $ 21,490,221
=====================================================================================
<FN>
(1) To adjust Distribution fees to replace the fee structure for the combined assets in NIF III.
(2) To adjust Investment management fees to replace the fee structure for the combined assets in NIF III.
(3) To include an Adminstration fee on the combined assets in NIF III.
(4) To include estimated reorganization costs.
(5) To remove waived expenses.
</TABLE>
B-30
<PAGE> 215
NATIONWIDE INVESTING FOUNDATION II
NATIONWIDE TAX-FREE INCOME FUND
FINANCIAL HORIZONS INVESTMENT TRUST
MUNICIPAL BOND FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE TAX-FREE INCOME FUND
(UNAUDITED)
1. BASIS OF COMBINATION
The pro forma combined statement of assets and liabilities, including the pro
forma combined schedule of investments reflect the accounts of the Financial
Horizons Investment Trust Municipal Bond Fund and the Nationwide Investing
Foundation II Tax-Free Income Fund as of October 31, 1997 and the related pro
forma combined statement of operations for the Nationwide Investing Foundation
III Nationwide Tax-Free Income Fund for the year ended October 31, 1997.
The pro forma combined financial statements give effect to the proposed transfer
of the assets and liabilities of the Financial Horizons Investment Trust
Municipal Bond Fund and the Nationwide Investing Foundation Nationwide II
Tax-Free Income Fund in exchange for shares of the Nationwide Investing
Foundation III Nationwide Tax-Free Income Fund. Under the terms of the Agreement
and Plan of Reorganization between Financial Horizons Investment Trust, on
behalf of the Municipal Bond Fund, and Nationwide Investing Foundation III and
Nationwide Investing Foundation II, on behalf of the Tax-Free Income Fund, and
Nationwide Investing Foundation III, the combination of the Municipal Bond Fund
and the Tax-Free Income Fund will be treated as a tax-free business combination.
Accordingly, the historical cost of the investment securities will be carried
forward to the surviving fund and the results of operation of the surviving fund
for the pre-combining periods will not be restated.
Each Fund has a similar investment objective which will remain unchanged as a
result of the combination.
The pro forma financial statements should be read in conjunction with the
historical financial statements of each Fund incorporated by reference to the
respective prospectuses or statements of additional information. The pro forma
combined statement of assets and liabilities has been prepared as if the
combination had taken place at October 31, 1997.
2. PRO FORMA OPERATIONS
The pro forma combined statement of operations assumes similar rates of gross
investment income from the investments of each Fund. Accordingly, the combined
gross investment income is equal to the sum of the gross investment income of
each Fund.
Pro forma operating expenses reflect the expected expenses of the Nationwide
Investing Foundation III Nationwide Tax-Free Income Fund after combination. As
such, pro forma fees for investment advisory, administration, and distribution
were calculated based on the fee schedules proposed for the Nationwide Investing
Foundation III Nationwide Tax-Free Income Fund.
The pro forma combined statement of operations has been prepared as if the
combination had taken place on November 1, 1996.
3. SURVIVING ENTITY
The Nationwide Investing Foundation II Nationwide Tax-Free Income Fund will be
the surviving entity for accounting purposes. This determination was based upon
(i) the continued use of such Fund's investment objective, policies and
restrictions, (ii) the relative expense structure of each Fund, (iii) such
Fund's portfolio composition, and (iv) the relative size of each Fund.
B-31
<PAGE> 216
Registration Statement
of
NATIONWIDE INVESTING FOUNDATION III
on
Form N-14
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
The information required by this item is incorporated by
reference to the Item 27 of Registrant's Registration
Statement on Form N-1A (File No. 333-40455) filed on November
18, 1997, under the Securities Act of 1933 and the Investment
Company Act of 1940 (File No. 811-08495).
Item 16. Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Declaration of Trust is incorporated by reference
to Exhibit (1) to Registrant's Registration
Statement on Form N-1A (File No. 333-40455) filed
on November 18, 1997.
(2) By-Laws are incorporated by reference to Exhibit (2)
to Registrant's Registration Statement on Form N-1A
(File No. 333-40455) filed on November 18,
1997.
(3) Not Applicable.
(4) (a) Agreement and Plan of Reorganization dated as
of November 24, 1997, between Registrant and
Nationwide Investing Foundation is
incorporated by reference to Exhibit (4)(a) to
Registrant's Registration Statement on Form N-
14 (File No. 333-41175) filed on November 26,
1997.
(b) Agreement and Plan of Reorganization dated
as of November 24, 1997, between Registrant
and Nationwide Investing Foundation II is
incorporated by reference to Exhibit (4)(b)
to Registrant's Registration Statement on
Form N-14 (File No. 333-41175) filed on
November 26, 1997.
(c) Agreement and Plan of Reorganization dated
as of November 24, 1997, as amended as of
December 30, 1997, between Registrant and
Financial Horizons Investment Trust.
(5) Certificates for shares are not issued. Articles V,
VI, VII and VIII of the Declaration of Trust,
incorporated by reference to Exhibit (1) hereto,
define rights of holders of shares.
</TABLE>
<PAGE> 217
<TABLE>
<CAPTION>
<S> <C> <C>
(6) Proposed Investment Advisory Agreement between
Registrant and Nationwide Advisory Services, Inc. is
incorporated by reference to Exhibit (5) to
Registrant's Registration Statement on Form N-1A
(File No. 333-40455) filed on November 18, 1997.
(7) Proposed Underwriting Agreement between Registrant
and Nationwide Advisory Services, Inc. is
incorporated by reference to Exhibit (6) to
Registrant's Registration Statement on Form N-1A
(File No. 333-40455) filed on November 18, 1997.
(8) Not Applicable.
(9) Proposed Custody Agreement between Registrant and The
Fifth Third Bank is incorporated by reference to
Exhibit (8) to Registrant's Registration Statement on
Form N-1A (File No. 333-40455) filed on November 18,
1997.
(10) Proposed Distribution Plan is incorporated by
reference to Exhibit (15) to Registrant's
Registration Statement on Form N-1A (File No. 333-
44505) filed on November 18, 1997.
(11) Opinion and Consent of Druen, Dietrich, Reynolds &
Koogler as to the shares offered hereby is
incorporated by reference to Exhibit (11) to
Registrant's Registration Statement on Form N-14
(File No. 333-41175) filed on November 26, 1997.
(12) Opinions and Consents of Baker & Hostetler LLP as to
Tax Matters to be filed by amendment.
(13) (a) Proposed Fund Administration Agreement
between Registrant and Nationwide Advisory
Services, Inc. is incorporated by reference
to Exhibit (9)(b) to Registrant's
Registration Statement on Form N-1A (File
No. 333-40455) filed on
November 18, 1997.
(b) Proposed Transfer and Dividend Disbursing
Agent Agreement between Registrant and
Nationwide Investors Services, Inc. is
incorporated by reference to Exhibit (9)(b)
to Registrant's Registration Statement on
Form N- 1A (File No. 333-44505) filed on
November 18, 1997.
(14) (a) Consent of KPMG Peat Marwick LLP
(b) Consent of Druen, Dietrich, Reynolds & Koogler
(c) Consent of Baker & Hostetler LLP
</TABLE>
C-2
<PAGE> 218
<TABLE>
<CAPTION>
<S> <C> <C>
(15) Not Applicable.
(16) Power of Attorney of Robert M. Duncan. Powers of
Attorney of Sue A. Doody, Dimon R. McFerson, Nancy
C. Thomas, Harold W. Weihl, Douglas F. Kridler,
John C. Bryant, C. Brent DeVore, Charles L.
Fuellgraf, Jr., David C. Wetmore and Thomas J.
Kerr, IV are incorporated by reference to Exhibit
(16) to Registrant's Registration Statement on Form
N-14 (File No. 333-41175) filed on November 26,
1997.
(17) (a) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 for the
Registrant dated November 18, 1997 is
incorporated by reference to Exhibit (17)(a)
to Registrant's Registration Statement on Form
N-14 (File No. 333-41175) filed on November
26, 1997.
(b) Current form of Prospectus dated December __,
1997, and Statement of Additional Information
dated December __, 1997, for Nationwide
Investing Foundation III, with respect to
Nationwide Mid-Cap Growth Fund, Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund, Nationwide Tax-Free Income Fund,
Nationwide Long-Term U.S. Government Bond
Fund, Nationwide Intermediate U.S. Government
Bond Fund and Nationwide Money Market Fund in
the form filed with the Securities and
Exchange Commission on November 18, 1997, as
part of Registrant's Registration Statement on
Form N-1A are incorporated by reference to
Exhibit (17)(b) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175)
filed on November 26, 1997.
(c) Prospectus dated February 28, 1997 and
Statement of Additional Information dated
February 28, 1997, for each of Nationwide
Investing Foundation and Nationwide Investing
Foundation II with respect to Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund, Nationwide Tax-Free Income Fund,
Nationwide U.S. Government Income Fund and
Nationwide Money Market Fund are incorporated
by reference to Exhibit (17)(c) to
Registrant's Registration Statement on Form N-
14 (File No. 333-41175) filed on November 26,
1997.
(d) Prospectus dated February 28, 1997, as
supplemented March 17, 1997 and September 5,
1997, and Statement of Additional
Information
</TABLE>
C-3
<PAGE> 219
<TABLE>
<CAPTION>
<S> <C> <C>
dated February 28, 1997, for Financial
Horizons Investment Trust with respect to
Growth Fund, Cash Reserve Fund, Government
Bond Fund and Municipal Bond Fund are
incorporated by reference to Exhibit (17)(c)
to Registrant's Registration Statement on
Form N-14 (File No. 333-41175) filed on
November 26, 1997.
(e) Financial Data Schedules for each of
Nationwide Investing Foundation with respect
to Nationwide Growth Fund, Nationwide Fund,
Nationwide Bond Fund and Nationwide Money
Market Fund, Nationwide Investing Foundation
II with respect to Nationwide Tax-Free Income
Fund and Nationwide U.S. Government Income
Fund and Financial Horizons Investment Trust
with respect to Growth Fund, Cash Reserve
Fund, Government Bond Fund and Municipal Bond
Fund.
(f) Supplements dated December 8, 1997, to the
Prospectuses of each of Nationwide Investing
Foundation, Nationwide Investing Foundation
II and Financial Horizons Investment Trust,
each dated as of February 28, 1997.
(g) Annual Reports to Shareholders as of October
31, 1997 of each of Nationwide Investing
Foundation, Nationwide Investing Foundation
II and Financial Horizons Investment Trust.
(h) Supplements dated December 23, 1997, to be
Prospectuses of Nationwide Investing
Foundation and Nationwide Investing
Foundation II, each dated as of February
28, 1997.
</TABLE>
Item 17. UNDERTAKINGS
(1) Registrant agrees that prior to any public
reoffering of the securities registered through the
use of a prospectus which is a part of this
registration statement by any person or party who
is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a
part of an amendment to the registration statement
and will not be used until the amendment is
effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement
for the securities offered therein, and the
offering of the securities at that time shall be
C-4
<PAGE> 220
deemed to be the initial bona fide offering of
them.
(3) Registrant hereby undertakes to file by
post-effective amendment the opinions of Baker &
Hostetler LLP supporting the tax consequences of the
proposed reorganization described herein within a
reasonable time after receipt of such opinions.
C-5
<PAGE> 221
SIGNATURES
----------
As required by the Securities Act of 1933, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of Columbus and State of Ohio on the 5th
day of January, 1998.
NATIONWIDE INVESTING FOUNDATION III
By /s/ James F. Laird, Jr.
-------------------------------------
James F. Laird, Jr.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title \Date
--------- ----- ----
<S> <C> <C>
/s/*Dimon R. McFerson Chairman (Principal January 5, 1998
- ----------------------------
Dimon R. McFerson Executive Officer)
and Trustee
/s/*John C. Bryant Trustee January 5, 1998
- ----------------------------
John C. Bryant
/s/*C. Brent Devore Trustee January 5, 1998
- ----------------------------
C. Brent Devore
/s/*Sue A. Doody Trustee January 5, 1998
- ----------------------------
Sue A. Doody
/s/*Robert M. Duncan Trustee January 5, 1998
- ----------------------------
Robert M. Duncan
/s/*Charles L. Fuellgraf, Jr. Trustee January 5, 1998
- ----------------------------
Charles L. Fuellgraf, Jr.
/s/*Thomas J. Kerr, IV Trustee January 5, 1998
- ----------------------------
Thomas J. Kerr, IV
/s/*Douglas F. Kridler Trustee January 5, 1998
- ----------------------------
Douglas F. Kridler
/s/*Nancy C. Thomas Trustee January 5, 1998
- ----------------------------
Nancy C. Thomas
/s/*Harold W. Weihl Trustee January 5, 1998
- ----------------------------
Harold W. Weihl
/s/*David C. Wetmore Trustee January 5, 1998
- ----------------------------
David C. Wetmore
/s/ James F. Laird, Jr. Treasurer (Principal January 5, 1998
- ---------------------------
James F. Laird, Jr. Financial and Accounting
Officer)
*By/s/James F. Laird, Jr. January 5, 1998
------------------------
James F. Laird, Jr.
Attorney-In-Fact
</TABLE>
C-6
<PAGE> 222
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- -------------------------------------------------- -----
<S> <C> <C> <C>
(1) Declaration of Trust was filed as Exhibit (1)
to Registrant's Registration Statement on Form
N-1A (File No. 333-40455) on November 18,
1997.
(2) By-Laws were filed as Exhibit (2) to
Registrant's Registration Statement on Form N-
1A (File No. 333-40455) on November 18, 1997.
(4)(a) Agreement and Plan of Reorganization dated as
of November 24, 1997, between Registrant and
Nationwide Investing Foundation was filed as
Exhibit (4)(a) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175).
(b) Agreement and Plan of Reorganization dated as of
November 24, 1997, between Registrant and
Nationwide Investing Foundation II was filed as
Exhibit (4)(a) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175).
(c) Agreement and Plan of Reorganization dated as of
November 24, 1997, as amended as of December 30,
1997, between Registrant and Financial Horizons
Investment Trust.
(6) Proposed Investment Advisory Agreement between
Registrant and Nationwide Advisory Services,
Inc. was filed as Exhibit (5) to Registrant's
Registration Statement on Form N-1A (File No.
333-40455) filed on November 18, 1997.
(7) Proposed Underwriting Agreement between
Registrant and Nationwide Advisory Services,
Inc. was filed as Exhibit (6) to Registrant's
Registration Statement on Form N-1A (File No.
333-40455) filed on November 18, 1997.
(9) Proposed Custody Agreement between Registrant
and The Fifth Third Bank was filed as Exhibit
(8) to Registrant's Registration Statement on
Form N-1A (File No. 333-40455) filed on
November 18, 1997.
(10) Proposed Distribution Plan was filed as
Exhibit (15) to Registrant's Registration
Statement on Form N-1A (File No. 333-44505)
filed on November 18, 1997.
</TABLE>
C-7
<PAGE> 223
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- -------------------------------------------------- -----
<S> <C> <C> <C>
(11) Opinion and Consent of Druen, Dietrich,
Reynolds & Koogler as to the shares offered
hereby was filed as Exhibit (11) to
Registrant's Registration Statement on Form N-
14 (File No. 333-41175).
(12) Opinions and Consents of Baker & Hostetler LLP as
to Tax Matters to be filed by amendment.
(13)(a) Proposed Fund Administration Agreement between
Registrant and Nationwide Advisory Services,
Inc. was filed as Exhibit (9)(b) to
Registrant's Registration Statement on Form N-
1A (File No. 333-40455) filed on November 18,
1997.
(b) Proposed Transfer and Dividend Disbursing Agent
Agreement between Registrant and Nationwide
Investors Services, Inc. was filed as Exhibit
(9)(b) to Registrant's Registration Statement
on Form N-1A (File No. 333-44505) filed on
November 18, 1997.
(14)(a) Consent of KPMG Peat Marwick LLP
(b) Consent of Druen, Dietrich, Reynolds & Koogler
(c) Consent of Baker & Hostetler LLP
(16) Power of Attorney of Robert M. Duncan. Powers
of Attorney of Sue A. Doody, Dimon R.
McFerson, Nancy C. Thomas, Harold W. Weihl,
Douglas F. Kridler, John C. Bryant, C. Brent
DeVore, Charles L. Fuellgraf, Jr., David C.
Wetmore and Thomas J. Kerr, IV were filed as
Exhibit (16) to Registrant's Registration
Statement on Form N-14 (File No. 333-41175).
(17)(a) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 for the
Registrant dated November 18, 1997 was filed
as Exhibit (17)(a) to Registrant's
Registration Statement on Form N-14 (File No.
333-41175).
(b) Current form of Prospectus dated December __,
1997, and Statement of Additional Information
dated December __, 1997, for Nationwide
Investing Foundation III, with respect to
Nationwide Mid-Cap Growth Fund, Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund, Nationwide Tax-Free Income Fund,
</TABLE>
C-8
<PAGE> 224
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- -------------------------------------------------- -----
<S> <C> <C> <C>
Nationwide Long-Term U.S. Government Bond Fund,
Nationwide Intermediate U.S. Government Bond Fund
and Nationwide Money Market Fund in the form filed
with the Securities and Exchange Commission on
November 18, 1997, as part of Registrant's
Registration Statement on Form N- 1A were filed as
Exhibit (17)(b) to Registrant's Registration
Statement on Form N- 14 (File No. 333-41175).
(c) Prospectus dated February 28, 1997, and
Statement of Additional Information dated
February 28, 1997, for each of Nationwide
Investing Foundation and Nationwide Investing
Foundation II with respect to Nationwide Growth
Fund, Nationwide Fund, Nationwide Bond Fund,
Nationwide Tax-Free Income Fund, Nationwide
U.S. Government Income Fund and Nationwide
Money Market Fund were filed as Exhibit (17)(c)
to Registrant's Registration Statement on Form
N-14 (File No. 333-41175).
(d) Prospectus dated February 28, 1997, as
supplemented March 17, 1997 and September 5,
1997, and Statement of Additional Information
dated February 28, 1997, for Financial Horizons
Investment Trust with respect to Growth Fund,
Cash Reserve Fund, Government Bond Fund and
Municipal Bond Fund were filed as Exhibit
(17)(c) to Registrant's Registration Statement
on Form N-14 (File No. 333-41175).
(e) Financial Data Schedules for each of Nationwide
Investing Foundation with respect to Nationwide
Growth Fund, Nationwide Fund, Nationwide Bond
Fund and Nationwide Money Market Fund,
Nationwide Investing Foundation II with respect
to Nationwide Tax-Free Income Fund and
Nationwide U.S. Government Income Fund and
Financial Horizons Investment Trust with
respect to Growth Fund, Cash Reserve Fund,
Government Bond Fund and Municipal Bond Fund.
(f) Supplements dated December 8, 1997, to the
Prospectuses of each of Nationwide Investing
Foundation, Nationwide Investing Foundation II and
Financial Horizons Investment Trust, each dated as
of February 28, 1997.
(g) Annual Reports to Shareholders as of October 31,
1997 of each of Nationwide Investing Foundation,
Nationwide Investing Foundation II and Financial
Horizons Investment Trust.
(h) Supplements dated December 23, 1997, to the
Prospectuses of Nationwide Investing Foundation
and Nationwide Investing Foundation II, each
dated as of February 28, 1997.
</TABLE>
C-9
<PAGE> 225
As filed with the Securities and Exchange Commission January 7, 1998
1933 Act Registration No. 333-41175
EXHIBITS TO
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
Nationwide Investing Foundation III
(Exact Name of Registrant as Specified in Charter)
Three Nationwide Plaza
Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 848-0920
<PAGE> 1
Exhibit (4)(c)
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
Agreement and Plan of Reorganization ("Agreement") dated as of November
24, 1997, as amended as of December 30, 1997, by and between Financial Horizons
Investment Trust, a Massachusetts business trust ("FHIT"), and Nationwide
Investing Foundation III, an Ohio business trust ("NIF III").
WHEREAS, FHIT is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end investment company of the management
type and has issued and outstanding shares of beneficial interest, par value
$1.00 per share, of the following four series: Growth Fund ("FHIT Growth Fund"),
Municipal Bond Fund ("FHIT Municipal Bond Fund"), Government Bond Fund ("FHIT
Government Bond Fund") and Cash Reserve Fund ("FHIT Cash Reserve Fund", and,
together with each of the FHIT's other three series described in this paragraph,
the "Acquired Series"); and
WHEREAS, NIF III is registered under the 1940 Act as an open-end
investment company of the management type, and has authorized the issuance of
Class D shares of beneficial interest, without par value, of the following
series (Nationwide Money Market Fund will only issue shares of beneficial
interest, without par value, without any class designation): Nationwide Mid Cap
Growth Fund ("NIF III Mid Cap Fund"), Nationwide Tax-Free Income Fund ("NIF III
Tax-Free Income Fund"), Nationwide Long-Term U.S. Government Bond Fund ("NIF III
Long-Term U.S. Government Bond Fund"), and Nationwide Money Market Fund ("NIF
III Money Market Fund", and, together with each of NIF III's other three series
described in this paragraph, the "Acquiring Series"); and
WHEREAS, Each Acquiring Series currently is a shell series, without
assets or liabilities, created for the purpose of acquiring the assets and
liabilities of the corresponding Acquired Shares; and
WHEREAS, Each of the Acquired Series plans to transfer all assets
belonging to such series, and to assign all of the liabilities belonging to such
series, to the corresponding Acquiring Series, in exchange for Class D shares
(or, in the case of NIF III Money Market Fund, shares of beneficial interest,
without par value, without any class designation) of the corresponding Acquiring
Series ("Acquiring Series Shares"), which are voting securities, followed by the
distribution of the Acquiring Series Shares by each Acquired Series to the
shareholders
-1-
<PAGE> 2
of the Acquired Series in connection with the dissolution of FHIT and the
Acquired Series, all upon the terms and provisions of this Agreement
(individually and together, the "Reorganization"); and
WHEREAS, The Acquired Series and the Acquiring Series correspond to one
another as follows: FHIT Growth Fund corresponds to NIF III Mid Cap Fund, FHIT
Municipal Bond Fund corresponds to NIF III Tax-Free Income Fund, FHIT Government
Bond Fund corresponds to NIF III Long-Term U.S. Government Bond Fund, and FHIT
Cash Reserve Fund corresponds to NIF III Money Market Fund; and
WHEREAS, Each of the Acquired Series is, and each of the Acquiring
Series intends to be, a regulated investment company as described in Section 851
of the United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Code for each Acquired Series and its corresponding Acquiring Series; and
WHEREAS, The Board of Trustees of FHIT has determined that the
Reorganization is in the best interests of FHIT, and that the interests of its
shareholders will not be diluted as a result thereof; and
WHEREAS, The Board of Trustees of NIF III has determined that the
Reorganization is in the best interests of NIF III and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION
(a) SALE OF ASSETS, ASSUMPTION OF LIABILITIES. Subject to the
prior approval of shareholders of FHIT and to the other terms and
conditions contained herein (including the condition that each Acquired
Series shall distribute to its shareholders all of its investment
company taxable income and net capital gain as described in Section
9(h) herein), FHIT and the Acquired Series agree to assign, convey,
transfer and deliver to NIF III and the Acquiring Series, and NIF III
and the Acquiring Series agree to acquire from FHIT and the Acquired
Series on the Exchange Date (as defined below), all of the Investments
(as defined below), cash and other assets of FHIT in exchange for that
number of full and fractional Acquiring Series Shares of the
corresponding Acquiring Series having an
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aggregate net asset value equal to the value of all assets of FHIT
transferred to the Acquiring Series, as provided in Section 4, less the
liabilities of FHIT assumed by the Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the
Acquiring Series from FHIT shall consist of all of FHIT's property,
including, without limitation, all Investments (as defined below), cash
and dividends or interest receivables which are owned by FHIT and any
deferred or prepaid expenses shown as an asset on the books of FHIT as
of the Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date, FHIT will
endeavor to discharge or cause to be discharged, or make provision for
the payment of, all of its known liabilities and obligations. The
Acquiring Series shall assume all liabilities, expenses, costs, charges
and reserves of FHIT, contingent or otherwise, including liabilities
reflected in the unaudited statements of assets and liabilities of FHIT
as of the Valuation Time, prepared by or on behalf of FHIT as of the
Valuation Time in accordance with generally accepted accounting
principles consistently applied from and after October 31, 1996, and
including all liabilities of FHIT under its registration statement on
Form N-1A filed with the Securities and Exchange Commission
("Commission") under the Securities Act of 1933, as amended ("1933
Act").
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, each
Acquired Series shall distribute to its shareholders of record as of
the Exchange Date the Acquiring Series Shares received by it, each
Acquired Series shareholder of record being entitled to receive that
number of Acquiring Series Shares equal to the proportion which the
number of shares of beneficial interest, par value $1.00 per share, of
the Acquired Series held by such shareholder bears to the total number
of such shares of the Acquired Series outstanding on such date, and
shall take such further action as may be required, necessary or
appropriate under FHIT's Amended Declaration of Trust, Massachusetts
law and the Code to effect the complete liquidation and dissolution of
FHIT. FHIT will fulfill all reporting requirements under the 1940 Act,
both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FHIT. FHIT represents and
warrants to and agrees with NIF III and the Acquiring Series that:
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(a) FHIT is a business trust validly existing under the laws
of the Commonwealth of Massachusetts and has power to own all of its
properties and assets and to carry out its obligations under this
Agreement.
(b) FHIT is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. FHIT has
elected to qualify and has qualified each of the Acquired Series as a
regulated investment company under Part I of Subchapter M of the Code
as of and since its first taxable year, and each such Acquired Series
qualified and intends to continue to qualify as a regulated investment
company for its taxable year ending upon its liquidation. Each Acquired
Series has been a regulated investment company under such sections of
the Code (and predecessors of the Code) at all times since its
inception.
(c) The statements of assets and liabilities, including the
statements of investments as of October 31, 1996, and the related
statements of operations for the year then ended, and statements of
changes in net assets for each of the two years in the period then
ended, for FHIT, such statements having been audited by KPMG Peat
Marwick LLP, independent auditors of FHIT, have been furnished to NIF
III. Such statements of assets and liabilities fairly present the
financial position of FHIT as of such date and such statements of
operations and changes in net assets fairly reflect the results of
operations and changes in net assets for the periods covered thereby in
conformity with generally accepted accounting principles, and there are
no known material liabilities of FHIT as of such dates which are not
disclosed therein.
(d) The Prospectus of FHIT dated February 28, 1997 and its
related Statement of Additional Information dated February 28, 1997
(together, the "FHIT Prospectus"), in the form filed under the 1933 Act
with the Commission and previously furnished to NIF III, did not as of
their date and do not as of the date hereof contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(e) Except as may have been previously disclosed to NIF III,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of FHIT, threatened against FHIT.
(f) There are no material contracts outstanding to which FHIT
is a party, other than as disclosed in the FHIT
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Prospectus, and there are no such contracts or commitments (other than
this Agreement) which will be terminated with liability to FHIT on or
prior to the Exchange Date.
(g) FHIT has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statements of assets and liabilities at October 31, 1996 and those
incurred in the ordinary course of FHIT's business as an investment
company since that date.
(h) As used in this Agreement, the term "Investments" shall
mean FHIT's investments shown on the statements of assets and
liabilities at October 31, 1996 referred to in Section 2(g) hereof, as
supplemented with such changes as FHIT shall make after October 31,
1996 in the ordinary course of its business.
(i) FHIT has filed or will file all federal and state tax
returns which, to the knowledge of FHIT's officers, are required to be
filed by FHIT and has paid or will pay all federal and state taxes
shown to be due on said returns or on any assessments received by FHIT.
All tax liabilities of FHIT have been adequately provided for on its
books, and no tax deficiency or liability of FHIT has been asserted,
and no question with respect thereto has been raised, by the Internal
Revenue Service or by any state or local tax authority for taxes in
excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and
except for shareholder approval and otherwise as described in Section
2(1), FHIT will have full right, power and authority to assign,
transfer and deliver the Investments and any other of its assets and
liabilities to be transferred to NIF III and the Acquiring Series
pursuant to this Agreement. On the Exchange Date, subject only to the
delivery of the Investments and any such other assets and liabilities
as contemplated by this Agreement, NIF III and the Acquiring Series
will acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of FHIT and, except as described in Section 2(k), without any
restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the
Investments would be required if they were, as of the time of such
transfer, the subject of a public distribution by either of FHIT or NIF
III, except as previously disclosed to NIF III by FHIT prior to the
date hereof.
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(l) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by FHIT of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, state securities or blue sky
laws (which term as used herein shall include the laws of the District
of Columbia and of Puerto Rico) or state laws applicable to business
trusts.
(m) The registration statement (the "N-14 Registration
Statement") to be filed with the Commission by NIF III on Form N-14
relating to the Acquiring Series Shares issuable hereunder, and the
proxy statement of FHIT included therein (the "Proxy Statement"), on
the effective date of the N-14 Registration Statement and insofar as
they relate to FHIT and the Acquired Series, (i) will comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder and (ii) will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 below and on the Exchange Date, the
prospectus contained in the N-14 Registration Statement of which the
Proxy Statement is a part, as amended or supplemented by any amendments
or supplements filed with the Commission by NIF III, (together, the
"N-14 Prospectus") insofar as it relates to FHIT and the Acquired
Series, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that the representations and warranties in this Section 2(m)
shall apply only to statements of fact relating to FHIT and the
Acquired Series contained in the N-14 Registration Statement, the N-14
Prospectus and the Proxy Statement, or omissions to state in any
thereof a material fact relating to FHIT or any Acquired Series, as
such Registration Statement, N-14 Prospectus and Proxy Statement shall
be furnished to FHIT in definitive form as soon as practicable
following effectiveness of the N-14 Registration Statement and before
any public distribution of the N-14 Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF NIF III. NIF III
represents and warrants to and agrees with FHIT that:
(a) NIF III is a business trust validly existing under the
laws of the State of Ohio and has power to carry on its business as it
is now being conducted and to carry out its obligations under this
Agreement.
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(b) NIF III is registered under the 1940 Act as an open-end
investment company of the management type. The Acquiring Series expect
to qualify as regulated investment companies under Part I of Subchapter
M of the Code.
(c) The Acquiring Series will have no assets or liabilities as
of the Valuation Time.
(d) The final prospectus of each Acquiring Series, expected to
be dated as of a date in December, 1997 or January, 1998, and the
related Statement of Additional Information for the Acquiring Series to
be dated as of such date (together, the "Acquiring Series Prospectus"),
in the forms to be filed by NIF III with the Commission, will be
furnished to FHIT promptly upon the completion thereof and will not as
of their date contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(e) There are no material legal, administrative or other
proceedings pending or, to the knowledge of NIF III or its Acquiring
Series threatened against NIF III or the Acquiring Series, which assert
liability on the part of NIF III or the Acquiring Series.
(f) There are no material contracts outstanding to which NIF
III or the Acquiring Series is a party, other than this Agreement and
material contracts disclosed in the N-14 Registration Statement.
(g) NIF III and the Acquiring Series will file all federal and
state tax returns which, to the knowledge of NIF III's officers, are
required to be filed by NIF III and the Acquiring Series and will pay
all federal and state taxes shown to be due on such returns or on any
assessments received by NIF III of the Acquiring Series.
(h) No consent, approval, authorization or order of any
governmental authority is required for the consummation by NIF III or
the Acquiring Series of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act, 1934 Act,
1940 Act, state securities or blue sky laws or state laws applicable to
business trusts.
(i) As of both the Valuation Time and the Exchange Date and
otherwise as described in Section 3(h), NIF III and the Acquiring
Series will have full right, power and authority to acquire the
Investments and any other assets and assume the
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liabilities of FHIT to be transferred to the Acquiring Series
pursuant to this Agreement.
(j) The N-14 Registration Statement, the N-14 Prospectus and
the Proxy Statement, on the effective date of the N-14 Registration
Statement and insofar as they relate to NIF III and the Acquiring
Series: (i) will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder, and (ii) will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred to in
Section 7 and on the Exchange Date, the N-14 Prospectus, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to
statements in or omissions from the N-14 Registration Statement, the
N-14 Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by FHIT or any Acquired Series
for use in the N-14 Registration Statement, the N-14 Prospectus or the
Proxy Statement.
(k) NIF III has no plan or intention to issue additional NIF
III shares of the Acquiring Series following the Reorganization except
for shares issued in the ordinary course of NIF III's business as an
open-end investment company, nor does NIF III have any plan or
intention to redeem or otherwise reacquire any shares of the Acquiring
Series issued to FHIT shareholders pursuant to the Reorganization,
other than through redemptions arising in the ordinary course of that
business. NIF III will actively continue FHIT's business in the same
manner that FHIT conducted it immediately before the Reorganization and
has no plan or intention to sell or otherwise dispose of any of the
assets to be acquired by NIF III in the Reorganization, except for
dispositions made in the course of its business and dispositions
necessary to maintain the status of each Acquiring Series as a
regulated investment company under Subchapter M of the Code.
(l) The Acquiring Series Shares to be issued by NIF III have
been duly authorized and when issued and delivered by NIF III to FHIT
pursuant to this Agreement will be legally and validly issued by NIF
III and will be fully paid and nonassessable and no shareholder of NIF
III will have any preemptive right of subscription or purchase in
respect thereof.
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(m) The issuance of Acquiring Series Shares pursuant to this
Agreement will be in compliance with all applicable federal and state
securities laws.
(n) Each Acquiring Series, upon filing of its first income tax
return at the completion of its first taxable year, will elect to be a
regulated investment company and until such time will take all steps
necessary to ensure its qualification as a regulated investment
company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, NIF III will
deliver to FHIT a number of corresponding Acquiring Series Shares
having an aggregate net asset value equal to the value of the assets of
FHIT acquired by the respective Acquiring Series, less the value of the
liabilities of FHIT assumed, determined as hereafter provided in this
Section 4.
(a) The net assets of FHIT and each Acquired Series will be
computed as of the Valuation Time, using the valuation procedures set
forth in the FHIT Prospectus.
(b) The net asset value of each of the Acquiring Series Shares
will be determined to the nearest full cent as of the Valuation Time,
and shall be set at the net asset value per share of the corresponding
Acquired Series as of the Valuation Time, provided that the net asset
value per share of the NIF III Tax-Free Income Fund shares utilized to
acquire the assets and liabilities of FHIT Municipal Bond Fund shall be
set at the net asset value per share of the NIF III Tax-Free Income
Fund shares utilized to acquire the assets and liabilities of
Nationwide Tax-Free Income Fund, a series of Nationwide Investing
Foundation II, and provided further that in the event NIF III Tax-Free
Income Fund does not acquire the assets and liabilities of Nationwide
Tax-Free Income Fund, a series of Nationwide Investing Foundation II,
the net asset value per share of the NIF III Tax-Free Income Fund
shares utilized to acquire the assets and liabilities of FHIT Municipal
Bond Fund shall be set at the net asset value per share of FHIT
Municipal Bond Fund as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard
Time, on February 28, 1998, or such earlier or later day as may be
mutually agreed upon in writing by the parties hereto (the "Valuation
Time").
(d) The Acquiring Series shall issue its Acquiring Series
Shares to FHIT on a share deposit receipt registered in the name of
FHIT. FHIT shall distribute in liquidation the Acquiring Series Shares
received by it hereunder PRO RATA to its shareholders by redelivering
such share deposit receipt to
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NIF III's transfer agent, which will as soon as practicable make such
modifications to the accounts for each former FHIT shareholder as may
be necessary and appropriate.
(e) The Acquiring Series shall assume all liabilities of FHIT,
whether accrued or contingent, described in subsection l(c) hereof in
connection with the acquisition of assets and subsequent dissolution of
FHIT or otherwise, except that recourse for assumed liabilities
relating to an Acquired Series shall be limited to the corresponding
Acquiring Series.
5. EXPENSES, FEES. ETC. Except as set forth below, each of FHIT and NIF
III shall be responsible for its respective fees and expenses of the
Reorganization; NIF III will be responsible for its organization costs;
and FHIT will be responsible for proxy solicitation and other costs
associated with the special meeting. Notwithstanding the foregoing,
Nationwide Advisory Services, Inc., investment adviser of FHIT and NIF
III, will be responsible for 50% of FHIT's and NIF III's fees and
expenses of the Reorganization and 50% of FHIT's proxy solicitation and
other costs associated with the special meeting.
6. EXCHANGE DATE. Delivery of the assets of FHIT to be transferred,
assumption of the liabilities of FHIT to be assumed, and the delivery
of Acquiring Series Shares to be issued shall be made at the offices of
FHIT, at 9:00 A.M. on March 1, 1998, or at such other time, date, and
location agreed to by FHIT and NIF III, the date and time upon which
such delivery is to take place being referred to herein as the
"Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION
(a) FHIT agrees to call a special meeting of its shareholders
as soon as is practicable for the purpose of considering the transfer
of all of the assets of FHIT to, and the assumption of all of the
liabilities of FHIT by, the Acquiring Series as herein provided,
authorizing and approving this Agreement, and authorizing and approving
the liquidation and dissolution of FHIT, and it shall be a condition to
the obligations of each of the parties hereto that the holders of
shares of beneficial interest, par value $1.00 per share, of FHIT shall
have approved this Agreement, and the transactions contemplated herein,
including the liquidation and dissolution of FHIT, in the manner
required by law and FHIT's Amended Declaration of Trust at such a
meeting on or before the Valuation Time.
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(b) FHIT agrees that the liquidation and dissolution of FHIT
will be effected in the manner provided in FHIT's Amended Declaration
of Trust and in accordance with applicable law, and that it will not
make any distribution of any Acquiring Series Shares to the
shareholders of FHIT without first paying or adequately providing for
the payment of all of FHIT's known debts, obligations and liabilities.
(c) Each of FHIT and NIF III will cooperate with the other,
and each will furnish to the other the information relating to itself
required by the 1934 Act and 1940 Act and the rules and regulations
thereunder to be set forth in the N- 14 Registration Statement,
including the N-14 Prospectus and N-14 Proxy Statement included
therein.
8. CONDITIONS OF FHIT'S OBLIGATIONS. The obligations of FHIT hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of FHIT, shall have been approved by the trustees and
shareholders of FHIT in the manner required by law.
(b) NIF III shall have executed and delivered to FHIT an
Assumption of Liabilities dated as of the Exchange Date pursuant to
which the Acquiring Series will assume all of the liabilities,
expenses, costs, charges and reserves of FHIT, contingent or otherwise,
including liabilities existing at the Valuation Time and described in
Section 1(c) hereof in connection with the transactions contemplated by
this Agreement; provided that recourse for assumed liabilities relating
to an Acquired Series shall be limited to the corresponding Acquiring
Series.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of NIF III made in this Agreement are
true and correct in all material respects as if made at and as of such
dates, NIF III and the Acquiring Series have complied with all of the
agreements and satisfied all of the conditions on their part to be
performed or satisfied at or prior to each of such dates, and NIF III
shall have furnished to FHIT a statement, dated the Exchange Date,
signed by NIF III's Chairman and Treasurer (or other financial officer)
certifying those facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
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(e) FHIT shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler in form reasonably satisfactory to FHIT, and dated
the Exchange Date, to the effect that (i) NIF III is a business trust
validly existing under the laws of the State of Ohio, (ii) the
Acquiring Series Shares to be delivered to FHIT as provided for by this
Agreement are duly authorized and upon such delivery will be validly
issued and will be fully paid and nonassessable by NIF III and no
shareholder of NIF III has any preemptive right to subscription or
purchase in respect thereof, (iii) this Agreement has been duly
authorized, executed and delivered by NIF III, and assuming due
authorization, execution and delivery of this Agreement by FHIT, is a
valid and binding obligation of NIF III, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles, (iv) the
execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated hereby will not, violate NIF III's
Declaration of Trust or its By-Laws or any provision of any agreement
known to such counsel to which NIF III or the Acquiring Series is a
party or by which it is bound, (v) to the knowledge of such counsel no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by NIF III or the Acquiring
Series of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, 1934 Act and 1940 Act and such as may
be required under state securities or blue sky laws or as may be
required under state laws applicable to business trusts. In rendering
such opinion Druen, Dietrich, Reynolds & Koogler may rely on certain
reasonable assumptions and certifications of fact received from NIF III
and its officers.
(f) FHIT shall have received an opinion of Baker & Hostetler
LLP addressed to FHIT, NIF III and each Acquiring Series and in a form
reasonably satisfactory to FHIT dated the Exchange Date, with respect
to the matters specified in Section 9(e) of this Agreement. In
rendering such opinion Baker & Hostetler LLP may rely on certain
reasonable assumptions and certifications of fact received from NIF
III, FHIT and certain of its shareholders.
(g) All necessary proceedings taken by NIF III in connection
with the transactions contemplated by this Agreement and all documents
incidental thereto reasonably shall be satisfactory in form and
substance to FHIT, Druen, Dietrich, Reynolds & Koogler and Baker &
Hostetler LLP.
(h) The N-14 Registration Statement shall have become
effective under the 1933 Act and applicable Blue Sky provisions, and no
stop order suspending such effectiveness shall have been instituted or,
to the knowledge of FHIT,
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contemplated by the Commission or any state regulatory authority.
(i) NIF III and FHIT shall have received from the Commission,
if necessary, a written order of exemption, satisfactory in form and
substance to NIF III and FHIT, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
(j) The Agreement and Plan of Reorganization dated as of
November 24, 1997 between Nationwide Investing Foundation, a Michigan
business trust ("NIF"), and NIF III, shall have been approved by the
shareholders of NIF as required by law and all other conditions in such
agreement shall have been satisfied
as of the Exchange Date.
9. CONDITIONS OF NIF III'S OBLIGATIONS. The obligations of NIF III and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of FHIT, shall have been approved by the trustees and
shareholders of FHIT in the manner required by law.
(b) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of FHIT made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, FHIT has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to each
of such dates, and FHIT shall have furnished to NIF III a statement,
dated the Exchange Date, signed by FHIT's Chairman and Treasurer (or
other financial officer) certifying those facts as of such dates.
(c) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(d) NIF III shall have received an opinion of Druen, Dietrich,
Reynolds & Koogler, in form reasonably satisfactory to NIF III and
dated the Exchange Date, to the effect that (i) FHIT is a business
trust validly existing under the laws of the Commonwealth of
Massachusetts, (ii) this Agreement has been duly authorized, executed
and delivered by FHIT and, assuming due authorization, execution and
delivery of this Agreement by NIF III, is a valid and binding
obligation of FHIT, enforceable in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights
generally and other equitable principles, (iii) FHIT
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has power to assign, convey, transfer and deliver the Investments and
other assets contemplated hereby and, upon consummation of the
transactions contemplated hereby in accordance with the terms of this
Agreement, FHIT will have duly assigned, conveyed, transferred and
delivered such Investments and other assets to NIF III, (iv) the
execution and delivery of this Agreement did not and the consummation
of the transactions contemplated hereby will not, violate FHIT's
Amended Declaration of Trust or its Amended Bylaws, as amended, or any
provision of any agreement known to such counsel to which FHIT is a
party or by which it is bound, and (v) to the knowledge of such counsel
no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FHIT of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, 1934 Act and 1940 Act and such as may be required
under state securities or blue sky laws or state laws applicable to
business trusts. In rendering such opinion, Druen, Dietrich, Reynolds &
Koogler may rely upon certain reasonable and customary assumptions and
certifications of fact received from FHIT and its officers.
(e) NIF III shall have received an opinion of Baker &
Hostetler LLP, addressed to NIF III, each Acquiring Series and FHIT, in
form reasonably satisfactory to NIF III and dated the Exchange Date, to
the effect that for Federal income tax purposes (i) the transfer of all
or substantially all of Acquired Series' assets in exchange for the
Acquiring Series Shares followed by the distribution of the Acquiring
Series Shares to the shareholders of the Acquired Series and the
assumption by the Acquiring Series of the liabilities of Acquired
Series will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and each of the Acquiring Series and Acquired
Series is a "party to a reorganization" within the meaning of Section
368(b) of the Code; (ii) no gain or loss will be recognized by Acquired
Series upon the transfer of the assets of the Acquired Series in
exchange for Acquiring Series Shares and the assumption by the
Acquiring Series of the liabilities of Acquired Series or upon the
distribution of Acquiring Series Shares by Acquired Series to its
shareholders in liquidation; (iii) no gain or loss will be recognized
by the shareholders of Acquired Series upon the exchange of their
shares for Acquiring Series Shares, (iv) the basis of the Acquiring
Series Shares an Acquired Series shareholder receives in connection
with the Reorganization will be the same as the basis of his or her
shares exchanged therefor; (v) an Acquired Series shareholder's holding
period for his or her Acquiring Series Shares will be determined by
including the period for which he or she held Acquired Series Shares
exchanged therefor, provided that he or she held such Shares as capital
assets; (vi) no gain or loss will be recognized by the Acquiring Series
upon the receipt of the assets of the corresponding
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Acquired Series in exchange for Acquiring Series Shares and the
assumption by the Acquiring Series of the liabilities of the
corresponding Acquired Series; (vii) the basis in the hands of the
Acquiring Series of the assets of the corresponding Acquired Series
transferred to the Acquiring Series will be the same as the basis of
the assets in the hands of the corresponding Acquired Series
immediately prior to the transfer; and (viii) the Acquiring Series'
holding periods of the assets of the corresponding Acquired Series will
include the period for which such assets of the corresponding Acquired
Series were held by the corresponding Acquired Series. In rendering
such opinion, Baker & Hostetler LLP may rely upon certain reasonable
and customary assumptions and certifications of fact received from NIF
III, FHIT, and certain of its shareholders.
(f) The N-14 Registration Statement shall have become
effective under the 1933 Act and applicable Blue Sky provisions, and no
stop order suspending such effectiveness shall have been instituted or,
to the knowledge of NIF III, contemplated by the Commission or any
state regulatory authority.
(g) All necessary proceedings taken by FHIT in connection with
the transactions contemplated by this Agreement and all documents
incidental thereto reasonably shall be satisfactory in form and
substance to NIF III, Druen Dietrich, Reynolds & Koogler and Baker &
Hostetler LLP.
(h) Prior to the Exchange Date, each Acquired Series shall
have declared a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to its
shareholders all of its investment company taxable income for its
taxable year ended October 31, 1997 and the short taxable year
beginning on November 1, 1997 and ending on the Valuation Time
(computed without regard to any deduction for dividends paid), and all
of its net capital gain realized in its taxable year ended October 31,
1997 and the short taxable year beginning November 1, 1997 and ending
on the Valuation Time (after reduction for any capital loss carryover).
(i) FHIT shall have duly executed and delivered to NIF III a
bill of sale, assignment, certificate and other instruments of transfer
("Transfer Documents") as NIF III may deem necessary or desirable to
transfer all of FHIT's entire right, title and interest in and to the
Investments and all other assets of FHIT to the Acquiring Series.
(j) NIF III and FHIT shall have received from the Commission,
if necessary, a written order of exemption, satisfactory in form and
substance to NIF III and FHIT,
-15-
<PAGE> 16
exempting the Reorganization from the provisions of Section
17(a) of the 1940 Act.
(k) The Agreement and Plan of Reorganization dated as of
November 24, 1997 between Nationwide Investing Foundation, a Michigan
business trust ("NIF"), and NIF III, shall have been approved by the
shareholders of NIF as required by law and all other conditions in such
agreement shall have been satisfied
as of the Exchange Date.
10. TERMINATION. NIF III and FHIT may, by mutual consent of their
respective trustees, terminate this Agreement, and NIF III or FHIT, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees may, subject to Section 11 of this
Agreement, waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes
all previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding with
respect to such subject matter and shall be construed in accordance with and
governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officer of NIF III
and FHIT; provided, however, that following the special meeting of FHIT's
shareholders called by FHIT pursuant to Section 7 of this Agreement, no such
amendment may have the effect of altering or changing the amount or kind of
shares received by FHIT, or altering or changing to any material extent the
amount or kind of liabilities assumed by NIF III and the Acquiring Series, or
altering or changing any other terms and conditions of the Reorganization if any
of the alterations or changes, alone or in the aggregate, would materially
adversely affect FHIT's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
FINANCIAL HORIZONS INVESTMENT TRUST
By /s/ James F. Laird, Jr.
-----------------------
NATIONWIDE INVESTING FOUNDATION III
By /s/ Christopher A. Cray
-----------------------
-16-
<PAGE> 1
Exhibit (14)(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
Nationwide Investing Foundation,
Nationwide Investing Foundation II,
Financial Horizons Investment Trust
and Nationwide Investing Foundation III:
We consent to the use of our reports to the Nationwide Investing Foundation,
Nationwide Investing Foundation II and Financial Horizons Investment Trust,
dated December 13, 1996, and included in the Statements of Additional
Information for the Nationwide Investing Foundation, Nationwide Investing
Foundation II and Financial Horizons Investment Trust dated February 28, 1997,
which are incorporated by reference herein; to the use of our reports to the
Nationwide Investing Foundation, Nationwide Investing Foundation II and
Financial Horizons Investment Trust, dated December 5, 1997 which are
incorporated by reference herein; to the reference to our firm under the heading
"Financial Highlights" in the Prospectuses for the Nationwide Investing
Foundation, Nationwide Investing Foundation II and Financial Horizons Investment
Trust, all dated February 28, 1997 which are incorporated by reference herein;
and to the references to our firm under the headings "The Acquired Funds and The
Trust--Independent Accountants" and "The Acquiring Funds and the New
Trust--Independent Accountants" in the combined prospectuses/proxy statements
included herein.
Columbus, Ohio
January 6, 1998
<PAGE> 1
Exhibit 14(b)
DRUEN, DIETRICH, REYNOLDS & KOOGLER
ATTORNEYS AT LAW
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(614) 249-7617
FACSIMILE: (614) 249-2418
January 6, 1998
Nationwide Investing Foundation III
Three Nationwide Plaza, 26th Floor
Columbus, Ohio 43215
Re: Nationwide Investing Foundation III
Registration Statement on Form N-14
Ladies and Gentlemen:
Our firm hereby consents to the inclusion of its name in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-14 for Nationwide
Investing Foundation III.
Very truly yours,
/s/ DRUEN, DIETRICH, REYNOLDS & KOOGLER
DRUEN, DIETRICH, REYNOLDS & KOOGLER
<PAGE> 1
Exhibit 14(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our firm
under the captions "THE PROPOSED TRANSACTION -- Federal Income Tax
Consequences" included in or made a part of Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-14, filed under the Securities Act of 1933,
as amended, of Nationwide Investing Foundation III.
BAKER & HOSTETLER LLP
Columbus, Ohio
January 6, 1998
<PAGE> 1
Exhibit (16)
POWER OF ATTORNEY
Robert M. Duncan, whose signature appears below, does hereby constitute
and appoint Dimon Richard McFerson, Joseph J. Gasper, James F. Laird, Jr., W.
Sidney Druen, and Joseph P. Rath, each individually, his/her true and lawful
attorneys and agents, with power of substitution or resubstitution, to do any
and all acts and things and to execute any and all instruments which said
attorneys and agents, each individually, may deem necessary or advisable or
which may be required to enable Nationwide Investing Foundation III (the "Fund")
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement on Form N-14 pursuant to said Acts and any and all amendments thereto
(including pre- and post-effective amendments), including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as trustee and/or officer of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under any Acts and any other instruments
or documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
Dated: November 24, 1997 /s/ Robert M. Duncan
-------------------------------------
Robert M. Duncan
<PAGE> 1
Exhibit 17(f)
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE INVESTING FOUNDATION II
Supplement dated December 8, 1997
to Prospectus dated February 28, 1997
Nationwide Investing Foundation ("NIF") and Nationwide Investing Foundation II
("NIF II") have each entered into an Agreement and Plan of Reorganization,
dated November 24, 1997 (the "Plan"), with Nationwide Investing Foundation III
("NIF III"), an Ohio business trust. Pursuant to the Plan and as listed in the
chart below, a series of NIF III (each an "Acquiring Fund") would acquire all
the assets of a current NIF or NIF II fund (each, a "Fund") in exchange for the
assumption of all the Fund's liabilities and a number of full and fractional
shares of the Acquiring Fund having an aggregate net asset value equal to the
Fund's net assets (the transactions contemplated by the Plan are hereafter
referred to as the "Reorganization"). The Plan also would require the
distribution of the Acquiring Fund shares received to the shareholders of each
of the Funds. For each of the Funds, except the Money Market Fund, the
shareholders would receive Class D shares of the Acquiring Fund. The
shareholders of the Money Market Fund would receive shares of the NIF III Money
Market Fund which are without class designation.
<TABLE>
<CAPTION>
The Acquiring Funds (NIF III) The Funds
<S> <C>
Growth Fund Growth Fund of NIF
Nationwide Fund Nationwide Fund of NIF
Bond Fund Bond Fund of NIF
Tax-Free Income Fund Tax-Free Income Fund of NIF II
Intermediate U.S. Government Bond Fund U.S. Government Income Fund of NIF II
Money Market Fund Money Market Fund of NIF
</TABLE>
The Reorganization is subject to certain regulatory approvals and approval by
the shareholders of each Fund at a Special Meeting of Shareholders currently
expected to be held in February 1998. If the shareholders approve the
Reorganization, it is expected that the Reorganization would be effected on or
about March 1, 1998; however, the Reorganization may be effected on such
earlier or later date as may be determined. There can be no assurance that the
Reorganization will take place when or as currently proposed.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS
FOR FUTURE REFERENCE.
<PAGE> 2
FINANCIAL HORIZONS INVESTMENT TRUST
Supplement dated December 8, 1997
to Prospectus dated February 28, 1997
Financial Horizons Investment Trust ("FHIT") has entered into an Agreement and
Plan of Reorganization, dated November 24, 1997 (the "Plan"), with Nationwide
Investing Foundation III ("NIF III"), an Ohio business trust. Pursuant to the
Plan and as listed in the chart below, a series of NIF III (the "Acquiring
Fund") would acquire all the assets of a current FHIT fund (each, a "Fund") in
exchange for the assumption of all the Fund's liabilities and a number of full
and fractional shares of the Acquiring Fund having an aggregate net asset value
equal to the Fund's net assets (the transactions contemplated by the Plan are
hereafter referred to as the "Reorganization"). The Plan also would require the
distribution of the Acquiring Fund shares received to the shareholders of each
of the Funds. For each of the Funds, except the Cash Reserve Fund, the
shareholders would receive Class D shares of the Acquiring Fund. The
shareholders of the Cash Reserve Fund would receive shares of the NIF III Money
Market Fund which are without class designation.
The Acquiring Funds (NIF III) The Funds (FHIT)
Mid Cap Growth Fund Growth Fund
Tax-Free Income Fund Municipal Bond Fund
Long-Term U.S. Government Bond Fund Government Bond Fund
Money Market Fund Cash Reserve Fund
The Reorganization is subject to certain regulatory approvals and approval by
the shareholders of each Fund at a Special Meeting of Shareholders currently
expected to be held in February 1998. If the shareholders approve the
Reorganization, it is expected that the Reorganization would be effected on or
about March 1, 1998; however, the Reorganization may be effected on such
earlier or later date as may be determined. There can be no assurance that the
Reorganization will take place when or as currently proposed.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS
FOR FUTURE REFERENCE.
<PAGE> 1
Annual Report
October 31, 1997
Nationwide(R) Family Of Funds
Nationwide Investing Foundation
Nationwide Investing Foundation II
Photo of: 5 children.
<PAGE> 2
MESSAGE TO SHAREHOLDERS
OCTOBER 31, 1997
PHOTO OF: DIMON R. MCFERSON
CHAIRMAN
THE CONTINUED STRENGTH OF THE MARKET REINFORCES ... A LONG-TERM INVESTMENT
STRATEGY. SINCE THE 1987 CRASH, FOR EXAMPLE, THE DOW JONES HAS RISEN MORE THAN
5,500 POINTS.
The year 1997 will be remembered as an exciting one for investors and our
shareholders.
Consumer confidence in the U.S. economy remains strong. The proportion of
customers rating business conditions as "good" rose, while the number of people
believing jobs are difficult to find fell.
A strong job market and wage gains helped consumers feel secure in handling a
mortgage, and record loan rates made them more affordable. As a result, August
marked the twentieth consecutive month of home sales above the 700,000 level,
the longest run in almost two decades.
In short, low inflation, high employment and strong levels of consumer
confidence have produced a strong market with record levels of consumer savings.
The third calendar quarter saw a change in market leadership -- dependable
blue-chip multinationals weakened while thousands of small and
mid-capitalization companies, long overlooked, made strong gains. Eighty percent
of diversified U.S. stock mutual funds outperformed the large-cap S&P 500 in the
third quarter.
The period also was highlighted by volatility in the Asian markets, which caused
a brief drop in all international markets, but eventually demonstrated the U.S.
to be the most sought after investment arena.
The economy grew at an annual rate of 3.5% while inflation remained low.
The Dow Jones Industrial Average broke through the 8,000 mark and continued to
reach more all-time highs during the third quarter. A correction toward the end
of the quarter caused the market to close at 7,442.08 on October 31.
The continued strength of the market overall reinforces the importance of
realistic expectations and a long-term investment strategy. Since the 1987
crash, for example, the Dow Jones has risen more than 5,500 points.
FUND PERFORMANCE
For the year ended October 31, 1997, the Nationwide Growth Fund gained 32.12%
and the Nationwide Fund increased 40.17%. Total return of the S&P 500 for the
same period was 32.10%.
Returns on long-term taxable bonds were also strong. For the year ended October
31, 1997, the Nationwide Bond Fund returned 8.33% as compared to 8.81% for its
new benchmark index, the Lehman Brothers Government/Corporate Bond Index. The
index was changed because it better represents the investment policies of the
Bond Fund for comparison purposes.
For the year ended October 31, 1997, the Nationwide Tax-Free Income Fund total
return was 7.72%, compared to 8.49% for its benchmark index, the Lehman Brothers
Municipal Bond Index.
For the year ended October 31, 1997, the Nationwide U.S. Government Income Fund
returned 8.86% compared to 8.67% for its new benchmark index, the Merrill Lynch
Government Master Index. The index was changed because the new one better
represents the investment policies of the Fund for comparison purposes.
The returns for the funds discussed above do not reflect sales charges.
The Nationwide Money Market Fund continues to post consistent yields. Total
return for the Fund was 5.07% for the year ended October 31, 1997. (There are no
sales charges in the Money Market Fund.)
<PAGE> 3
SPECIAL SHAREHOLDERS' MEETING
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998, to consider an important proposal affecting your funds. The
Board unanimously approved this proposal, which is described in detail in the
Combined Prospectus/Proxy Statements which you will soon receive.
The proposal would reorganize the Nationwide Investing Foundation (NIF), which
includes the Growth, Fund, Bond and Money Market funds; and the Nationwide
Investing Foundation II (NIF II), which includes the Tax-Free Income and U.S.
Government Income funds, into a new Ohio business trust, the Nationwide
Investing Foundation III ("New Trust"), along with several other
Nationwide-managed funds. The New Trust will provide for a revised fee
structure, which includes changes in the investment advisory fees of the funds,
the establishment of a separate fee for fund administration, and the
implementation of a schedule under which these fees, as a percentage of assets,
decrease as assets increase.
Your vote is very important to us.
Thank you for giving Nationwide Advisory Services, Inc. the opportunity to meet
your needs.
SINCERELY,
DIMON R. MCFERSON, CHAIRMAN
<PAGE> 4
ANNUAL REPORT - 1997
CONTENTS
FUND HIGHLIGHTS...........................................................1 - 3
NATIONWIDE(R) GROWTH FUND ...............................................4 - 5
NATIONWIDE(R) FUND ......................................................6 - 7
NATIONWIDE(R) BOND FUND ..................................................8 - 10
NATIONWIDE(R) TAX-FREE INCOME FUND .....................................11 - 15
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND ...............................16 - 17
NATIONWIDE(R) MONEY MARKET FUND .........................................18 - 20
FINANCIAL STATEMENTS ....................................................21 - 24
FINANCIAL HIGHLIGHTS ....................................................25 - 27
NOTES TO FINANCIAL STATEMENTS............................................28 - 30
INDEPENDENT AUDITORS' REPORT..................................................31
TRUSTEES
Dimon R. McFerson - Nationwide Investing Foundation (NIF) & Nationwide
Investing Foundation II (NIF II)
Chairman
Columbus, Ohio
Dr. John C. Bryant - NIF & NIF II
Cincinnati, Ohio
Dr. C. Brent DeVore - NIF
Westerville, Ohio
Sue A. Doody - NIF
Columbus, Ohio
Robert M. Duncan - NIF & NIF II
Columbus, Ohio
Charles L. Fuellgraf, Jr. - NIF
Butler, Pennsylvania
Dr. Thomas J. Kerr, IV - NIF & NIF II
Westerville, Ohio
Douglas F. Kridler - NIF
Columbus, Ohio
Nancy C. Thomas - NIF
Louisville, Ohio
Harold W. Weihl - NIF
Bowling Green, Ohio
David C. Wetmore - NIF
Reston, Virginia
OFFICERS
James F. Laird, Jr. - Treasurer
Rae M. Pollina - Secretary
Craig A. Alvey - Assistant Treasurer
Charles S. Bath - Assistant Treasurer
Craig A. Carver - Assistant Treasurer
Christopher A. Cray - Assistant Treasurer
Edwin P. McCausland, Jr. - Assistant Treasurer
Peter Neckermann - Assistant Treasurer
Karen R. Tackett - Assistant Treasurer
TRANSFER AGENT
Nationwide Investors Services, Inc.
Box 1492
Columbus, Ohio 43216-1492
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263-0001
LEGAL COUNSEL
Druen, Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215-2220
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215-2537
DISTRIBUTOR
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215-2220
This report is for the information of shareholders of the Nationwide Family of
Funds. It may be used as sales literature only when preceded or accompanied by a
current prospectus which gives further details about the funds.
Nationwide(R) and its logo are registered Federal Service marks of
Nationwide Mutual Insurance Company.
<PAGE> 5
NATIONWIDE(R) STOCK FUND HIGHLIGHTS
GROWTH FUND
FUND PERFORMANCE
$10,000 LUMP SUM INVESTMENT
<TABLE>
<CAPTION>
$10,000 Lump Sum Investment Graph:
VALUE OF REINVESTED DIVIDENDS INCLUDING CAPITAL GAINS
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9550 12260 13628 11705 16779 17943 20843 22038 26668 29964 39588
</TABLE>
<TABLE>
<CAPTION>
VALUE OF INITIAL INVESTMENT
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9550 10053 10511 8404 10958 11382 12756 12996 15138 15275 18687
</TABLE>
The value of a long-term investment in the Growth Fund is illustrated in the
chart above. Over a 10-year period ended October 31, 1997, a net investment of
$10,000 would have earned an average annual compound total return of 14.74.%,
including sales charge. The chart above illustrates the growth of this
investment to $39,588. Investment return and principal value will fluctuate, and
when redeemed, shares may be worth more or less than original cost. Past
performance is no guarantee of future results.
| The Nationwide(R) Growth Fund's portfolio manager emphasizes a
"buy-and-hold" strategy, which means he is investing for the long term. The
Fund's manager is not a market timer -- he does not try to predict a market
correction by shifting assets. This "buy-and-hold" strategy also keeps
brokerage expenses down because portfolio turnover is low. For example,
based on data as of October 31, 1997, from Morningstar, a leading
publication of the mutual fund industry, the average turnover for all equity
funds with growth objectives was 94%. The Growth Fund's turnover was 45% in
1997, which was itself an unusually high figure, compared to its average
turnover of 24% over the past five years.
| The Growth Fund's portfolio consists of high-quality stocks that seek to
provide greater safety through diversification than if an investor owned
just one company's stock. The Fund invests in the securities of many quality
companies among different industries.
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
(COMPOSITION SUBJECT TO CHANGE)
Value %
<S> <C> <C>
WorldCom Inc. $40,350,000 4.9%
CUC International, Inc. $35,400,000 4.3%
Merrill Lynch & Co., Inc. $33,812,500 4.1%
Equitable Companies, Inc. $30,437,563 3.7%
Allstate Corp. $29,028,125 3.5%
</TABLE>
NATIONWIDE(R) FUND
FUND PERFORMANCE
$10,000 LUMP SUM INVESTMENT
<TABLE>
$10,000 Lump Sum Investment Graph:
<CAPTION>
VALUE OF REINVESTED DIVIDENDS INCLUDING CAPITAL GAINS
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9550 11193 14225 13226 18049 19615 20822 21838 26039 32837 46029
</TABLE>
<TABLE>
<CAPTION>
VALUE OF INITIAL INVESTMENT
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9550 9613 10502 8695 11131 11152 11681 11378 12246 14406 18754
</TABLE>
The value of a long-term investment in the Nationwide(R) Fund is illustrated in
the chart above. Over a 10-year period ended October 31, 1997, a net investment
of $10,000 would have earned an average annual compound total return of 16.48%,
including sales charge. The chart above illustrates the growth of this
investment to $46,029. Investment return and principal value will fluctuate, and
when redeemed, shares may be worth more or less than original cost. Past
performance is no guarantee of future results.
| Our flagship fund, the Nationwide(R) Fund, was started in 1933 and is one of
the oldest mutual funds in the country. It is designed for investors who
seek to maximize total return through a flexible selection of investments,
usually containing the common stocks of well-known, larger companies.
| The Fund's portfolio manager's investment strategy has been very successful.
He attributes part of this success to the fact that he normally has between
50-60 holdings in the portfolio, as opposed to the nearly 150 for his peer
group. Generally, about 40% of the Fund's total assets are invested in the
Fund's top 10 holdings so an attractive situation can have a positive impact
on the overall portfolio.
| The Nationwide(R)Fund was honored in the May 1997 issue of Money Magazine
for having 20 consecutive years of positive performance.
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
(COMPOSITION SUBJECT TO CHANGE)
Value %
<S> <C> <C>
Warner-Lambert Co. $124,945,412 8.6%
Schering-Plough Corp. $91,056,712 6.3%
Mellon Bank Corp. $73,213,594 5.1%
Black & Decker Corp. $54,939,412 3.8%
Texaco, Inc. $54,284,212 3.7%
</TABLE>
<PAGE> 6
NATIONWIDE(R) INCOME FUND HIGHLIGHTS
BOND FUND
FUND PERFORMANCE
$10,000 LUMP SUM INVESTMENT
<TABLE>
<CAPTION>
$10,000 Lump Sum Investment Graph:
VALUE OF REINVESTED DIVIDENDS INCLUDING CAPITAL GAINS
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9550 10695 11734 12420 14293 15844 18001 16234 19547 20534 22245
</TABLE>
<TABLE>
<CAPTION>
VALUE OF INITIAL INVESTMENT
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9550 9662 9642 9251 9735 9858 10362 8706 9776 9611 9766
</TABLE>
The value of a long-term investment in the Bond Fund is illustrated in the chart
above. Over a 10-year period ended October 31, 1997, a net investment of $10,000
would have earned an average annual compound total return of 8.32%, including
sales charge. The chart above illustrates the growth of this investment to
$22,245. Investment return and principal value will fluctuate, and when
redeemed, shares may be worth more or less than original cost. Past performance
is no guarantee of future results.
| The Nationwide(R)Bond Fund has consistently provided a steady stream of
income for its shareholders-- paying dividends every month since inception
(March 1, 1980).
| The Bond Fund is for investors seeking monthly income from high-quality
bonds and other fixed-income securities. The Fund strives to provide safety
through investing in only investment-grade securities, including corporate
bonds, U.S. and Canadian government obligations, mortgage-backed securities,
and investment-grade commercial paper.
| The chart above shows the difference reinvesting dividends can have on
investors' money. Over a 10-year period, reinvesting dividends, shareholders
would have more than doubled their initial investment.
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
(COMPOSITION SUBJECT TO CHANGE)
Value %
<S> <C> <C>
U.S. Treasury Bond $18,311,250 14.7%
AMBAC Inc. $4,996,248 4.0%
Armstrong World Industries, Inc. $4,980,704 4.0%
English China Clays Delaware, Inc. $4,169,792 3.4%
Loews Corp. $4,156,480 3.3%
</TABLE>
TAX-FREE INCOME FUND
FUND PERFORMANCE
$10,000 LUMP SUM INVESTMENT
<TABLE>
<CAPTION>
$10,000 Lump Sum Investment Graph:
VALUE OF REINVESTED DIVIDENDS INCLUDING CAPITAL GAINS
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10000 11629 12529 13191 14763 15823 18507 16890 19366 20393 21969
</TABLE>
<TABLE>
<CAPTION>
VALUE OF INITIAL INVESTMENT
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10000 10871 10964 10813 11393 11544 12717 10917 11869 11893 12206
</TABLE>
The value of a long-term investment in the Tax-Free Income Fund is illustrated
in the chart above. Over a 10-year period ended October 31, 1997, an investment
of $10,000 would have earned an average annual compound total return of 8.18%,
including sales charge. The chart above illustrates the growth of this
investment to $21,969. Investment return and principal value will fluctuate, and
when redeemed, shares may be worth more or less than original cost. Past
performance is no guarantee of future results.
| The Nationwide(R) Tax-Free Income Fund has consistently paid tax-free
dividends on a monthly basis since its inception (March 17, 1986). For
certain shareholders, a portion of income may be subject to state, local or
federal alternative minimum tax.
| By investing in the Tax-Free Income Fund, you can earn Federally tax-free
dividends from municipal bonds carefully selected for their relative safety
and security.
| Taxable securities may provide higher yields, but the Tax-Free Income Fund
offers tax-exempt income. An investor could earn $8,000 annually from a
fully taxable investment, assuming an 8% rate of return, or $7,000 in a
tax-free investment, assuming a 7% rate of return. After taxes, an investor
in the 36% tax bracket would keep just $5,120. The investor in the tax-free
investment keeps all of the $7,000 federally tax-exempt income -- a
difference of $1,880.
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS BY STATE
(COMPOSITION SUBJECT TO CHANGE)
Value %
<S> <C> <C>
Texas $47,421,631 18.5%
Virginia $29,148,325 11.4%
Illinois $25,862,131 10.1%
North Carolina $21,858,150 8.5%
Pennsylvania $16,201,013 6.3%
</TABLE>
<PAGE> 7
NATIONWIDE(R) INCOME FUND HIGHLIGHTS
U.S. GOVERNMENT INCOME FUND
FUND PERFORMANCE
$10,000 LUMP SUM INVESTMENT
<TABLE>
<CAPTION>
$10,000 Lump Sum Investment Graph:
VALUE OF REINVESTED DIVIDENDS INCLUDING CAPITAL GAINS
1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
10000 10513 11581 11094 12922 13604 14809
</TABLE>
<TABLE>
<CAPTION>
VALUE OF INITIAL INVESTMENT
1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
10000 10080 10374 9322 10232 10151 10424
</TABLE>
The value of a long-term investment in the U.S. Government Income Fund is
illustrated in the chart above. A $10,000 investment made on 2/10/92 (the Fund's
inception date) would have earned an average annual compound total return of
7.17% for the period ended October 31, 1997, including sales charge. The chart
above illustrates the growth of this investment to $14,809. Investment return
and principal value will fluctuate, and when redeemed, shares may be worth more
or less than original cost. Past performance is no guarantee of future results.
| Share prices will always fluctuate. It is important to remember that when
share prices are down, reinvesting your dividends in the Nationwide(R) U.S.
Government Income Fund will buy more shares than when share prices are at
higher levels. This increases your potential for additional future dividend
income and growth of principal.
| Monthly income is paid by the U.S. Government Income Fund from a
high-quality portfolio of government securities. These securities are
generally considered among the safest with respect to credit risk, though
they are not specifically rated by the credit rating agencies.
| To limit the risk of share price fluctuation, the U.S. Government Income
Fund maintains an average portfolio maturity in the intermediate-term range
(3-10 years). Of course, all bond prices (U.S. government, municipal and
corporate) are affected by interest rates.
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
(COMPOSITION SUBJECT TO CHANGE)
Value %
<S> <C> <C>
FHLMC (REMIC) Series 1560, Class PN $5,182,150 12.5%
FHLMC (REMIC) Series 1462, Class PT $5,140,900 12.4%
Federal National Mortgage Association $4,296,524 10.4%
FNMA (REMIC) Series 92-151, Class H $3,903,240 9.4%
FHLMC (REMIC) Series 1344, Class D $3,900,720 9.4%
</TABLE>
MONEY MARKET FUND
FUND PERFORMANCE
30-DAY YIELD TREND
<TABLE>
<CAPTION>
30-Day Yield Trend Graph:
MONEY MARKET FUND YIELD TREND
OCT-96 NOV-96 DEC-96 JAN-97 FEB-97 MAR-97 APR-97 MAY-97 JUN-97 JUL-97 AUG-97 SEP-97 OCT-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.87 4.85 4.83 4.83 4.87 4.87 4.94 5.05 5.09 5.05 5.03 5.01 5
</TABLE>
<TABLE>
<CAPTION>
AVERAGE YIELDS OF BANK MONEY MARKET ACCOUNTS
OCT-96 NOV-96 DEC-96 JAN-97 FEB-97 MAR-97 APR-97 MAY-97 JUN-97 JUL-97 AUG-97 SEP-97 OCT-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.47 3.46 3.47 3.47 3.45 3.45 3.49 3.5 3.5 3.51 3.48 3.47 3.46
</TABLE>
The chart above shows the Money Market Fund yield trend during the year ended
October 31, 1997, as compared to the average yields of money market accounts
offered by leading banks in the United States over the same period. For the year
ended October 31, 1997, the Money Market Fund 30-day current yield was 5.00%.
Past performance is no guarantee of future results.
| Due to daily dividend compounding from a high-quality portfolio, the
Nationwide(R) Money Market Fund offers current market rates -- plus
stability of principal since the Fund seeks to maintain a constant $1.00 per
share net asset value. During the Fund's life, its share price has always
been $1.00. However, an investment in the Money Market Fund is neither
insured nor guaranteed by the U.S. government, and there can be no assurance
that the Fund will be able to maintain a stable net asset value of $1.00 per
share.
| The Money Market Fund offers liquidity without penalty, competitive current
money market rates, daily compounding, security of principal, and free check
writing privileges ($500 minimum). The Fund also offers a big yield edge
over insured bank money market accounts, which were returning an average
30-day current yield of 3.48% (according to BanxQuote, Inc., a privately
held financial information company), compared to the Fund's average 30-day
current yield of 5.00% at October 31, 1997. The seven-day effective yield at
October 31, 1997, was 5.15%.
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS BY ISSUER
(COMPOSITION SUBJECT TO CHANGE)
Value %
<S> <C> <C>
Abbott Laboratories $34,614,115 4.2%
National City Credit $33,871,478 4.1%
Monsanto Co. $32,057,103 3.9%
Caterpillar Financial Services, Inc. $31,441,725 3.8%
General Motors Acceptance Corp. $31,223,829 3.8%
</TABLE>
<PAGE> 8
NATIONWIDE(R) INVESTING FOUNDATION
NATIONWIDE(R) GROWTH FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
For the year ended October 31, 1997, the Nationwide Growth Fund had a total
return of 32.12% without sales charge, compared to a 32.10% total return for the
S&P 500 Index.
During the second half of the fiscal year, the Growth Fund continued to find
greater opportunities in growth stocks, and took advantage of them to shift its
portfolio mix in this direction, at the same time reducing the level of
value-oriented holdings. For example, compared to its portfolio as of October
31, 1996, the Growth Fund's investment in the Computer Services and Software
sector increased from 2.2% to a current level of 12.8%. The main sectors that
saw declines in investment were Financial stocks, which went from 17.3% to
14.8%, Healthcare, which went from 4.5% to 0%, and Food and Beverage, which went
from 4.3% to 0%. In the process of buying the growth stocks which we found
attractive, and funding those purchases with sales of less-attractive stocks, we
also tried to concentrate on the best ideas. As a result, the Fund's top 10
holding as of this fiscal year-end represent nearly 37% of assets, compared to a
figure of about 30.5% as of October 31, 1996.
Although growth stocks have been the current focus, the stock selection process
is essentially unchanged. We still want to own companies that benefit from
strong, long-term growth drivers which are clearly visible. We want to own
companies with both the management and financial resources to take full
advantage of their business opportunities. We also favor companies that derive
and/or purvey benefits from advancing technology.
The strongest performance over the past 12 months has come from two of our
technology holdings: Applied Materials and EMC Corporation. Both Warner-Lambert
and Schering-Plough in the drug group, and Merrill Lynch and Equitable in the
financial sector, have also had outstanding gains. Our most significant loss
came in the Computer Service sector, in First Data Corp. This is a company we
think is extremely well positioned for long-term growth. The stock has come down
because its current growth rate, though still good, has been less than expected.
The positive results this year have been primarily due to gains in stocks we
have held for over a year, rather than from ones that have been added this year.
As we go forward, we expect that the more recent additions will help sustain
this progress.
JOHN M. SCHAFFNER, MBA, CFA - PORTFOLIO MANAGER
PORTFOLIO VALUE $818,674,086
FUND COMPOSITION
(SUBJECT TO CHANGE)
PIE CHART:
U.S. government agency obligations and other assets less liabilities 3.0%
Common stock 97.0%
<TABLE>
<CAPTION>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED OCTOBER 31, 1997
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
<S> <C> <C> <C>
1 32.12% 26.80% 26.17%
5 17.15% 19.58% 16.07%
10 15.26% 15.70% 14.74%
<FN>
* These returns do not reflect the effects of sales charges.
** Assumes a 4.5% sales charge was paid, which has the most dramatic effect on
one-year performance figures.
</TABLE>
Investment return and principal value will fluctuate, and when redeemed,
shares may be worth more or less than original cost. Past performance is no
guarantee of future results.
FUND PERFORMANCE
<TABLE>
<CAPTION>
BAR CHART:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CPI 10000 10425 10903 11598 11925 12319 12658 12997 13353 13753 14014
FUND 9550 12260 13628 11705 16779 17943 20843 22038 26668 29964 39588
S&P 500 10000 11475 14498 13415 17898 19679 22608 23481 29683 36812 48596
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Growth Fund,
the S&P 500* and the Consumer Price Index (CPI)** over a 10-year period ended
10/31/97. Unlike our Fund, these indices do not reflect any fees, expenses or
sales charges.
* The S&P 500 is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of these 500 stocks which represent all major industries.
** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS - NATIONWIDE(R) GROWTH FUND - OCTOBER 31, 1997
SHARES SECURITY VALUE
<S> <C> <C>
COMMON STOCK (97.0%)
BUSINESS SERVICES (3.3%)
300,000 Manpower, Inc. $ 11,512,500
401,800 Cognizant Corp. 15,745,537
------------
27,258,037
------------
CABLE (2.0%)
600,000 Comcast Corp., Class A 16,350,000
------------
CHEMICALS (3.7%)
500,000 Monsanto Co. 21,375,000
244,000 Sigma-Aldrich Corp. 8,570,500
------------
29,945,500
------------
COMPUTER EQUIPMENT (6.8%)
286,300 EMC Corp.* 16,032,800
325,000 Hewlett-Packard Co. 20,048,437
200,000 International Business
Machines Corp. 19,612,500
------------
55,693,737
------------
COMPUTER SOFTWARE & SERVICES (12.8%)
200,000 Automatic Data Processing, Inc. 10,225,000
325,000 BMC Software, Inc.* 19,621,875
500,000 Electronic Data Systems Corp. 19,343,750
900,000 First Data Corp. 26,156,250
281,600 Gartner Group, Inc.* 7,955,200
600,000 Oracle Corporation* 21,468,720
------------
104,770,795
------------
CONGLOMERATES (1.6%)
300,000 Corning, Inc. 13,537,500
------------
CONSUMER PRODUCTS (4.6%)
400,000 Avon Products, Inc. 26,200,000
300,000 Newell Co. 11,512,500
------------
37,712,500
------------
DISTRIBUTION (2.0%)
410,156 Bergen Brunswig Corp., Class A 16,431,875
------------
DRUGS (9.1%)
419,200 Allergan, Inc. 13,807,400
325,000 Glaxo Wellcome, PLC ADR 13,914,062
320,000 Schering-Plough Corp. 17,940,000
200,000 Warner-Lambert Co. 28,637,500
------------
74,298,962
------------
ELECTRONICS (2.1%)
146,483 Molex, Inc. 5,493,112
238,572 Molex, Inc., Class A 8,364,931
189,000 Woodhead Industries, Inc. 3,685,500
------------
17,543,543
------------
FINANCIAL (14.8%)
350,000 Allstate Corp. 29,028,125
101,250 American International Group, Inc. 10,333,828
400,000 Conseco, Inc. 17,450,000
739,000 Equitable Companies, Inc. 30,437,563
500,000 Merrill Lynch & Co., Inc. 33,812,500
------------
121,062,016
------------
FOOD-GRAIN & AGRICULTURE (3.0%)
1,085,984 Archer Daniels Midland Co. 24,163,144
------------
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<S> <C> <C>
MACHINERY & CAPITAL (5.4%)
200,000 Applied Materials, Inc.* $ 6,675,000
96,600 BMC Industries 3,109,313
120,000 Emerson Electric Co. 6,292,500
225,000 Lindsay Manufacturing Co. 9,759,375
60,000 Nordson Corp. 2,977,500
492,600 Zebra Technologies Corp.* 15,393,750
------------
44,207,438
------------
MEDICAL PRODUCTS (2.0%)
200,000 Biomet, Inc. 4,987,500
250,000 Boston Scientific Corp.* 11,375,000
------------
16,362,500
------------
OIL & GAS (7.5%)
215,000 Amoco Corp. 19,712,812
250,000 Exxon Corp. 15,359,375
360,000 Mobil Corp. 26,212,500
------------
61,284,687
------------
PRINTING & PUBLISHING (0.5%)
160,000 Reader's Digest Association, Inc.,
Class B 3,720,000
------------
RETAIL (7.0%)
1,200,000 CUC International, Inc.* 35,400,000
265,000 Smart & Final, Inc. 5,349,688
350,000 Staples, Inc.* 9,187,500
200,000 Tiffany & Co. 7,900,000
------------
57,837,188
TELECOMMUNICATIONS (8.8%)
400,000 Cincinnati Bell, Inc. 10,800,000
977,500 360(degree)Communications Co.* 20,649,688
1,200,000 WorldCom, Inc.* 40,350,000
------------
71,799,688
------------
TOTAL COMMON STOCK (cost $540,128,248) 793,979,110
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
U.S. AGENCY (3.0%)
$10,597,000 Federal Home Loan Mortgage
Corp Notes, 5.43%, 11/17/97 10,574,322
1,932,000 Federal Home Loan Mortgage
Corp Notes, 5.47%, 11/24/97 1,924,902
2,432,000 Federal Home Loan Mortgage
Corp Notes, 5.45%, 12/03/97 2,420,852
1,458,000 Federal Home Loan Mortgage
Corp Notes, 5.41%, 11/12/97 1,455,994
8,324,000 Federal Home Loan Mortgage
Corp Notes, 5.39% - 5.42%,
11/07/97 8,318,906
------------
TOTAL U.S. AGENCY (cost $24,688,879) 24,694,976
------------
TOTAL INVESTMENTS (cost $564,817,127) $818,674,086
============
<FN>
- ---------------
The abbreviations in the above statement stand for the following:
PLC Public Limited Company
ADR American Depository Receipt
* Denotes a non-income producing security.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 11
NATIONWIDE(R) INVESTING FOUNDATION
NATIONWIDE(R) FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The total return for the Nationwide(R) Fund for the year ended October 31, 1997,
was 40.17% without sales charge and assuming all distributions were reinvested,
compared to 32.10% for the S&P 500.
The excellent performance of the Nationwide Fund was mainly attributable to
large investments in the pharmaceutical and financial services industries.
Warner-Lambert and Schering-Plough are the Fund's two largest holdings and they
have continued to per form very well. Solid revenue growth combined with new
products have allowed these two companies to outperform the market and their
peers. The financial services companies have performed well due to steady
earnings performance, combined with benefits from consolidation. First USA,
Barnett Banks and U.S. Bancorp were all acquired at significant premiums to
their market prices. These takeouts, combined with excellent performance from
Mellon Bank, Horace Mann and CoreStates Financial, led to the Financial Services
sector providing excellent performance for Nationwide Fund shareholders. These
companies remain significant holdings in the portfolio and should be important
contributors to the future performance of the Fund.
The New York Times is a significant new investment currently ranked in the top
10 holdings of the portfolio. This company in many ways epitomizes what I am
looking for in an investment. The shares are inexpensively priced compared to
private market value, yet the business franchise is one of the best in its
industry. The company recently completed a major capital spending program so
cash flow will be available in the future to reward shareholders. I am
optimistic this should be a successful investment for the Nationwide Fund.
The Fund also has two new holdings in the cellular telephone industry. These are
small holdings because the securities appreciated in price before a larger
position could be purchased. However, I am optimistic the worst of the fears
regarding competition will not be realized and the attractive purchase prices
will provide excellent appreciation potential.
CHARLES S. BATH, MBA, CFA, CPA - PORTFOLIO MANAGER
PORTFOLIO VALUE $1,457,399,757
FUND COMPOSITION
(SUBJECT TO CHANGE)
PIE CHART:
Debt obligations and other assets less liabilities 1.0%
Common stock 99.0%
<TABLE>
<CAPTION>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
<S> <C> <C> <C>
1 40.17% 36.71% 33.87%
5 18.60% 24.82% 17.51%
10 17.01% 18.19% 16.48%
<FN>
* These returns do not reflect the effects of sales charges.
** Assumes a 4.5% sales charge was paid, which has the most dramatic effect on
one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
BAR CHART:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CPI 10000 10425 10903 11598 11925 12319 12658 12997 13353 13753 14014
FUND 9550 11193 14225 13226 18049 19615 20822 21838 26039 32837 46029
S&P 500 10000 11475 14498 13415 17898 19679 22608 23481 29683 36812 48596
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Fund, the S&P
500* and the Consumer Price Index (CPI)** over a 10-year period ended 10/31/97.
Unlike our Fund, these indices do not reflect any fees, expenses or sales
charges.
* The S&P 500 is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of these 500 stocks which represent all major industries.
** The CPI represents changes in prices of all goods and services purchased
for consumption by urban households.
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS - NATIONWIDE(R)FUND - OCTOBER 31, 1997
SHARES SECURITY VALUE
<S> <C> <C>
COMMON STOCK (99.0%)
AUTOMOBILES (3.2%)
202,451 Autoliv, Inc. $ 7,984,161
857,900 Ford Motor Company 37,479,506
--------------
45,463,667
--------------
BUILDING (3.9%)
436,300 Martin Marietta Materials, Inc. 15,215,963
337,500 Masco Corp. 14,807,813
302,200 Vulcan Materials Co. 26,839,137
--------------
56,862,913
--------------
CHEMICALS (6.6%)
544,400 Millipore Corp. 21,299,650
593,700 Morton International, Inc. 19,592,100
335,400 OM Group, Inc. 12,661,350
401,743 Pall Corp. 8,311,058
378,075 Raychem Corp. 34,239,417
--------------
96,103,575
--------------
COMPUTER EQUIPMENT (2.7%)
400,000 International Business
Machines, Corp. 39,225,000
--------------
CONGLOMERATES (1.6%)
498,700 Corning, Inc. 22,503,838
--------------
DRUGS (18.4%)
564,700 Allergan, Inc. 18,599,806
149,000 American Home Products, Inc. 11,044,625
302,400 Pfizer, Inc. 21,394,800
1,624,200 Schering-Plough Corp. 91,056,712
872,600 Warner-Lambert Co. 124,945,412
--------------
267,041,355
--------------
ELECTRICAL EQUIPMENT (3.8%)
1,443,400 Black & Decker Corp. 54,939,412
--------------
ENTERTAINMENT (1.4%)
246,265 Walt Disney Company 20,255,296
--------------
FINANCIAL-BANKS (13.6%)
244,139 Banc One Corp. 12,725,745
250,300 Bank of New York Co., Inc. 11,779,744
505,900 Barnett Banks, Inc. 34,907,100
217,000 CoreStates Financial Corp. 15,786,750
1,419,900 Mellon Bank Corp. 73,213,594
240,100 Pacific Century Financial Corp. 12,095,037
202,177 U.S. Bancorp 20,558,874
56,300 Wells Fargo & Company 16,404,413
--------------
197,471,257
--------------
FINANCIAL-MISCELLANEOUS (2.6%)
788,600 Fannie Mae 38,197,813
--------------
FOOD & BEVERAGE (8.3%)
594,800 Anheuser-Busch Companies, Inc. 23,754,825
1,050,200 PepsiCo, Inc. 38,660,488
632,900 Philip Morris Companies, Inc. 25,078,662
364,200 Ralston-Ralston Purina Group 32,686,950
--------------
120,180,925
--------------
HOSPITAL-SUPPLY (2.1%)
125,000 Covance, Inc.* 2,210,938
647,700 Quest Diagnostics, Inc.* 10,808,494
557,400 St. Jude Medical, Inc. * 16,896,187
--------------
29,915,619
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<S> <C> <C>
HOUSEHOLD-PRODUCTS (4.0%)
684,800 Avon Products, Inc. $ 44,854,400
200,000 Proctor & Gamble Co. 13,600,000
--------------
58,454,400
--------------
INSURANCE (5.2%)
632,500 Chubb Corp. 41,903,125
404,700 Horace Mann Educators Corp. 22,764,375
331,400 Provident Companies, Inc. 11,060,475
--------------
75,727,975
--------------
MACHINERY & CAPITAL GOODS (0.3%)
342,400 Johnstown America Industries, Inc.* 4,044,600
--------------
OIL & GAS (6.7%)
323,800 Mobil Corp. 23,576,688
953,400 Texaco, Inc. 54,284,212
465,100 Unocal Corp. 19,185,375
--------------
97,046,275
--------------
PRINTING & PUBLISHING (10.2%)
100,599 ACNielsen Corp.* 2,301,202
760,000 American Greetings Corp., Class A 26,362,500
301,800 Cognizant Corp. 11,826,788
653,100 Dun & Bradstreet Corp. 18,654,169
315,800 Gannett Co., Inc. 16,599,237
277,300 Gibson Greetings, Inc.* 6,828,512
766,200 New York Times Co., Class A 41,949,450
112,000 Tribune Co. 6,174,000
40,700 Washington Post Co., Class B 17,663,800
--------------
148,359,658
--------------
RESTAURANTS (0.9%)
277,500 McDonald's Corp. 12,435,469
--------------
RETAIL (0.8%)
325,300 Wal-Mart Stores, Inc. 11,426,163
--------------
TELECOMMUNICATIONS (0.6%)
202,100 360(degree) Communications Company * 4,269,363
106,600 AirTouch Communications, Inc.* 4,117,425
--------------
8,386,788
--------------
TOYS (2.1%)
778,840 Mattel, Inc. 30,277,405
--------------
TOTAL COMMON STOCK (cost $762,887,357) 1,434,319,403
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
CONVERTIBLE BONDS (0.5%)
$ 7,826,000 Consorcio G Grupo Dina,
8.00%, 2004
(cost $7,306,643) 6,495,580
--------------
COMMERCIAL PAPER (1.2%)
16,590,000 Walt Disney Company, 5.67%, 11/03/97
(cost $16,584,774) 16,584,774
--------------
TOTAL INVESTMENTS (cost $786,778,774) $1,457,399,757
==============
<FN>
- ----------------
* Denotes a non-income producing security.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 13
NATIONWIDE(R) INVESTING FOUNDATION
NATIONWIDE(R) BOND FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The Nationwide Bond Fund's total return with reinvestment of all distributions
for the year ended October 31, 1997, was 8.33% without sales charge. This
compares to the 8.81% return of our new benchmark, the Lehman Brothers
Government/Corporate Bond Index, which is more reflective of our investment
policies. In retrospect, it would have improved our comparative performance to
the Lehman Brothers Long-Term Government/Corporate Index if the change to this
new index had been at the beginning of the year rather than in the middle. For
the last six months of the fiscal year, the Bond Fund's total return was 7.37%,
little different than the 7.41% return for the new benchmark.
Interest rates declined substantially in the second half of the year. This
completely reversed the increase that followed the March increase in the Federal
funds rate. Rates ended at yearly lows, with the 30-year Treasury note yielding
6.15% and the two-year Treasury note yielding 5.61%. Inflationary pressures
remain remarkably subdued given the strength in the economy and as a result,
expectations of future inflation have declined. The economic weakness seen in
some of the Asian countries has spread throughout the region and could have an
effect on our economy in 1998. Inflation could drop below 2% with enough of a
slowdown.
In the corporate and mortgage-backed market, spreads were historically narrow
for virtually the entire year and few opportunities to improve returns were
available. Spreads did widen substantially at the fiscal-year end, but it
happened too suddenly to affect our returns. Turmoil in the Asian markets and
the fear that corporate profitability in 1998 will be hurt were the primary
cause. Mortgage-backed securities widened in sympathy, with the rationale of
lower interest rates sparking a wave of prepayments.
Restructuring the Fund from long-term to intermediate required a significant
change in composition. Approximately $50 million of long-term corporates were
sold, including large positions in Banc One, W.R. Berkley, Prudential and
Seagrams. New names added in the intermediate part of the curve included Hanson,
Hilton Hotels, McGraw-Hill and ITT Rayonier among others. Because of the
narrowness of spreads and increasing risk, positions in corporates and
mortgage-backed securities were reduced. U.S. Treasuries now comprise 18% of the
portfolio. The recent widening in spreads appears to present an opportunity for
the Fund, but I intend to wait for some signs of stability in the Asian markets
and a clearer picture of how much of a slowdown can be expected in 1998.
DOUGLAS E. KITCHEN, CFA - PORTFOLIO MANAGER
PORTFOLIO VALUE $124,335,565
FUND COMPOSITION
(SUBJECT TO CHANGE)
PIE CHART:
Other assets less liabilities 0.7%
Corporate bonds 72.2%
U.S. government obligations 17.9%
Canadian bonds 4.8%
Mortgage-backed securities 4.4%
<TABLE>
<CAPTION>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
<S> <C> <C> <C>
1 8.33% 11.22% 3.46%
5 7.02% 7.67% 6.04%
10 8.81% 8.28% 8.32%
<FN>
* These returns do not reflect the effects of sales charges.
** Assumes a 4.5% sales charge was paid, which has the most dramatic effect on
the one-year performance figures.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
BAR CHART:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CPI 10000 10425 10903 11598 11925 12319 12658 12997 13353 13753 14014
LBLTG/CBI 10000 11163 12916 13114 15591 17405 21274 18986 23955 25007 28058
LBG/CBI 10000 11062 12406 13088 15100 16772 19063 18179 21116 22254 24216
FUND 9550 10695 11734 12420 14293 15844 18001 16234 19547 20534 22245
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Bond Fund,
the Lehman Brothers Long-Term Government/Corporate Bond Index*, the Lehman
Brothers Government/Corporate Bond Index**, and the Consumer Price Index***
(CPI) over a 10-year period ended 10/31/97. Unlike our Fund, these indices do
not reflect any fees, expenses or sales charges.
* The Lehman Brothers Long-Term Gov't./Corp. Bond Index consists of U.S.
government and corporate bonds with maturities of 10 years or more and
outstanding par value of at least $100 million. All returns are market
value-weighted inclusive of accrued interest.
** The Lehman Brothers Gov't./Corp. Bond Index is the new index for the Fund.
It is the same as the above index except maturities of the securities are one
year and greater.
*** The CPI represents changes in prices of all goods and services purchased
for consumption by urban households.
</TABLE>
<PAGE> 14
STATEMENT OF INVESTMENTS - NATIONWIDE(R)BOND FUND - OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
CANADIAN GOVERNMENT BONDS (4.8%)
GOVERNMENT (4.8%)
$2,000,000 Hydro-Quebec, 8.05%, 07/07/24 $ 2,270,060
1,000,000 Quebec (Prov. of), 8.625%, 01/19/05 1,124,637
2,250,000 Quebec (Prov. of), 8.625%, 01/19/05 2,574,468
------------
TOTAL CANADIAN GOVERNMENT BONDS
(cost $5,550,902) 5,969,165
------------
CORPORATE BONDS (72.2%)
BANKS (2.5%)
3,000,000 Toronto-Dominion Bank,
7.875%, 08/15/04 3,092,556
------------
BROKER-DEALERS (5.8%)
2,000,000 Bear Stearns Companies, Inc.,
8.750%, 03/15/04 2,230,346
1,000,000 Lehman Brothers Holdings, Inc.,
11.625%, 05/15/05 1,286,294
3,000,000 Morgan Stanley Group, Inc.,
10.00%, 06/15/08 3,748,467
------------
7,265,107
------------
BUILDING MATERIALS (6.4%)
4,000,000 Armstrong World Industries, Inc.,
9.75%, 04/15/08 4,980,704
3,000,000 Hanson Overseas Sr. Note,
6.75%, 09/15/05 3,026,925
------------
8,007,629
------------
CHEMICALS (2.5%)
3,000,000 ICI Wilmington, Inc., 7.50%, 01/15/02 3,137,112
------------
DIVERSIFIED FINANCE (5.8%)
4,000,000 Alco Capital Resources, Inc.,
5.51%, 02/22/99 3,977,656
2,000,000 Ford Capital BV Notes,
10.125%, 11/15/00 2,217,884
1,000,000 General Electric Capital Corp.,
8.75%, 09/25/00 1,064,765
------------
7,260,305
------------
HEALTH CARE (1.9%)
2,000,000 Kaiser Foundation, 9.55%, 07/15/05 2,380,152
------------
HOTELS/MOTELS (2.5%)
3,000,000 Hilton Hotels Corp.,
7.375%, 06/01/02 3,076,665
------------
INSURANCE (9.1%)
4,000,000 AMBAC Inc., 9.375%, 08/01/11 4,996,248
2,000,000 Equitable of Iowa Companies,
8.50%, 02/15/05 2,200,064
3,515,000 Loews Corp., 8.875%, 04/15/11 4,156,480
------------
11,352,792
------------
OIL & GAS (0.9%)
1,000,000 Petro-Canada Notes,
8.60%, 10/15/01 1,080,870
------------
PAPER AND FOREST PRODUCTS (4.7%)
3,000,000 ITT Rayonier Inc., 7.50%, 10/15/02 3,142,902
2,500,000 Temple-Inland Inc., 9.00%, 05/01/01 2,720,585
------------
5,863,487
------------
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
PUBLISHING (2.6%)
$ 3,000,000 McGraw-Hill Inc.,
9.43%, 09/01/00 $ 3,241,347
------------
RETAIL TRADE (3.7%)
2,000,000 Dayton Hudson Co.,
9.25%, 08/15/11 2,439,554
2,000,000 J.C. Penney, 7.40%, 04/01/37 2,113,916
------------
4,553,470
------------
TELECOMMUNICATIONS (3.5%)
1,000,000 Nynex Capital Funding Corp.,
8.24%, 10/17/01 1,069,817
3,000,000 Rochester Telephone Corp.,
8.77%, 04/16/01 3,240,930
------------
4,310,747
------------
TRANSPORTATION (3.2%)
1,500,000 American Airlines, 10.33%, 03/04/05 1,785,762
2,000,000 CSX Corp., 7.25%, 05/01/27 2,151,484
------------
3,937,246
------------
UTILITIES (4.5%)
2,000,000 Equitable Resources,
7.50%, 07/01/99 2,042,784
2,000,000 Northwest National Gas,
9.75%, 07/01/15 2,221,714
1,250,000 Pacific Gas & Electric Co.,
8.75%, 01/01/01 1,341,890
------------
5,606,388
------------
OTHER (12.6%)
4,000,000 English China Clays Delaware,
Inc., 7.375%, 10/01/02 4,169,792
3,000,000 Mayne Nickless Notes,
6.25%, 02/01/06 2,935,560
2,260,000 Ryder System, Inc.,
7.56%, 08/15/00 2,343,810
2,000,000 VF Corporation,
9.50%, 05/01/01 2,210,472
3,500,000 Waste Management, Inc.,
8.75%, 05/01/18 3,962,606
------------
15,622,240
------------
TOTAL CORPORATE BONDS (cost $86,347,107) 89,788,113
------------
MORTGAGE-BACKED SECURITIES (4.4%)
500,000 FHLMC REMIC 1360-VK,
7.500%, 08/15/07 506,224
156,366 FHLMC-GNMA 29X,
6.75%, 02/25/23 157,839
312,731 FHLMC-GNMA 29Z, 6.75%, 04/25/24 305,443
1,119,000 FNMA REMIC 1992-145E,
7.00%, 08/25/22 1,124,356
646,000 FNMA REMIC G1992-15G,
7.00%, 04/25/20 654,208
389,016 FNMA REMIC G1992-64M,
7.00%, 11/25/22 385,137
2,396,000 FNMA REMIC S G93-10E,
5.00%, 04/25/20 2,332,961
------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $5,352,061) 5,466,168
------------
U.S. GOVERNMENT OBLIGATIONS (17.9%)
14,250,000 U.S. Treasury Bond, 8.75%, 05/15/17 18,311,250
4,000,000 U.S. Treasury Note,
5.625%, 11/30/98 4,001,248
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(cost $21,832,843) 22,312,498
------------
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
COMMERCIAL PAPER (0.6%)
$800,000 Koch Industries Private Placement,
5.68%, 11/03/1997
(cost $799,748) $ 799,621
------------
TOTAL INVESTMENTS (cost $119,832,661) $124,335,565
============
<FN>
- ----------------
The abbreviations in the above statement stand for the following:
FHLMC Federal Home Loan Mortgage Corp.
REMIC Real Estate Mortgage Investment Conduit
FNMA Federal National Mortgage Association
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 17
NATIONWIDE(R) INVESTING FOUNDATION II
NATIONWIDE(R) TAX-FREE INCOME FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The Nationwide Tax-Free Income Fund's total return for the year ended October
31, 1997, was 7.72% without sales change and assuming all distributions were
reinvested, while the Lehman Brothers Municipal Bond Index returned 8.49%.
The Municipal Bond Market experienced an active yet volatile year characterized
by a combination of declining interest rates and a large level of issuance. The
Bond-Buyer 11 General Obligation Municipal Bond Index fell from 5.60% to 5.28%,
a 0.32% decline. The decline wasn't a smooth one as the index rose as high as
5.79% in early April and saw a low of 5.15% by the end of July. The yield on the
most current U.S. Treasury 30-year bond also fell from 6.65% to 6.15%, a 0.50%
decline. The most current U.S. Treasury 30-year bond saw its highest yield of
7.11% during April as well and its low of 6.15% in late October. Municipal bonds
underperformed U.S. Treasuries during the period.
As 1997 began, a Democratic President and a Republican Majority were returned to
Washington and the economy was growing at a slow, manageable, noninflationary
pace. The markets reacted favorably to these events with stable to declining
interest rates. However, during the first quarter of the calendar year, economic
statistics began to show signs of an economy that may be overheating, and on
March 25, in a preemptive move against inflationary concerns, the Federal
Reserve raised the Federal funds rate 0.25%. The move appeared to be justified
as during the following months inflationary measures remained remarkably tame.
In late April, the announcement of a balanced budget agreement also overshadowed
concerns about the growth rate.
During the latter part of October, the Equity markets experienced a sell-off
that prompted investors to a flight to quality in U.S. Treasury securities. This
movement helped to sustain the lower yields and higher prices in the bond
markets. This volatility in the worldwide financial markets, however, has
significantly reduced the threat of another preemptive rate hike from the
Federal Reserve to slow the growth in U.S. economy.
Municipal issuers continued to take advantage of the lower interest rates and
propelled municipal volume up 17% for the first 10 months of the calendar year.
This increased supply has kept municipal securities from fully participating in
the bond market rally. As a consequence, particularly in the long end,
municipals have cheapened when compared to Treasury securities.
The management of the Fund will continue to monitor developments in the market
and to look for opportunities that will produce positive performance in the
long-run. The average credit quality of the Fund is "AA," average coupon is
6.08% and the average weighted maturity is approximately 18 years.
ALPHA L. BENSON, MBA - PORTFOLIO MANAGER
PORTFOLIO VALUE $254,071,756
FUND COMPOSITION
(SUBJECT TO CHANGE)
PIE CHART:
Other assets less liabilities 1.0%
Municipal securities 99.0%
<TABLE>
<CAPTION>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
<S> <C> <C> <C>
1 7.72% 8.71% 2.72%
5 6.78% 6.46% 6.63%
10 8.18% 7.16% 8.18%
<FN>
* These returns do not reflect the effects of sales charges.
** Assumes the applicable contingent deferred sales charge (CDSC) was paid on
withdrawals, which has the most dramatic effect on the one-year performance
figures. The CDSC declines from 5% in the first year to 0% after 5 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
BAR CHART:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CPI 10000 10425 10903 11598 11928 12319 12658 12997 13353 13753 14014
FUND 10000 11629 12529 13191 14763 15823 18507 16890 19366 20393 21969
LBMBI 10000 11456 12383 13302 14921 16174 18450 17646 20266 21421 23241
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Tax-Free
Income Fund, the Lehman Brothers Municipal Bond Index* (LBMBI) and the Consumer
Price Index (CPI)** over a 10-year period ended 10/31/97. Unlike our Fund, these
indices do not reflect any fees, expenses or sales charges.
* The LBMBI consists of investment grade tax-exempt bonds and includes
securities with at least one year to maturity and at least $100 million in par
value outstanding.
** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS - NATIONWIDE(R)TAX-FREE INCOME FUND - OCTOBER 31, 1997
PRINCIPAL SECURITY VALUE
<S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (99.0%)
ALABAMA (4.8%)
$3,000,000 Alabama Housing Finance Authority
Single-Family Mortgage
Revenue Bonds (Collateralized
Home Mortgage Revenue
Bond Program), 1996 Series D,
6.00%, 2016 $ 3,142,500
1,100,000 Birmingham, Alabama General
Obligation Parking Warrants,
Series 1995-A, 5.90%, 2018 1,139,875
2,500,000 Birmingham, Alabama General
Obligation Refunding
Revenue, Series 1992 B,
6.25%, 2016 2,653,125
2,480,000 Birmingham, Alabama Water Works
& Sewer Board Refunding
Revenue, Series 1992,
6.125%, 2012 2,604,000
2,500,000 Huntsville, Alabama General
Obligation Limited Tax
Warrants, Series 1992 A,
6.00%, 2012 2,650,000
------------
12,189,500
------------
ARIZONA (1.0%)
2,500,000 Salt River Project Agricultural
Improvement & Power District,
Arizona Electric System Revenue
Bonds, Series 1992 C,
6.20%, 2012 2,662,500
------------
COLORADO (0.1%)
340,000 Colorado Housing Finance Authority
Single-Family Housing Revenue
Refunding Bonds, Series 1991-A,
7.15%, 2014 364,225
------------
CONNECTICUT (1.8%)
4,220,000 Connecticut Housing Finance Authority
Housing Mortgage Finance Program
Bonds, Series 1992-B,
6.70%, 2012 4,547,050
------------
FLORIDA (1.0%)
2,400,000 Jacksonville, Florida Electric Authority
Bulk Power Revenue Bonds, (Scherer 4
Project, Issue One, Series 1991-A),
7.00%, 2012 2,622,000
------------
GEORGIA (2.6%)
1,250,000 Columbus, Georgia Building Authority
Lease Revenue Bonds, Series 1997A,
5.65%, 2017 1,282,812
1,210,000 Dekalb County, Georgia General
Obligation Refunding Bonds,
6.00%, 2012 1,278,062
2,750,000 Georgia Municipal Electric Authority
Power Revenue Bonds,
Series 1991-V, 6.60%, 2018 3,162,500
955,000 Georgia Residential Financial
Authority Revenue Bonds,
Series A, 7.50%, 2017 1,013,494
------------
6,736,868
------------
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
ILLINOIS (10.1%)
$2,050,000 Chicago Park District, Illinois General
Obligation Unlimited Tax Park Bonds,
Series 1996, 5.60%, 2021 $ 2,075,625
2,185,000 Illinois Educational Facility Authority
Revenue, Series 1991-A, Loyola
University, 7.125%, 2021 2,439,006
2,500,000 Illinois State Build Illinois Bonds Sales
Tax Revenue, Series V,
6.375%, 2017 2,703,125
7,500,000 Illinois State Build Illinois Bonds Sales
Tax Revenue, Series O,
6.00%, 2018 7,818,750
1,000,000 Palatine, Illinois Corporate Purpose
General Obligation Bonds,
Series 1985, 9.90%, 2016 1,128,750
2,500,000 Illinois State General Obligation Bonds,
Series of December 1995,
5.125%, 2017 2,459,375
4,000,000 Illinois State General Obligation Bonds,
Series of May 1996, 5.75%, 2017 4,155,000
3,000,000 Illinois State General Obligation Bonds,
Series of March 1994, 5.80%, 2019 3,082,500
------------
25,862,131
------------
INDIANA (2.9%)
5,335,000 Indiana State Toll Road Commission
East-West Toll Road Revenue Bonds,
Series 1980, 9.00%, 2015 7,475,669
------------
KENTUCKY (1.4%)
3,250,000 Jefferson County, Kentucky Jewish
Hospital Healthcare Services Health
Facilities Revenue Bonds, Series 1995,
6.50%, 2015 3,522,187
------------
MASSACHUSETTS (2.4%)
2,525,000 Massachusetts State General Obligation
Bonds Consolidated Loan,
Series 1992-B, 6.50%, 2013 2,780,656
3,000,000 Massachusetts State General Obligation
Refunding Bonds, 1997 Series A,
5.75%, 2010 3,262,500
------------
6,043,156
------------
MICHIGAN (3.4%)
3,500,000 Cheboygan, Michigan Area Schools
General Obligation Unlimited Tax,
5.60%, 2021 3,561,250
3,500,000 Michigan State General Obligation
Bonds, Environmental Protection
Program, Series 1992,
6.25%, 2012 4,007,500
1,150,000 University of Michigan Higher
Education Housing Revenue Bonds,
Series 1996A, 5.125%, 2015 1,151,438
------------
8,720,188
------------
MINNESOTA (2.4%)
2,095,000 Minnesota Housing Finance Agency
Rental Housing Revenue Bonds,
Series 1995 D, 5.90%, 2015 2,173,563
3,790,000 Minnesota State Housing Finance
Agency Single Family Mortgage
Revenue Bonds, Series 1994 K,
6.40%, 2015 4,022,137
------------
6,195,700
------------
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
MISSOURI (0.8%)
$2,000,000 Missouri State Environmental
Improvement & Energy Resources
Authority Water Pollution Control
Revenue Bonds, 6.55%, 2014 $ 2,162,500
------------
NEBRASKA (2.0%)
5,000,000 Nebraska Public Power District Power
Supply System Revenue Bonds,
Series 1993, 6.125%, 2015 5,331,250
------------
NORTH CAROLINA (8.5%)
5,000,000 Charlotte-Mecklenburg Hospital
Authority, North Carolina, Carolinas
Healthcare System, Health Care
Revenue Bonds, Series 1997A,
5.125%, 2022 4,800,000
3,460,000 North Carolina Housing Finance
Agency Multi-Family Revenue
Refunding Bonds, Series H,
5.95%, 2021 3,611,375
2,185,000 North Carolina Housing Finance
Agency Single-Family Revenue
Bonds, Series GG, 5.90%, 2013 2,283,325
2,020,000 North Carolina Housing Finance
Agency Single-Family Revenue Bonds,
Series AA, 6.25%, 2017 2,153,825
1,745,000 North Carolina Housing Finance
Agency Single-Family Revenue Bonds,
Series J, 7.40%, 2022 1,821,344
1,695,000 North Carolina Housing Finance Agency
Single-Family Revenue Bonds,
Series N, 7.40%, 2028 1,794,581
2,000,000 North Carolina Medical Care
Commission Hospital Revenue
Refunding Bonds, Series 1992 A
(North Carolina Baptist Hospitals
Project), 6.375%, 2014 2,135,000
1,000,000 North Carolina Medical Care Commission
Hospital Revenue Bonds, Duke
University Hospital Project, Series C,
5.25%, 2017 985,000
1,080,000 University of North Carolina at Chapel
Hill Dining System Revenue Bonds,
Series 1997, 5.40%, 2016 1,113,750
1,140,000 University of North Carolina at Chapel
Hill Dining System Revenue Bonds,
Series 1997, 5.40%, 2017 1,159,950
------------
21,858,150
------------
OHIO (2.6%)
1,760,000 Columbus, Ohio General Obligation
Various Purpose Bonds,
8.125%, 2006 2,204,400
1,100,000 Franklin County, Ohio Hospital
Refunding and Improvement
Revenue Bonds (The Children's
Hospital Project), 1996 Series A,
5.75%, 2020 1,122,000
1,225,000 Ohio Housing Finance Agency
Mortgage Revenue Bonds
Residential Mortgage Backed
Securities, Series A-1, 5.70%, 2017 1,252,563
2,000,000 Ohio Turnpike Commission Turnpike
Revenue Bonds, 1996 Series A,
5.70%, 2017 2,067,500
------------
6,646,463
------------
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
PENNSYLVANIA (6.3%)
<S> <C> <C>
$2,000,000 Pennsylvania General Obligation
Bonds, Second Series of 1995,
5.00%, 2012 $ 1,990,000
4,500,000 Pennsylvania Higher Educational
Facilities Authority, The University of
Pennsylvania Health Services
Revenue Bonds, Series A of 1996,
5.875%, 2015 4,708,125
1,500,000 Pennsylvania Housing Finance Agency
Rental Housing Refunding Revenue
Bonds, Issue 1992, 6.25%, 2007 1,591,875
4,055,000 Pennsylvania Housing Finance Agency
Rental Housing Refunding Revenue
Bonds, Issue 1992, 6.40%, 2012 4,267,888
2,000,000 Pennsylvania State Turnpike Commission
Oil Franchise Tax Revenue, Series A,
6.00%, 2014 2,122,500
1,500,000 Pittsburgh, Pennsylvania Water and
Sewer Authority, Water and Sewer
System First Lien Revenue Bonds,
Series A of 1995, 5.50%, 2015 1,520,625
------------
16,201,013
------------
SOUTH CAROLINA (5.1%)
4,980,000 Charleston, South Carolina Waterworks
& Sewer System Refunding & Capital
Improvement Revenue Bonds,
Series 1991, 6.00%, 2018 5,210,325
1,400,000 Greenville, South Carolina Hospital
System Revenue Bonds Hospital
Facilities, Series B, 5.25%, 2017 1,379,000
1,500,000 South Carolina State Housing Finance
& Development Authority Multi-Family
Development Revenue Refunding,
Series 1992-A, 6.875%, 2023 1,588,125
2,075,000 South Carolina State Housing Finance
& Development Authority Homeownership
Mortgage Purchase Bonds, Series
1994 A, 6.375%, 2016 2,176,156
1,500,000 Spartanburg, South Carolina Water
System Improvement & Refunding
Revenue Bonds, Series 1992,
6.25%, 2017 1,626,519
1,000,000 Spartanburg, South Carolina Water
System Revenue Bonds, Series 1996,
6.10%, 2021 1,112,500
------------
13,092,625
------------
TENNESSEE (1.4%)
1,430,000 Nashville & Davidson County,
Tennessee Health & Educational
Facilities Revenue Bonds, Series
1979, 7.875%, 2004 1,605,175
1,000,000 Nashville & Davidson County,
Tennessee General Obligation
Multi-Purpose Improvement Bonds,
Series 1994, 6.125%, 2014 1,091,250
1,000,000 Shelby County, Tennessee General
Obligation Public Improvement Bonds,
1996 Series A, 5.85%, 2017 1,038,750
------------
3,735,175
------------
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
TEXAS (18.5%)
$2,325,000 Beaumont Independent School District,
Texas Unlimited Tax School Building,
Series 1996, 5.00%, 2016 $ 2,258,156
1,000,000 Carrollton-Farmers Branch Independent
School District, Texas General
Obligation Permanent School Fund
Guarantee, Series 1996,
5.70%, 2017 1,026,250
1,100,000 Cypress-Fairbanks Independent School
District, Texas General Obligation
Permanent School Fund Guarantee,
Series 1996, 5.375%, 2019 1,097,250
2,300,000 Fort Bend Independent School District,
Texas General Obligation Permanent
School Fund Guarantee, Series 1996,
5.00%, 2018 2,205,125
1,350,000 Fort Worth, Texas General Obligation
Limited Tax Bonds, 5.625%, 2017 1,383,750
5,325,000 Harris County, Texas Health Facilities
Development Corporation Revenue
School Health Care Systems, Series B,
5.75%, 2027 5,451,469
2,500,000 Houston Independent School District,
Texas Limited Tax School House
Refunding Bonds, Series 1997,
5.375%, 2017 2,506,250
7,720,000 Houston, Texas Water & Sewer Junior
Lien Revenue Refunding, Series 1991-C,
6.375%, 2017 8,327,600
490,000 Lower Colorado River Authority Texas
Junior Lien Refunding Revenue Bonds,
Series 1992 (ETM), 6.00%, 2017 539,000
2,630,000 Lower Colorado River Authority Texas
Junior Lien Refunding Revenue Bonds,
Series 1992 (Unrefunded),
6.00%, 2017 2,695,750
4,000,000 San Antonio, Texas General Obligation
General Improvement and Refunding
Bonds, Series 1996A, 5.00%, 2016 3,895,000
2,000,000 Texas A&M University System Board of
Regents Revenue Financing System
Bonds, Series 1996, 5.375%, 2014 2,040,000
3,175,000 Texas State Water Development Bonds,
Series 1994, 6.90%, 2017 3,544,094
2,810,000 Texas State Water Development Board
State Revolving Fund Senior Lien
Revenue Bonds, Program Series 1997A,
5.25%, 2019 2,781,900
1,000,000 Texas State Public Finance Authority
General Obligation Refunding Bonds,
Series 1995A, 6.00%, 2014 1,056,250
2,000,000 University of Texas System Permanent
University Fund Bonds, Series 1992B,
6.25%, 2013 2,162,500
1,090,000 Weatherford, Texas Independent School
District Unlimited Tax School Building
and Refunding Bonds, Series 1994,
6.40%, 2012 1,181,287
3,000,000 Weatherford, Texas Independent School
District Unlimited Tax School Building
and Refunding Bonds, Series 1994,
6.50%, 2015 3,270,000
------------
47,421,631
------------
UTAH (0.4%)
1,080,000 Intermountain Power Agency, Utah
Power Supply Revenue Refunding
Bonds, Series 1993-A,
5.50%, 2020 1,069,200
------------
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
VIRGINIA (11.4%)
$1,500,000 Fairfax County, Virginia Water Authority
Water Refunding Revenue
Series 1992, 6.00%, 2022 $ 1,628,775
4,250,000 Henrico County, Virginia Water and
Sewer System Refunding Revenue
Bonds, Series 1994, 5.875%, 2014 4,372,188
1,985,000 Newport News, Virginia General
Improvement Bonds, Series 1993 E,
5.20%, 2013 2,017,256
3,000,000 Richmond, Virginia General Obligation
Public Improvement Refunding Bonds,
Series 1991-B, 6.25%, 2018 3,157,500
1,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series B Subseries B-2,
6.50%, 2010 1,100,000
1,080,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1995-D, Subseries D-1,
5.95%, 2013 1,125,900
2,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1992 C Subseries C-7,
6.30%, 2015 2,087,500
1,000,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1995 B Subseries B-3,
6.35%, 2015 1,065,000
1,930,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1995 B Subseries B-3,
6.35%, 2016 2,055,450
5,500,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds,
Series 1992 A, 7.10%, 2022 5,864,375
2,000,000 Virginia Public School Authority School
Financing Bonds (1991 Resolution),
Series 1994 A, 6.20%, 2013 2,147,500
2,595,000 Virginia Public School Authority School
Financing Bonds (1991 Resolution),
Series 1995 C, 5.00%, 2016 2,526,881
------------
29,148,325
------------
WASHINGTON (4.4%)
1,500,000 King County, Washington Limited Tax
General Obligation Refunding Bonds,
1996 Series C, 5.25%, 2021 1,501,875
6,150,000 Seattle, Washington Water System
and Refunding Revenue Bonds,
1993, 5.50%, 2018 6,196,125
3,500,000 Washington State Motor Vehicle Fuel
Tax General Obligation Bonds,
Series 1997 D, 5.375%, 2022 3,513,125
------------
11,211,125
------------
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
WISCONSIN (3.6%)
<S> <C> <C>
$1,000,000 Wisconsin Housing and Economic
Development Authority Home
Ownership Revenue Bonds,
Series A, 5.65%, 2010 $ 1,051,250
2,000,000 Wisconsin State General Obligation,
Series 1992-A, 6.30%, 2011 2,162,500
2,000,000 Wisconsin State General Obligation
Bonds of 1994, Series A,
5.00%, 2014 1,970,000
1,500,000 Wisconsin State Transportation
Revenue Bonds,1994 Series A,
5.50%, 2011 1,522,500
2,500,000 Wisconsin State Transportation Revenue
Bonds, Series A, 5.50%, 2012 2,546,875
------------
9,253,125
------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(cost $239,111,498) $254,071,756
============
<FN>
- ---------------
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
Distribution of investments by industry, as a percentage of total investment in
securities at value, is as follows:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE PERCENT
<S> <C> <C>
County/City/School Districts $ 17,105,568 6.7%
Education 14,741,025 5.8
Electric Utilities 14,847,450 5.8
Healthcare/Medical Products 8,973,656 3.5
Hospitals 16,734,300 6.6
Housing 53,436,314 21.0
Miscellaneous 15,816,250 6.2
Political Subdivisions - City/County 23,637,718 9.3
State Territories and Possessions 32,927,250 13.0
Transportation 15,735,044 6.2
Water, Sewer, and Combined Utilities 40,117,181 15.9
------------ -----
$254,071,756 100.0%
============ =====
</TABLE>
<PAGE> 25
NATIONWIDE(R) INVESTING FOUNDATION II
NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The Nationwide U.S. Government Income Fund's total return for the year ended
October 31, 1997, was 8.86% without sales charge and assuming all distributions
were reinvested, while its new index, the Merrill Lynch Government Master Index,
returned 8.67%. The new index is more reflective of our investment policies.
Shareholders who stayed in the Fund for the entire period were rewarded after a
difficult first six months when intermediate-term interest rates rose 0.4%-0.5%.
The second half of the period was more favorable as intermediate interest rates
dropped 0.5%-0.9% and longer rates dropped by approximately 0.8%.
The higher prices for bonds in the second half was the result of several
factors. The most notable factor was the continued release of favorable
inflation reports in spite of low unemployment and significant growth in the
overall economy. Another important factor is the perception that the Federal
Reserve will not act to raise rates until clear signs of inflationary pressures
are present. The Federal Reserve's stance combined with favorable inflation
reports has led to a significantly flatter yield curve. Finally, the U.S.
government market has been the beneficiary of a flight to quality as the result
of increased turmoil in world equity markets.
The U.S. Government Income Fund benefited from its weighting in the
Collateralized Mortgage Obligation (CMO) market during the period and the shift
out of callable into non-callable Agency notes. Approximately 77% of portfolio
assets are invested in the CMO market, and 19% of Fund assets are invested in
U.S. government and agency obligations. The remainder of Fund assets are held in
repurchase agreements.
PORTFOLIO MANAGERS:
KIMBERLY A. BINGLE, CFA, FLMI
WAYNE T. FRISBEE, CFA
GARY R. HUNT, MBA
PORTFOLIO VALUE $41,268,812
FUND COMPOSITION
(SUBJECT TO CHANGE)
PIE CHART:
Other assets less liabilities 4.9%
Mortgage-backed securities 76.4%
U.S. government and agency long-term obligations 18.7%
<TABLE>
<CAPTION>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
$1,000 $100 $1,000
LUMP SUM MONTHLY LUMP SUM
INVESTMENT INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC* W/SC**
<S> <C> <C> <C>
1 8.86% 11.36% 3.86%
5 7.09% 7.77% 6.94%
Life 7.17% 7.60% 7.17%
(5 years, 8 months)
<FN>
* These returns do not reflect the effects of sales charges.
** Assumes the applicable contingent deferred sales charge (CDSC) was paid on
withdrawals, which has the most dramatic effect on the one-year performance
figures. The CDSC declines from 5% in the first year to 0% after 5 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
BAR CHART:
1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
CPI 10000 10223 10504 10785 11081 11413 11629
FUND 10000 10513 11581 11094 12922 13604 14809
LBIGBI 10000 10669 11653 11453 12806 13532 14524
MLGMI 10000 10692 12083 11560 13341 14015 15231
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) U.S.
Government Income Fund, the Lehman Brothers Intermediate Government Bond Index*
(LBIGBI), the Merrill Lynch Government Master Index** (MLGMI) and the Consumer
Price Index (CPI)*** since inception (2/10/92) to 10/31/97. Unlike our Fund,
these indices do not reflect any fees, expenses or sales charges.
* The LBIGBI is comprised of U.S. government securities with par values of at
least $100 million and maturities of at least one year and up to 10 years.
** The MLGMI is the new index for the Fund. It consists of U.S. Treasury notes
and bonds with one or more years remaining to final maturity and at least $1
billion in face value outstanding, and U.S. agencies with one or more years
remaining to final maturity and at least $100 million in face value
outstanding.
*** The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS - NATIONWIDE(R) U.S. GOVERNMENT INCOME FUND -
OCTOBER 31, 1997
PRINCIPAL SECURITY VALUE
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (76.4%)
$5,000,000 FHLMC REMIC Series 1462,
Class PT, 7.50%, 01/15/03 $ 5,140,900
3,000,000 FHLMC REMIC Series 1313,
Class G, 7.25%, 06/15/07 3,078,597
4,000,000 FHLMC REMIC Series 1344,
Class D, 6.00%, 08/15/07 3,900,720
5,000,000 FHLMC REMIC Series 1560,
Class PN, 7.00%, 12/15/12 5,182,150
3,437,917 FHLMC REMIC Series 31,
Class E, 7.55%, 05/15/20 3,570,404
1,435,713 FNMA REMIC Series 92-126,
Class VB, 8.00%, 07/25/02 1,494,764
4,000,000 FNMA REMIC Series 92-151,
Class H, 6.00%, 08/25/07 3,903,240
334,190 FNMA REMIC Series 1988-25,
Class B, 9.25%, 10/25/18 357,775
2,166,449 FNMA REMIC Series 1990-7,
Class B, 8.50%, 01/25/20 2,275,177
2,373,246 FNMA REMIC Series 1992-81,
Class Z, 8.50%, 04/25/22 2,665,968
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(cost $30,165,251) 31,569,695
-----------
U.S GOVERNMENT AND AGENCY
LONG-TERM OBLIGATIONS (18.7%)
4,000,000 Federal National Mortgage
Association, 7.35%, 03/28/05 4,296,524
1,550,000 Federal National Mortgage
Association, 7.26%, 10/05/05 1,558,337
2,000,000 Resolution Funding STRIPS,
0.00%, 07/15/07 1,110,738
2,000,000 Resolution Funding STRIPS,
0.00%, 07/15/13 743,518
-----------
TOTAL U.S. GOVERNMENT AND AGENCY LONG-TERM
OBLIGATIONS (cost $7,446,092) 7,709,117
-----------
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
REPURCHASE AGREEMENT (4.8%)
$1,990,000 UBS Securities 5.63%, 11/03/97,
Collateralized by $1,964,000
U.S. Treasury Note,
6.375%, 01/15/00, market value
$2,030,285 (cost $1,990,000) $ 1,990,000
-----------
TOTAL INVESTMENTS (cost $39,601,343) $41,268,812
===========
<FN>
- -----------------
The abbreviations in the above statement stand for the following:
FNMA Federal National Mortgage Association
FHLMC Federal Home Loan Mortgage Corporation
REMIC Real Estate Mortgage Investment Conduit
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percentage of net
assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 28
NATIONWIDE(R) INVESTING FOUNDATION
NATIONWIDE(R) MONEY MARKET FUND
MANAGEMENT DISCUSSION
OF FUND PERFORMANCE
The net assets of Nationwide Money Market Fund ended the fiscal year at $820.7
million. They were $729.5 million a year ago. Mutual fund assets have seen
consistent growth during the year. Much of the growth is attributed to an
increase in individual retirement savings utilizing payroll deductions. The
average annual total return for the year ended October 31, 1997, was 5.07%
versus 2.08% for the Consumer Price Index; the seven-day effective yield for the
Fund was 5.15%.
The Fund met its investment objective of providing a high level of current
income consistent with capital preservation and maintenance of liquidity. This
was achieved by careful investment selection and constant attention to the
compliance objectives and policies outlined in the prospectus.
The investment portfolio is well diversified and a laddered approach to
maturities was followed. The dollar-weighted average maturity of the Fund
remained between approximately 35-45 days. Prime commercial paper provided the
best risk/return profile, accounting for its dominant portfolio weighting. The
trading range for 30-day prime commercial paper (dealer placed) was between
5.24% and 5.61% for the year.
PATRICIA A. MYNSTER - PORTFOLIO MANAGER
PORTFOLIO VALUE $821,976,286
FUND COMPOSITION
(SUBJECT TO CHANGE)
PIE CHART:
Canadian obligations 3.4%
Commercial paper 92.7%
U.S. government and agency obligations and other assets less liabilities 3.9%
<TABLE>
<CAPTION>
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
FOR PERIODS ENDED 10/31/97
$1,000 $100
LUMP SUM MONTHLY
INVESTMENT INVESTMENT
YEARS W/O SC* W/O SC*
<S> <C> <C>
1 5.07% 5.13%
5 4.30% 4.83%
10 5.47% 4.86%
<FN>
* There are no sales charges in the Nationwide(R) Money Market Fund.
An investment in the Money Market Fund is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that it will be able to
maintain a stable net asset value of $1.00 per share.
</TABLE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
Bar Chart:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CPI 10000 10425 10903 11598 11925 12319 12658 12997 13353 13753 14014
FUND 10000 10693 11644 12569 13341 13811 14170 14643 15443 16222 17045
<FN>
Comparative performance of $10,000 invested in the Nationwide(R) Money Market
Fund, and the Consumer Price Index (CPI)* over a 10-year period ended
10/31/97. Unlike our Fund, the CPI does not reflect any fees or expenses.
* The CPI represents changes in prices of all goods and services purchased for
consumption by urban households.
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS - NATIONWIDE(R)MONEY MARKET FUND - OCTOBER 31, 1997
PRINCIPAL SECURITY VALUE
<S> <C> <C>
CANADIAN OBLIGATIONS (3.4%)
British Columbia (Providence Of)
$ 8,325,000 5.47%, 01/26/98 $ 8,216,215
Canadian Treasury Bills
7,714,000 5.43%, 11/14/97 7,698,874
Canadian Wheat Board
2,900,000 5.50%, 12/15/97 2,880,506
5,000,000 5.50%, 12/16/97 4,965,625
Export Development Corp.
4,500,000 5.56%, 01/22/98 4,443,010
------------
TOTAL CANADIAN OBLIGATIONS
(cost $28,204,230) 28,204,230
------------
COMMERCIAL PAPER (92.7%)
AGRICULTURE/SUPPLIES (0.9%)
Deere & Co.
7,029,000 5.51%, 11/05/97 7,024,697
------------
AUTO/FINANCE (7.1%)
Ford Motor Credit Co.
1,995,000 5.49-5.52%, 11/04/97 1,994,087
4,000,000 5.50%, 11/21/97 3,987,778
3,000,000 5.48%, 11/26/97 2,988,583
10,000,000 5.51%, 01/06/98 9,898,983
3,000,000 5.53%, 01/13/98 2,966,359
5,500,000 5.56%, 01/20/98 5,432,044
General Motors Acceptance Corp.
6,060,000 5.55%, 11/19/97 6,043,184
6,497,000 5.54%, 11/25/97 6,473,004
13,908,000 5.54%, 12/12/97 13,820,248
4,923,000 5.54%, 12/18/97 4,887,393
------------
58,491,663
------------
BANKS (9.7%)
Banc One Corp.
10,000,000 5.50%, 11/21/97 9,969,444
1,930,000 5.51%, 11/26/97 1,922,615
7,140,000 5.51%, 12/02/97 7,106,123
2,114,000 5.53%, 12/18/97 2,098,738
CoreStates Capital Corp.
5,000,000 5.51%, 11/03/97 4,998,470
J.P. Morgan & Co.
5,000,000 5.50%, 11/14/97 4,990,070
National City Credit Corp.
3,000,000 5.51%, 11/04/97 2,998,623
8,000,000 5.51%, 11/10/97 7,988,980
3,000,000 5.52%, 11/12/97 2,994,940
10,000,000 5.53-5.55%, 12/01/97 9,953,917
5,000,000 5.51%, 12/08/97 4,971,685
5,000,000 5.50%, 12/19/97 4,963,333
SunTrust Banks, Inc.
5,000,000 5.57%, 01/08/98 4,947,394
Toronto-Dominion USA
10,000,000 5.52-5.54%, 01/07/98 9,897,267
------------
79,801,599
------------
BROKER/DEALERS (11.0%)
Bear Stearns Company
5,000,000 5.52%, 11/03/97 4,998,467
14,000,000 5.51-5.52%, 11/26/97 13,946,368
4,000,000 5.50%, 12/09/97 3,977,152
2,603,000 5.52%, 12/16/97 2,585,039
5,000,000 5.60%, 01/09/98 4,946,333
Goldman Sachs Group
6,221,000 5.49-5.52%, 11/17/97 6,205,778
15,053,000 5.50%, 11/18/97 15,013,904
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
BROKER/DEALERS (CONTINUED)
Merrill Lynch & Co., Inc.
$ 4,000,000 5.53%, 11/19/97 $ 3,988,940
5,500,000 5.50-5.53%, 12/12/97 5,465,361
5,000,000 5.53%, 01/05/98 4,950,076
8,000,000 5.57-5.61%, 01/12/98 7,910,640
4,400,000 5.60%, 01/16/98 4,347,982
2,000,000 5.55%, 02/05/98 1,970,400
Smith Barney, Inc.
10,000,000 5.51%, 11/12/97 9,983,164
------------
90,289,604
------------
CHEMICALS (4.1%)
Monsanto Co.
3,000,000 5.50-5.53%, 11/05/97 2,998,167
2,000,000 5.51%, 11/12/97 1,996,633
10,000,000 5.50%, 12/03/97 9,951,111
13,450,000 5.48-5.49%, 12/04/97 13,382,390
3,750,000 5.50%, 12/08/97 3,728,802
PPG Industries, Inc.
1,374,000 5.47-5.55%, 11/24/97 1,369,198
------------
33,426,301
------------
CONSUMER SALES FINANCE (14.3%)
American Express Credit Corp.
10,000,000 5.51%, 11/06/97 9,992,347
5,469,000 5.51%, 11/14/97 5,458,118
1,291,000 5.53%, 12/18/97 1,281,679
Associates Corp. of North America
6,010,000 5.48%, 11/04/97 6,007,256
5,000,000 5.51%, 11/05/97 4,996,939
5,000,000 5.51%, 01/05/98 4,950,257
3,915,000 5.55%, 01/09/98 3,873,354
Avco Financial Services, Inc.
9,060,000 5.57%, 02/05/98 8,925,429
Beneficial Corp.
14,737,000 5.51%, 12/01/97 14,669,333
7,000,000 5.49%, 12/17/97 6,950,895
Commercial Credit Corp.
10,000,000 5.50%, 11/20/97 9,970,972
3,042,000 5.49%, 11/24/97 3,031,330
10,000,000 5.48%, 12/09/97 9,942,156
6,000,000 5.50%, 12/24/97 5,951,417
Norwest Financial Inc.
6,412,000 5.51%, 11/03/97 6,410,037
10,000,000 5.48%, 11/19/97 9,972,600
5,000,000 5.50-5.54%, 12/17/97 4,964,861
------------
117,348,980
------------
CORPORATE CREDIT UNIONS (2.4%)
U.S. Central Credit Union
15,000,000 5.49%, 12/15/97 14,900,388
5,000,000 5.495%, 01/16/98 4,941,997
------------
19,842,385
------------
DATA SERVICES (3.6%)
First Data Corp.
12,652,000 5.51%, 11/25/97 12,605,525
7,000,000 5.51%, 12/09/97 6,959,287
2,000,000 5.55%, 01/13/98 1,977,492
8,000,000 5.59%, 02/24/98 7,857,144
------------
29,399,448
------------
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
DIVERSIFIED FINANCE (3.7%)
General Electric Capital Corp.
$ 7,000,000 5.52%, 11/07/97 $ 6,993,560
5,000,000 5.52%, 11/12/97 4,991,567
4,000,000 5.49%, 11/19/97 3,989,020
5,115,000 5.53-5.57%, 11/21/97 5,099,172
3,000,000 5.55%, 01/13/98 2,966,238
3,000,000 5.56-5.54%, 01/09/98 2,968,145
3,000,000 5.60%, 03/19/98 2,935,600
------------
29,943,302
------------
ENTERTAINMENT (0.5%)
Walt Disney Company
3,814,000 5.52%, 01/02/98 3,777,742
------------
FINANCIAL SERVICE/UTILITIES (2.6%)
National Rural Utilities Cooperative Finance Corp.
5,000,000 5.48%, 11/10/97 4,993,150
7,887,000 5.53%, 12/02/97 7,849,714
5,000,000 5.51%, 12/05/97 4,973,981
2,800,000 5.52-5.58%, 01/08/98 2,770,488
1,000,000 5.54-5.58%, 01/12/98 988,840
------------
21,576,173
------------
FOOD & BEVERAGES (10.1%)
CPC International, Inc.
5,000,000 5.52%, 11/10/97 4,993,176
9,000,000 5.49-5.50%, 11/13/97 8,983,506
7,000,000 5.50%, 12/11/97 6,957,222
Campbell Soup 144-A *
5,000,000 5.46%, 12/22/97 4,961,325
Campbell Soup Co.
4,000,000 5.49%, 11/04/97 3,998,170
1,540,000 5.51%, 12/09/97 1,531,043
10,000,000 5.48%, 12/19/97 9,926,933
5,000,000 5.52%, 01/07/98 4,948,633
Heinz H.J. Co.
4,000,000 5.48%, 11/17/97 3,990,258
10,990,000 5.48%, 11/18/97 10,961,560
5,000,000 5.50%, 11/24/97 4,982,431
1,300,000 5.52%, 12/05/97 1,293,223
McDonalds Corp.
10,000,000 5.52%, 11/04/97 9,995,400
Sysco Corp. Private Placement
5,000,000 5.52%, 11/18/97 4,986,967
------------
82,509,847
------------
HEAVY EQUIPMENT/FINANCE (3.8%)
Caterpillar Financial Services, Inc.
12,000,000 5.52%, 11/07/97 11,988,960
2,500,000 5.53%, 11/14/97 2,495,008
12,000,000 5.49-5.52%, 11/17/97 11,970,720
5,000,000 5.49-5.50%, 11/18/97 4,987,038
------------
31,441,726
------------
INSURANCE (4.2%)
MetLife Funding, Inc.
4,000,000 5.49%, 11/05/97 3,997,560
8,000,000 5.50%, 11/06/97 7,993,889
3,000,000 5.51%, 11/21/97 2,990,817
3,000,000 5.48%, 12/02/97 2,985,843
10,000,000 5.48%, 12/05/97 9,948,244
Old Republic Capital Corp.
7,000,000 5.50%, 12/11/97 6,957,870
------------
34,874,223
------------
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
MISCELLANEOUS MANUFACTURING (1.2%)
Illinois Tool Works Inc.
$10,000,000 5.70%, 11/03/97 $ 9,996,833
------------
OFFICE EQUIPMENT AND SUPPLIES (1.2%)
Pitney Bowes Credit
10,000,000 5.59-5.65%, 11/04/97 9,995,317
------------
OIL & GAS (1.4%)
Chevron Transport Corp.
2,000,000 5.50%, 11/17/97 1,995,111
5,000,000 5.51-5.52%, 12/02/97 4,976,276
5,000,000 5.52%, 12/16/97 4,965,500
------------
11,936,887
------------
PACKAGING/CONTAINERS (1.1%)
Bemis Co., Inc,
3,975,000 5.49-5.55%, 11/04/97 3,973,181
5,000,000 5.50%, 12/03/97 4,975,556
------------
8,948,737
------------
PAPER AND FOREST PRODUCTS (1.3%)
Sonoco Products Co.
10,500,000 5.49-5.68%, 11/04/97 10,495,196
------------
PHARMACEUTICALS/PERSONAL CARE (5.7%)
Abbott Laboratories
19,758,000 5.45-5.46%, 11/13/97 19,722,074
14,935,000 5.45%, 11/20/97 14,892,041
Glaxo Wellcome Private Placement
1,300,000 5.52%, 11/05/97 1,299,203
6,000,000 5.49%, 11/24/97 5,978,955
5,000,000 5.50%, 12/11/97 4,970,101
------------
46,862,374
------------
PREMIUM FINANCE (2.1%)
A.I. Credit Corp.
15,267,000 5.50%, 12/08/97 15,180,699
2,416,000 5.51%, 01/14/98 2,388,636
------------
17,569,335
------------
PRINTING & PUBLISHING (0.7%)
McGraw-Hill, Inc.
5,500,000 5.49%, 11/24/97 5,480,709
------------
TOTAL COMMERCIAL PAPER (cost $761,033,078) 761,033,078
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (4.0%)
Federal Farm Credit Bank
10,000,000 5.35%, variable rate, 03/03/98 10,000,000
Federal National Mortgage Association
8,000,000 5.50%, 11/13/97 7,985,333
5,000,000 5.47%, 01/29/98 4,932,385
U.S. Treasury Bills
4,900,000 5.20%, 12/11/97 4,871,689
5,000,000 4.895%, 01/15/98 4,949,571
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $32,738,978) 32,738,978
------------
TOTAL INVESTMENTS
(cost $821,976,286) $821,976,286
============
<FN>
- --------------
*Security is subject to contractual or legal restrictions on its resale. Cost
also represents cost for federal tax purposes. Portfolio holding percentages
represent value as a percentage of net assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 33
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R)
GROWTH NATIONWIDE(R) BOND
FUND FUND FUND
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost $564,817,127, $786,778,774, $119,832,661,
$239,111,498, $39,601,343 and $821,976,286,
respectively) $ 818,674,086 $1,457,399,757 $124,335,565
Cash 78,967 425,652 34,021
Receivable for Fund shares sold 400,362 555,703 47,217
Receivable for investment securities sold -- -- --
Accrued interest and dividends receivable 283,810 1,810,424 2,579,004
Withholding tax reclaim receivable 29,110 -- --
-------------- -------------- ------------
Total assets 819,466,335 1,460,191,536 126,995,807
-------------- -------------- ------------
LIABILITIES
Bank loan -- -- --
Payable for Fund shares redeemed 852,251 1,564,979 302,748
Payable for investment securities purchased -- 9,411,659 2,095,007
Accrued management fees 362,869 623,227 52,403
Accrued transfer agent fees 61,311 69,184 13,181
Accrued distribution fees -- -- --
Dividends payable 5,213 5,040 104,157
Other accrued expenses 60,576 95,543 23,899
-------------- -------------- ------------
Total liabilities 1,342,220 11,769,632 2,591,395
-------------- -------------- ------------
NET ASSETS $ 818,124,115 $1,448,421,904 $124,404,412
============== ============== ============
NET ASSETS REPRESENTED BY:
Capital Shares, $1 par value outstanding $ 50,125,860 $ 54,513,873 $ 13,109,316
Capital paid in excess of par value 412,709,238 646,094,028 116,244,861
Net unrealized appreciation 253,856,959 670,620,983 4,502,904
Accumulated undistributed net realized gain (loss) 101,432,058 76,009,135 (9,523,141)
Accumulated undistributed (distributions in excess of)
net investment income -- 1,183,885 70,472
-------------- -------------- ------------
NET ASSETS $ 818,124,115 $1,448,421,904 $124,404,412
============== ============== ============
Shares outstanding (unlimited number of
shares authorized) 50,125,860 54,513,873 13,109,316
============== ============== ============
Net asset value per share $ 16.32 $ 26.57 $ 9.49
============== ============== ============
Offering price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent) per share* $ 17.09 $ 27.82 $ 9.94
============== ============== ============
Maximum sales charge 4.50% 4.50% 4.50%
============== ============== ============
</TABLE>
<PAGE> 34
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<CAPTION>
NATIONWIDE(R)
NATIONWIDE(R) NATIONWIDE(R) MONEY
TAX-FREE U.S. GOV'T MARKET
INCOME FUND INCOME FUND FUND
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost $564,817,127, $786,778,774, $119,832,661,
$239,111,498, $39,601,343 and $821,976,286,
respectively) $ 254,071,756 $ 41,268,812 $ 821,976,286
Cash -- 6,985 --
Receivable for Fund shares sold 26,658 25,300 2,665,412
Receivable for investment securities sold 1,255,406 -- --
Accrued interest and dividends receivable 4,872,882 219,884 90,653
Withholding tax reclaim receivable -- -- --
------------- ------------- -------------
Total assets 260,226,702 41,520,981 824,732,351
------------- ------------- -------------
LIABILITIES
Bank loan 490,255 -- 329,061
Payable for Fund shares redeemed 746,841 100,717 3,162,284
Payable for investment securities purchased 1,969,091 -- --
Accrued management fees 141,411 22,477 310,704
Accrued transfer agent fees 12,614 3,547 56,030
Accrued distribution fees 43,581 6,920 --
Dividends payable 290,851 47,727 142,739
Other accrued expenses 45,756 11,807 74,128
------------- ------------- -------------
Total liabilities 3,740,400 193,195 4,074,946
------------- ------------- -------------
NET ASSETS $ 256,486,302 $ 41,327,786 $ 820,657,405
============= ============= =============
NET ASSETS REPRESENTED BY:
Capital Shares, $1 par value outstanding $ 24,412,274 $ 4,007,905 $ 820,657,237
Capital paid in excess of par value 218,017,515 36,135,385 --
Net unrealized appreciation 14,960,258 1,667,469 --
Accumulated undistributed net realized gain (loss) (903,745) 1,103
Accumulated undistributed (distributions in excess of)
net investment income -- -- (935)
-------------- ------------- -------------
NET ASSETS $ 256,486,302 $ 41,327,786 $ 820,657,405
============= ============= =============
Shares outstanding (unlimited number of
shares authorized) 24,412,274 4,007,905 820,657,237
============= ============= =============
Net asset value per share $ 10.51 $ 10.31 $ 1.00
============= ============= =============
Offering price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent) per share* $ 10.51 $ 10.31 $ 1.00
============= ============= =============
Maximum sales charge -- -- --
============= ============= =============
<FN>
*For Nationwide Tax-Free Income Fund and U.S. Government Income Fund,
redemption price per share varies by length of time shares are held.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 35
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R)
GROWTH NATIONWIDE(R) BOND
FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 8,661,922 $ 21,046,785 $ --
Interest 1,941,514 1,813,722 8,992,427
------------ ------------ ------------
Total income 10,603,436 22,860,507 8,992,427
------------ ------------ ------------
EXPENSES:
Investment management fees 3,750,599 5,938,011 629,068
Distribution fees -- -- --
Transfer agent fees 729,500 788,500 149,300
Shareholders' reports 243,000 288,001 84,300
Registration fees -- -- --
Professional services 30,110 46,301 5,542
Custodian fees 41,000 60,000 28,000
Trustees' fees and expenses 18,922 29,711 3,250
Other 21,200 30,976 4,131
------------ ------------ ------------
Total expenses before waived expenses 4,834,331 7,181,500 903,591
Total waived expenses -- -- --
------------ ------------ ------------
Net expenses 4,834,331 7,181,500 903,591
------------ ------------ ------------
NET INVESTMENT INCOME $ 5,769,105 $ 15,679,007 $ 8,088,836
============ ============ ============
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain (loss) on investments $102,060,567 $ 76,009,135 $ 2,142
Net change in unrealized appreciation 95,167,674 296,992,877 1,831,074
------------ ------------ ------------
Net realized and unrealized gain on investments 197,228,241 373,002,012 1,833,216
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $202,997,346 $388,681,019 $ 9,922,052
============ ============ ============
</TABLE>
<PAGE> 36
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
NATIONWIDE(R)
NATIONWIDE(R) NATIONWIDE(R) MONEY
TAX-FREE U.S. GOV'T MARKET
INCOME FUND INCOME FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ -- $ -- $ --
Interest 15,160,450 2,727,941 43,228,323
------------ ------------ ------------
Total income 15,160,450 2,727,941 43,228,323
------------ ------------ ------------
EXPENSES:
Investment management fees 1,688,233 256,016 3,891,866
Distribution fees 911,855 137,861 --
Transfer agent fees 135,800 37,599 663,006
Shareholders' reports 97,996 22,500 287,309
Registration fees 23,453 15,000 --
Professional services 19,428 2,953 32,169
Custodian fees 17,001 6,000 54,656
Trustees' fees and expenses 2,740 409 19,798
Other 8,107 2,398 23,400
------------ ------------ ------------
Total expenses before waived expenses 2,904,613 480,736 4,972,204
Total waived expenses (390,795) (59,083) (389,150)
------------ ------------ ------------
Net expenses 2,513,818 421,653 4,583,054
------------ ------------ ------------
NET INVESTMENT INCOME $ 12,646,632 $ 2,306,288 $ 38,645,269
============ ============ ============
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain (loss) on investments $ 2,342,626 $ (81,299) $ 1,103
Net change in unrealized appreciation 4,275,526 1,146,999 --
------------ ------------ ------------
Net realized and unrealized gain on investments 6,618,152 1,065,700 1,103
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 19,264,784 $ 3,371,988 $ 38,646,372
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 37
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NATIONWIDE(R) GROWTH FUND NATIONWIDE(R) FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,769,105 $ 7,703,939 $ 15,679,007 $ 16,691,422
Net realized gain (loss) on investments 102,060,567 45,484,621 76,009,135 59,251,910
Net change in unrealized appreciation (depreciation)
of investments 95,167,674 20,001,960 296,992,877 127,452,048
------------- ------------- -------------- ------------
Net increase in net assets resulting from operations 202,997,346 73,190,520 388,681,019 203,395,380
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (6,066,772) (7,521,249) (15,825,647) (16,077,181)
Net realized gain from investment transactions (46,087,353) (55,130,738) (59,238,908) (42,514,603)
------------- ------------- -------------- ------------
Decrease in net assets from distributions to shareholders (52,154,125) (62,651,987) (75,064,555) (58,591,784)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 72,950,910 91,753,548 258,190,771 100,830,600
Net asset value of shares issued to shareholders
from reinvestment of dividends 51,457,653 61,359,336 70,531,213 51,530,171
Cost of shares redeemed (112,743,374) (90,962,567) (152,506,314)
------------- ------------- -------------- ------------
Increase (decrease) in net assets derived from
capital share transactions 11,665,189 62,150,317 176,215,670 18,119,831
------------- ------------- -------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS 162,508,410 72,688,850 489,832,134 162,923,427
NET ASSETS-BEGINNING OF PERIOD 655,615,705 582,926,855 958,589,770 795,666,343
------------- ------------- -------------- ------------
NET ASSETS-END OF PERIOD $ 818,124,115 $ 655,615,705 $1,448,421,904 $958,589,770
============= ============= ============== ============
Undistributed net realized gain (loss) on investments
included in net assets at end of period $ 101,432,058 $ 45,458,844 $ 76,009,135 $ 59,191,383
============= ============= ============== ============
Undistributed (distributions in excess of) net investment
income included in net assets at end of period $ -- $ 297,667 $ 1,183,885 $ 1,378,050
============= ============= ============== ============
SHARE ACTIVITY:
Shares sold 4,900,859 7,069,963 10,843,635 5,349,375
Reinvestment of dividends 3,793,570 4,952,188 3,363,376 2,874,632
Shares redeemed (7,721,538) (6,978,391) (6,650,915) (7,129,736)
------------- ------------- -------------- ------------
Net increase (decrease) in number of shares 972,891 5,043,760 7,556,096 1,094,271
============= ============= ============== ============
</TABLE>
<PAGE> 38
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NATIONWIDE(R) BOND FUND
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 8,088,836 $ 8,759,058
Net realized gain (loss) on investments 2,142 (171,239)
Net change in unrealized appreciation (depreciation)
of investments 1,831,074 (2,045,242)
------------- -------------
Net increase in net assets resulting from operations 9,922,052 6,542,577
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (8,085,400) (8,801,481)
Net realized gain from investment transactions -- --
------------- -------------
Decrease in net assets from distributions to shareholders (8,085,400) (8,801,481)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 14,913,782 17,666,533
Net asset value of shares issued to shareholders
from reinvestment of dividends 6,679,886 7,287,372
Cost of shares redeemed (32,278,640) (23,074,853)
------------- -------------
Increase (decrease) in net assets derived from
capital share transactions (10,684,972) 1,879,052
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (8,848,320) (379,852)
NET ASSETS-BEGINNING OF PERIOD 133,252,732 133,632,584
------------- -------------
NET ASSETS-END OF PERIOD $ 124,404,412 $ 133,252,732
============= =============
Undistributed net realized gain (loss) on investments
included in net assets at end of period $ (9,523,141) $ (9,525,283)
============= =============
Undistributed (distributions in excess of) net investment
income included in net assets at end of period $ 70,472 $ 67,036
============= =============
SHARE ACTIVITY:
Shares sold 1,606,337 1,897,464
Reinvestment of dividends 719,798 784,086
Shares redeemed (3,480,898) (2,486,318)
------------- -------------
Net increase (decrease) in number of shares (1,154,763) 195,232
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 39
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
NATIONWIDE(R) NATIONWIDE(R)
TAX-FREE INCOME FUND U.S. GOV'T INCOME FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 12,646,632 $ 13,117,546 $ 2,306,288 $ 2,301,535
Net realized gain (loss) on investments 2,342,626 2,055,736 (81,299) 34,406
Net change in unrealized appreciation (depreciation)
of investments 4,275,526 (1,473,376) 1,146,999 (277,059)
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations 19,264,784 13,699,906 3,371,988 2,058,882
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (12,646,632) (13,122,781) (2,306,288) (2,301,535)
In excess of net investment income (87) (11,029) -- (34,406)
Net realized gain from investment transactions -- -- -- --
Paid in capital -- -- (437) (10)
------------- ------------- ------------- -------------
Decrease in net assets from distributions to shareholders (12,646,719) (13,133,810) (2,306,725) (2,335,951)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 16,022,089 20,245,316 5,663,442 4,773,320
Net asset value of shares issued to shareholders
from reinvestment of dividends 8,939,393 9,330,442 1,727,803 1,753,068
Cost of shares redeemed (39,735,005) (27,983,697) (6,625,927) (6,529,084)
------------- ------------- ------------- -------------
Increase (decrease) in net assets derived from
capital share transactions (14,773,523) 1,592,061 765,318 (2,696)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (8,155,458) 2,158,157 1,830,581 (279,765)
NET ASSETS--BEGINNING OF PERIOD 264,641,760 262,483,603 39,497,205 39,776,970
------------- ------------- ------------- -------------
NET ASSETS--END OF PERIOD $ 256,486,302 $ 264,641,760 $ 41,327,786 $ 39,497,205
============= ============= ============= =============
Undistributed net realized gain (loss) on investments
included in net assets at end of period $ (903,745) $ (3,251,345) $ (482,973) $ (401,674)
============= ============= ============= =============
Undistributed (distributions in excess of) net investment
income included in net assets at end of period $ -- $ (11,029) $ -- $ (34,406)
============= ============= ============= =============
SHARE ACTIVITY:
Shares sold 1,554,772 1,986,252 562,553 482,073
Reinvestment of dividends 865,550 914,259 171,768 175,851
Shares redeemed (3,850,987) (2,748,350) (658,930) (655,486)
------------- ------------- ------------- -------------
Net increase (decrease) in number of shares (1,430,665) 152,161 75,391 2,438
============= ============= ============= =============
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
NATIONWIDE(R)
MONEY MARKET FUND
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 38,645,269 $ 32,364,472
Net realized gain (loss) on investments 1,103 --
Net change in unrealized appreciation (depreciation)
of investments -- --
--------------- ---------------
Net increase in net assets resulting from operations 38,646,372 32,364,472
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (38,644,882) (32,359,207)
In excess of net investment income -- --
Net realized gain from investment transactions -- (4,106)
Paid in capital -- --
--------------- ---------------
Decrease in net assets from distributions to shareholders (38,644,882) (32,363,313)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 1,058,258,745 746,407,569
Net asset value of shares issued to shareholders
from reinvestment of dividends 36,945,028 30,963,908
Cost of shares redeemed (1,004,047,620) (652,583,762)
--------------- ---------------
Increase (decrease) in net assets derived from
capital share transactions 91,156,153 124,787,715
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS 91,157,643 124,788,874
NET ASSETS--BEGINNING OF PERIOD 729,499,762 604,710,888
--------------- ---------------
NET ASSETS--END OF PERIOD $ 820,657,405 $ 729,499,762
=============== ===============
Undistributed net realized gain (loss) on investments
included in net assets at end of period $ 1,103 $ --
=============== ===============
Undistributed (distributions in excess of) net investment
income included in net assets at end of period $ (935) $ (1,322)
=============== ===============
SHARE ACTIVITY:
Shares sold 1,058,258,745 746,407,569
Reinvestment of dividends 36,945,028 30,963,908
Shares redeemed (1,004,047,620) (652,583,762)
--------------- ---------------
Net increase (decrease) in number of shares 91,156,153 124,787,715
=============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE> 41
<TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<CAPTION>
NATIONWIDE(R) GROWTH FUND
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE--BEGINNING OF PERIOD $ 13.34 $ 13.22 $ 11.35 $ 11.14 $ 9.94
Net investment income 0.12 0.16 0.21 0.09 0.17
Net realized gain (loss) and unrealized
appreciation (depreciation) 3.94 1.36 2.10 0.53 1.41
-------- -------- -------- -------- --------
Total from investment operations 4.06 1.52 2.31 0.62 1.58
Dividends from net investment income (0.12) (0.16) (0.20) (0.19) (0.17)
Distributions from net realized gain from
investment transactions (0.96) (1.24) (0.24) (0.22) (0.21)
-------- -------- -------- -------- --------
Total distributions (1.08) (1.40) (0.44) (0.41) (0.38)
-------- -------- -------- -------- --------
Net increase in net asset value 2.98 0.12 1.87 0.21 1.20
-------- -------- -------- -------- --------
NET ASSET VALUE--END OF PERIOD $ 16.32 $ 13.34 $ 13.22 $ 11.35 $ 11.14
======== ======== ======== ======== ========
Total return (excluding sales charges) 32.12% 12.36% 21.01% 5.73% 16.16%
Net assets, end of period (000) $818,124 $655,616 $582,927 $464,715 $411,853
Ratio of expenses to average net assets 0.64% 0.64% 0.66% 0.68% 0.68%
Ratio of net investment income to average net assets 0.81% 1.20% 1.66% 1.71% 1.63%
Portfolio turnover 45.07% 25.61% 27.10% 14.50% 10.20%
Average commission rate paid* 4.6222(cent) 5.3923(cent) -- -- --
<CAPTION>
NATIONWIDE(R) FUND
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE--BEGINNING OF PERIOD $ 20.41 $ 17.35 $ 16.12 $ 16.55 $ 16.31
Net investment income 0.31 0.36 0.31 0.37 0.31
Net realized gain (loss) and unrealized
appreciation (depreciation) 7.44 3.98 2.49 0.41 0.67
--------- -------- -------- -------- --------
Total from investment operations 7.75 4.34 2.80 0.78 0.98
Dividends from net investment income (0.31) (0.35) (0.31) (0.36) (0.33)
Distributions from net realized gain from
investment transactions (1.28) (0.93) (1.26) (0.85) (0.41)
--------- -------- -------- -------- --------
Total distributions (1.59) (1.28) (1.57) (1.21) (0.74)
--------- -------- -------- -------- --------
Net increase (decrease) in net asset value 6.16 3.06 1.23 (0.43) 0.24
--------- -------- -------- -------- --------
NET ASSET VALUE--END OF PERIOD $ 26.57 $ 20.41 $ 17.35 $ 16.12 $ 16.55
========= ======== ======== ======== ========
Total return (excluding sales charges) 40.17% 26.11% 19.24% 4.88% 6.16%
Net assets, end of period (000) $1,448,422 $958,590 $795,666 $706,674 $753,239
Ratio of expenses to average net assets 0.60% 0.61% 0.63% 0.63% 0.62%
Ratio of net investment income to average net assets 1.32% 1.89% 1.95% 2.26% 1.96%
Portfolio turnover 14.94% 16.71% 16.50% 15.40% 25.80%
Average commission rate paid* 5.8506(cent) 5.9393(cent) -- -- --
<FN>
- -----------
*Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 42
<TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<CAPTION>
NATIONWIDE(R) BOND FUND
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE--BEGINNING OF PERIOD $ 9.34 $ 9.50 $ 8.46 $ 10.07 $ 9.58
Net investment income 0.60 0.61 0.63 0.60 0.74
Net realized gain (loss) and unrealized
appreciation (depreciation) 0.15 (0.15) 1.04 (1.56) 0.52
-------- -------- -------- -------- --------
Total from investment operations 0.75 0.46 1.67 (0.96) 1.26
Dividends from net investment income (0.60) (0.62) (0.63) (0.65) (0.77)
-------- -------- -------- -------- --------
Total distributions (0.60) (0.62) (0.63) (0.65) (0.77)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value 0.15 (0.16) 1.04 (1.61) 0.49
-------- -------- -------- -------- --------
NET ASSET VALUE--END OF PERIOD $ 9.49 $ 9.34 $ 9.50 $ 8.46 $ 10.07
======== ======== ======== ======== ========
Total return (excluding sales charges) 8.33% 5.05% 20.41% (9.81%) 13.61%
Net assets, end of period (000) $124,404 $133,253 $133,633 $124,455 $151,090
Ratio of expenses to average net assets 0.72% 0.70% 0.71% 0.71% 0.68%
Ratio of net investment income to average net assets 6.43% 6.60% 7.04% 7.11% 7.63%
Portfolio turnover 70.63% 38.95% 70.40% 58.00% 68.50%
<CAPTION>
NATIONWIDE(R) TAX-FREE INCOME FUND
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE--BEGINNING OF PERIOD $ 10.24 $ 10.22 $ 9.40 $ 10.95 $ 9.94
Net investment income 0.50 0.51 0.51 0.53 0.54
Net realized gain (loss) and unrealized
appreciation (depreciation) 0.27 0.02 0.84 (1.45) 1.10
-------- -------- -------- -------- ---------
Total from investment operations 0.77 0.53 1.35 (0.92) 1.64
Dividends from net investment income (0.50) (0.51) (0.53) (0.51) (0.54)
Distributions from net realized gain from
investment transactions -- -- -- (0.12) (0.09)
-------- -------- -------- -------- ---------
Total distributions (0.50) (0.51) (0.53) (0.63) (0.63)
-------- -------- -------- -------- ---------
Net increase (decrease) in net asset value 0.27 0.02 0.82 (1.55) 1.01
-------- -------- -------- -------- ---------
NET ASSET VALUE--END OF PERIOD $ 10.51 $ 10.24 $ 10.22 $ 9.40 $ 10.95
======== ======== ======== ======== =========
Total return (excluding sales charge) 7.72% 5.31% 14.66% (8.74%) 16.97%
Net assets, end of period (000) $256,486 $264,642 $262,484 $241,097 $253,042
Ratio of expenses to average net assets 0.96% 0.96% 0.98% 0.99% 0.98%
Ratio of expenses to average net assets* 1.11% 1.11% 1.13% 1.14% 1.13%
Ratio of net investment income to average net assets 4.85% 4.98% 5.20% 5.02% 5.07%
Ratio of net investment income to average net assets* 4.70% 4.83% 5.05% 4.87% 4.92%
Portfolio turnover 39.49% 24.15% 31.70% 59.20% 28.40%
<FN>
Ratios calculated as if no expenses were waived.
</FN>
See Accompanying Notes To Financial Statements.
</TABLE>
<PAGE> 43
<TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<CAPTION>
NATIONWIDE(R) U.S. GOV'T INCOME FUND
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE--BEGINNING OF PERIOD $ 10.04 $ 10.12 $ 9.22 $ 10.26 $ 9.97
Net investment income 0.59 0.59 0.59 0.54 0.53
Net realized gain (loss) and unrealized
appreciation (depreciation) 0.27 (0.08) 0.89 (0.96) 0.45
------- ------- ------- ------- -------
Total from investment operations 0.86 0.51 1.48 (0.42) 0.98
Dividends from net investment income (0.59) (0.58) (0.58) (0.55) (0.53)
In excess of net investment income -- (0.01) -- -- --
Distributions from net realized gain from
investment transactions -- -- -- (0.07) (0.16)
------- ------- ------- ------- -------
Total distributions (0.58) (0.59) (0.58) (0.62) (0.69)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value 0.27 (0.08) 0.90 (1.04) 0.29
------- ------- ------- ------- -------
NET ASSET VALUE--END OF PERIOD $ 10.31 $ 10.04 $ 10.12 $ 9.22 $ 10.26
======= ======= ======= ======= =======
Total return (excluding sales charge) 8.86% 5.28% 16.47% (4.20%) 10.15%
Net assets, end of period (000) $41,328 $39,497 $39,777 $37,749 $38,452
Ratio of expenses to average net assets 1.07% 1.06% 1.08% 1.09% 1.10%
Ratio of expenses to average net assets* 1.22% 1.21% 1.23% 1.24% 1.25%
Ratio of net investment income to average net assets 5.85% 5.86% 5.92% 5.62% 5.12%
Ratio of net investment income to average net assets* 5.70% 5.71% 5.77% 5.47% 4.97%
Portfolio turnover 26.58% 9.30% 25.40% 67.50% 99.00%
<CAPTION>
NATIONWIDE(R) MONEY MARKET FUND
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE--BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.05 0.05 0.05 0.03 0.03
Dividends from net investment income (0.05) (0.05) (0.05) (0.03) (0.03)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE--END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 5.07% 5.05% 5.46% 3.34% 2.60%
Net assets, end of period (000) $820,657 $729,500 $604,711 $491,737 $418,615
Ratio of expenses to average net assets 0.59% 0.60% 0.62% 0.65% 0.70%
Ratio of expenses to average net assets* 0.64% 0.65% 0.67% 0.70% 0.73%
Ratio of net investment income to average net assets 4.96% 4.93% 5.34% 3.33% 2.57%
Ratio of net investment income to average net assets* 4.91% 4.88% 5.29% 3.28% 2.54%
<FN>
- ---------------
*Ratios calculated as if no expenses were waived.
</FN>
See Accompanying Notes To Financial Statements.
</TABLE>
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nationwide Investing Foundation (NIF) and Nationwide Investing Foundation II
(NIF II) are diversified, open-end investment companies. NIF was created under
the laws of Michigan by an Indenture of Trust dated May 5, 1933. NIF II was
created under the laws of Massachusetts as a Massachusetts Business Trust on
October 5, 1985. The Trusts, which are registered under the Investment Company
Act of 1940, as amended, offer shares in six separate mutual funds.
(A) SECURITY VALUATION
(1) Growth, Fund, Bond, Tax-Free Income, and U.S. Government Income Funds:
Securities traded on a national securities exchange are valued at the
last quoted sale price, or if no sale, at the prior day's valuation as
provided by an independent pricing agent. Securities traded in the
over-the-counter (OTC) market are valued at the last quoted sale price,
or if no sale, the quoted bid price. U.S. Government securities are
valued at the quoted bid price. Bonds are valued by a combination of
daily quotes and matrix evaluations. Securities for which reliable
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 the Fund's investment
adviser, are valued at fair value in accordance with procedures
authorized by the Boards of Trustees.
(2) Money Market Fund:
Securities are valued at amortized cost, which approximates market
value, in accordance with Rule 2a-7 of the Investment Company Act of
1940, as amended. The value of a repurchase agreement generally equals
the purchase price paid by the Fund (cost) plus the interest accrued to
date. The seller, under the repurchase agreement, is required to
maintain the market value of the underlying collateral at not less than
the value of the repurchase agreement. Securities subject to repurchase
agreements are held by the Federal Reserve/Treasury book-entry system
or by the Fund's custodian or an approved sub-custodian.
(B) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date; interest income is recorded on an
accrual basis and includes, where applicable, the amortization of premium
or discount.
(C) FEDERAL INCOME TAXES
Each series of NIF and NIF II qualifies as a regulated investment company
under the Internal Revenue Code during the periods covered by the
accompanying statements. No provision has been made for federal income
taxes as it is the intention to continue such qualification and to
distribute all taxable income to shareholders. To the extent net realized
gains are offset through the application of a capital loss carryover, they
will not be distributed to shareholders but will be retained by the
applicable Fund.
As of October 31, 1997, the Nationwide Bond, Tax-Free Income, and U.S.
Government Income Funds had net capital loss carry forwards in the
amounts of $9,523,141, $908,719, and $482,973, respectively. The Bond
Fund carry forwards will expire within 4 to 6 years, the Tax-Free Income
Fund's carry forwards will expire within 5 to 6 years, and the U.S.
Government Income Fund's carry forwards will expire within 5 to 8 years.
(D) DIVIDENDS TO SHAREHOLDERS
(1) Growth and Nationwide Funds:
Dividends are paid quarterly and are recorded on the ex-dividend date.
(2) Bond, Tax-Free Income, U.S. Government Income, and Money Market Funds:
Dividends are declared daily and paid monthly from net investment
income.
Distributable net realized capital gains are declared and distributed
at least annually for all funds.
Dividends and distributions to shareholders are determined in
accordance with federal income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences
are considered either permanent or temporary in nature. In accordance
with AICPA Statement of Position 93-2, permanent differences are
reclassified within the capital accounts based on their nature for
federal income tax purposes; temporary differences do not require
reclassification. Dividends and distributions that exceed net
investment income and net realized gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess
of net investment income and net realized gains. To the extent
distributions exceed current and accumulated earnings and profits for
federal income tax purposes, they are reported as distributions of
paid-in-capital. These reclassifications have no effect upon the net
asset value of the respective funds.
<PAGE> 45
Accordingly, as of October 31, 1997, undistributed net investment
income and capital paid in excess of par value have been adjusted.
Negative amounts represent credits and positive amounts represent
debits. The adjustments are as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED CAPITAL PAID IN
UNDISTRIBUTED NET NET REALIZED EXCESS OF
INVESTMENT INCOME GAIN PAR VALUE
<S> <C> <C> <C>
NW Fund $47,525 $(47,525) $ --
Tax-Free Income Fund (11,116) (4,974) 16,090
U.S. Government Income Fund (34,406) -- 34,406
</TABLE>
(E) EXPENSES
Direct expenses of a fund are allocated to that fund. General expenses of
a Trust are allocated to the funds of that Trust based upon each fund's
relative average net assets.
(F) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
2. TRANSACTION WITH AFFILIATES
(A) GROWTH, FUND, BOND, AND MONEY MARKET FUNDS
As investment manager for the NIF Funds, Nationwide Advisory Services,
Inc. (NAS), (formerly Nationwide Financial Services, Inc.), an affiliated
company, earns an annual fee of .5% based on the average daily net assets;
this fee would not be payable in full if the effect of such payment would
increase total expenses (excluding taxes other than payroll taxes and
brokerage commissions on portfolio transactions) to an amount exceeding 1%
of average daily net assets for any fiscal year. Such limitations on total
expenses did not affect management fees during the periods covered by the
financial statements.
NAS voluntarily waived annual fees totaling .05% of average daily net
assets in the Money Market Fund for the year ended October 31, 1997, or
$389,150 representing $.0005 per average share outstanding.
NAS also receives fees for services as principal underwriter. Such fees
are deducted from and are not included in proceeds from sales of
capital shares. From such fees, NAS pays sales commissions, salaries, and
other expenses. Such fees aggregated $873,750 on Growth Fund shares,
$2,037,896 on Fund Shares, and $123,036 on Bond Fund shares for the year
ended October 31, 1997.
(B) TAX-FREE INCOME, AND U.S. GOVERNMENT INCOME FUNDS
As investment manager for each NIF II Fund, NAS earns an annual fee based
on average daily net assets of each Fund at the rate of .65% on the first
$250 million, .60% on the next $250 million, .55% on the next $250
million, and .50% on the average daily net assets in excess of $750
million.
NAS may also receive fees on the NIF II Funds for distribution
pursuant to a Rule 12b-1 Distribution Plan approved by the Board of
Trustees. These fees are based on average daily net assets of each Fund at
an annual rate of .35%. During the year ended October 31, 1997, each Fund
paid distribution fees at the annual rate of .20% of average daily net
assets, with the distributor voluntarily waiving the remaining .15%.
During the year ended October 31, 1997, NAS waived $390,795 and $59,083
for both the Tax-Free Income and U.S. Government Income Funds,
respectively, representing $.0015 per average share outstanding for each
fund.
NAS also receives fees for services as principal underwriter. Such
fees are contingent deferred sales charges for the NIF II Funds ranging
from 5% to 1% imposed on redemptions which cause the current value of an
account to fall below the total purchase payments made during the past
five years. Contingent deferred sales charges aggregated $161,441 on the
Tax-Free Income Fund shares and $31,232 on the U.S. Government Income Fund
for the year ended October 31, 1997.
A subsidiary of NAS (Nationwide Investors Services, Inc.) acts as
Transfer and Dividend Disbursing Agent for the Funds.
<PAGE> 46
3. BANK LOANS
Both NIF and NIF II Trusts have unsecured bank lines of credit of $25,000,000
for overdraft protection and temporary emergency borrowing purposes. Borrowings
under these arrangements bear interest at the Federal Funds rate plus .50%.
These interest costs are included in custodian fees in the Statements of
Operations. No compensating balances are required.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding U.S. Government and short-term
securities), and purchases and sales of U.S. Government Obligations for the year
ended October 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
U.S. GOVT.
SECURITIES OBLIGATIONS
PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C>
Growth $324,335,527 $319,632,432 $177,077,883 $214,625,654
Fund 288,441,794 174,259,918 -- --
Bond 49,619,280 72,277,347 35,886,778 19,250,781
Tax-Free Income 101,886,039 114,827,517 -- --
U.S. Gov't. Income 5,040,732 5,395,393 5,255,700 5,039,529
Money Market -- -- 46,605,348 7,986,133
</TABLE>
Realized gains and losses have been computed on a specific identification basis
Included in net unrealized appreciation at October 31, 1997, are the following
components:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
<S> <C> <C> <C>
Growth $268,987,896 $(15,130,937) $253,856,959
Fund 680,054,632 (9,433,649) 670,620,983
Bond 4,524,877 (21,973) 4,502,904
Tax-Free Income 15,020,374 (60,116) 14,960,258
U.S. Gov't. Income 1,667,469 -- 1,667,469
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For corporate shareholders, 100% of the Growth Fund and 100% of the Fund income
dividends and distributions in the fiscal year ended October 31, 1997, qualify
for the corporate dividend received deduction.
All of the distributions paid by the Tax-Free Income Fund during the fiscal year
are exempt from federal income tax.
6. SUBSEQUENT EVENT
At a meeting of the Board of Trustees on November 7, 1997, the Board authorized
a Special Meeting of Shareholders to be held on February 16, 1998. At this
Special Meeting, shareholders are being asked to approve an Agreement and Plan
of Reorganization between Nationwide Investing Foundation, Nationwide Investing
Foundation II and Nationwide Investing Foundation III ("New Trust"), at which
time Financial Horizons Investment Trust will also reorganize into the New
Trust.
The transactions contemplated thereby pending shareholder approval include the
following:
(a) The transfer of the net assets of the Nationwide Growth, Fund, Bond
and Tax-Free Income Funds to the series of the New Trust which bear
the same names, in exchange for Class D shares which will be
distributed to shareholders for each of their respective Funds.
(b) The transfer of the net assets of the Nationwide Money Market Fund
to a series of the New Trust which bears the same name, in exchange
for shares of the series in the New Trust which will be distributed
to the shareholders of the Nationwide Money Market Fund.
(c) The transfer of the net assets of the Nationwide U.S. Government
Income Fund to a series of the New Trust which bears the name
Nationwide Intermediate U.S. Government Bond Fund in exchange for
Class D shares which will be distributed to the shareholders of the
Nationwide U.S. Government Income Fund.
The Boards of Trustees of the Trusts have fixed the close of business on
December 18, 1997, as the record date for the determination of shareholders of
the Trusts entitled to receive notice of and to vote at the meeting. The
Combined Prospectus/Proxy Statements contain further information regarding the
meeting and the proposals to be considered, including the revised fee structure,
and will be mailed to shareholders in early January 1998.
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Nationwide Investing Foundation
The Nationwide Investing Foundation II:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of The Nationwide Investing Foundation --
Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund, Nationwide Money
Market Fund, and of The Nationwide Investing Foundation II -- Nationwide
Tax-Free Income Fund and Nationwide U.S. Government Income Fund, as of October
31, 1997, and the related statements of operations, statements of changes in net
assets and the financial highlights for each of the periods indicated herein.
These financial statements and the financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
October 31, 1997, by confirmation with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Nationwide Investing Foundation and
The Nationwide Investing Foundation II as of October 31, 1997, and the results
of their operations, the changes in their net assets and the financial
highlights for each of the periods indicated herein, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
COLUMBUS, OHIO
DECEMBER 5, 1997
<PAGE> 48
Nationwide(R) Family Of Funds
Toll-Free Telephone Assistance
General Account Service And Exchanges:
1-800-848-0920
LOGO: NATIONWIDE ADVISORY SERVICES, INC.
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, OH 43215
Nationwide(R) is a registered federal service mark
of Nationwide Mutual Insurance Company.
HS-402-L (97)
NATIONWIDE FAMILY OF FUNDS BULK RATE
THREE NATIONWIDE PLAZA U.S. POSTAGE
COLUMBUS OHIO 43215-2220 PAID
BERWYN, IL
PERMIT NO. 150
October 1997
ANNUAL REPORT
<PAGE> 49
FINANCIAL
HORIZONS
INVESTMENT TRUST
GROWTH FUND
MUNICIPAL BOND FUND
GOVERNMENT BOND FUND
CASH RESERVE FUND
1997
ANNUAL
REPORT
October 31, 1997
<PAGE> 50
CONTENTS
2............Message to Shareholders
3-4..........Growth Fund
5-6..........Municipal Bond Fund
7-8..........Government Bond Fund
9-10.........Cash Reserve Fund
11...........Statements of Assets and Liabilities
12...........Statements of Operations
13-14........Statements of Changes in
Net Assets
15-16........Financial Highlights
17-20........Notes to Financial Statements
21...........Independent Auditors' Report
TOLL-FREE TELEPHONE ASSISTANCE
General account service and exchanges:
1-800-848-0920
TRUSTEES
Dimon R. McFerson - Chairman
Columbus, Ohio
Dr. John C. Bryant
Cincinnati, Ohio
Robert M. Duncan
Columbus, Ohio
Dr. Thomas J. Kerr, IV
Westerville, Ohio
OFFICERS
James F. Laird, Jr. - Treasurer
Rae M. Pollina - Secretary
Craig A. Alvey - Assistant Treasurer
Charles S. Bath - Assistant Treasurer
Craig A. Carver - Assistant Treasurer
Christopher A. Cray - Assistant Treasurer
Edwin P. McCausland, Jr. - Assistant Treasurer
Peter Neckermann - Assistant Treasurer
Karen R. Tackett - Assistant Treasurer
TRANSFER AGENT
Nationwide Investors Services, Inc.
Box 1492
Columbus, Ohio 43216-1492
CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263-0001
LEGAL COUNSEL
Druen, Dietrich, Reynolds &Koogler
One Nationwide Plaza
Columbus, Ohio 43215-2220
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215-2537
DISTRIBUTOR
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215-2220
This report is for the information of shareholders of the Financial Horizons
Investment Trust's mutual funds. It may be used as sales literature only when
preceded or accompanied by a current prospectus which gives further details
about the Funds.
Financial Horizons and its logo are registered federal service marks of
Nationwide(R) Life Insurance Company.
<PAGE> 51
OCTOBER 31, 1997
MESSAGE TO SHAREHOLDERS
Photo of: DIMON R. McFerson, Chairman
DIMON R. MCFERSON
CHAIRMAN
The year 1997 will be remembered as an exciting one for investors and our
shareholders.
Consumer confidence in the U.S. economy remains strong. The proportion of
customers rating business conditions as "good" rose, while the number of people
believing jobs are difficult to find fell.
A strong job market and wage gains helped consumers feel secure in handling a
mortgage, and record loan rates made them more affordable. As a result, August
marked the twentieth consecutive month of home sales above the 700,000 level,
the longest run in almost two decades.
In short, low inflation, high employment and strong levels of consumer
confidence have produced a strong market with record levels of consumer savings.
The third quarter saw a change in market leadership -- dependable blue-chip
multinationals weakened while thousands of small and mid-capitalization
companies, long overlooked, made strong gains. Eighty percent of diversified
U.S. stock mutual funds outperformed the large-cap S&P 500 in the third quarter.
The period also was highlighted by volatility in the Asian markets, which caused
a brief drop in all international markets, but eventually demonstrated the U.S.
to be the most sought after investment arena.
The economy grew at an annual rate of 3.5% while inflation remained low.
The Dow Jones Industrial Average broke through the 8,000 mark and continued to
reach more all-time highs during the third quarter. A correction toward the end
of the quarter caused the market to close at 7,442.08 on October 31.
The continued strength of the market overall re in forces the importance of
realistic expectations and a long-term investment strategy. Since the 1987
crash, for example, the Dow Jones has risen more than 5,500 points.
For the year ended October 31, 1997, the Financial Horizons Growth Fund gained
23.66% (without sales charge) as compared to 32.10% for its benchmark index, the
S&P 500.
Returns on long-term municipal bonds were also strong. For the year ended
October 31, 1997, the Financial Horizons Municipal Bond Fund returned 8.37%
(without sales charge), while the Lehman Brothers Municipal Bond Index, its
benchmark, returned 8.49%.
For the year ended October 31, 1997, the Financial Horizons Government Bond Fund
returned 8.84% (without sales charge) compared to 8.67% for its benchmark index,
the Merrill Lynch Government Master Index.
The Financial Horizons Cash Reserve Fund continues to post consistent yields.
Total return for the Fund was 4.93% for the year ended October 31, 1997. (There
is no sales charge in this Fund.)
The Board of Trustees has scheduled a special meeting of shareholders for
February 16, 1998, to consider an important proposal affecting your funds. This
proposal is described in detail in the Combined Prospectus/Proxy Statement which
you will soon receive.
The proposal would reorganize the Financial Horizons Investment Trust (FHIT)
funds into a new Ohio business trust, the Nationwide Investing Foundation
III("New Trust"), along with several other Nationwide-managed funds. The New
Trust will provide for a revised fee structure, which includes changes in the
investment advisory fees of the funds, the establishment of a separate fee for
fund administration and the implementation of a schedule under which these fees,
as a percentage of assets, decrease as assets increase.
Your vote is very important to us.
Thank you for giving Nationwide Advisory Services, Inc. the opportunity to meet
your needs.
Sincerely,
DIMON R. MCFERSON, CHAIRMAN
<PAGE> 52
FINANCIAL HORIZONS INVESTMENT TRUST
GROWTH FUND
For the year ended October 31, 1997, the Financial Horizons Growth Fund had a
total return of 23.66% without sales charge, compared with 32.10% for the S&P
500 over the same period.
The sectors that performed best for the Fund this fiscal year included both drug
and financial stocks. Bergen Brunswig, a drug distributor which is currently the
object of a takeover proposal, had excellent returns, as did Schering-Plough,
Merrill Lynch and Banc One. Other individual names that did well included
Schlumberger, Lucent Technologies, Biomet, and HBO & Company. Unfortunately,
these sectors and names were not weighted heavily enough in the Fund to bring
overall results up to the benchmark levels. This Fund, as part of its strategy,
has also held a significant portion of its assets in small and mid-cap stocks.
These stocks did very poorly during the first four months of 1997, relative to
the S&P 500 index, and although they made a tremendous comeback after that, they
began to trail off again near the end of the fiscal year, and so, on balance,
proved to be a drag on results.
Since resuming management of the Fund in August, I have made several changes in
its strategic focus. The changes are oriented toward emphasizing growth stocks
to a greater extent, and pruning away at some of the less attractive,
value-oriented stocks the Fund holds. For example, the greatest concentration of
new investments has been in the Computer Services and Software sector. This
category represented about 5.6% of Fund assets at June 30, 1997, and as of
October 31, 1997, was up to 17.0%. I have added stocks such as Advent Software,
BMC Software, First Data Corp., Gartner Group, Radiant Systems and Template
Software. The common thread I am looking for in these stocks is that they all
sell products or services that help other businesses improve their own
productivity and efficiency, and that they are focused on solving their
customers' problems with efficient solutions that are difficult to obtain from
other sources.
I think that a more concentrated focus on growth, while retaining only the
best-positioned of the value-oriented Fund holdings will improve results over
time, and this will be the strategic thrust as we go forward.
JOHN M. SCHAFFNER, MBA, CFA - PORTFOLIO MANAGER
PORTFOLIO VALUE $9,599,817
FUND PERFORMANCE
Growth Fund Chart Data
Year.....GF.......S&P 500
1988.....10000....10000
1989.....10583....12563
1990.....8943.....11624
1991.....13118....15509
1992.....13830....17052
1993.....15847....19590
1994.....16944....20347
1995.....20598....25721
1996.....24594....31899
1997.....30413....42110
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Growth Fund since inception (12/19/88) and the S&P 500* over the period
since inception ended 10/31/97.
* The S&P 500 is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of these 500 stocks which represent all major
industries. Unlike the Growth Fund returns, the S&P 500 does not reflect any
fees, expenses or sales charges.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<TABLE>
<CAPTION>
1 YEAR 5 YEAR LIFE
<S> <C> <C> <C>
Without sales charge..........23.66%.....17.07%....13.36%
With sales charge.............18.66%.....16.86%....13.36%
</TABLE>
The "without sales charge" returns do not reflect the effects of sales charges.
The "with sales charge" assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals, which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 8.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
<PAGE> 53
<TABLE>
FINANCIAL HORIZONS INVESTMENT TRUST GROWTH FUND -
STATEMENT OF INVESTMENTS - OCTOBER 31, 1997
<CAPTION>
SHARES SECURITY VALUE
<S> <C> <C>
COMMON STOCKS ( 96.8%)
BUSINESS SERVICES ( 8.4%)
4,000 ABR Information Services* $ 94,000
10,000 Alternative Resources Corp.* 247,500
7,500 American Business Information, Inc.,
Class A* 78,750
7,500 American Business Information, Inc.,
Class B* 97,500
5,500 Manpower, Inc. 211,063
10,000 TRO Learning, Inc.* 75,000
----------
803,813
----------
CHEMICALS (1.5%)
4,000 Sigma-Aldrich Corp. 140,500
----------
COMPUTER EQUIPMENT (2.9%)
4,000 American Power Conversion Corp.* 109,000
9,600 PAXAR Corp. 163,200
----------
272,200
----------
COMPUTER SERVICES AND SOFTWARE (17.0%)
5,000 Advent Software, Inc.* 127,500
4,000 BMC Software, Inc.* 241,500
10,000 First Data Corp. 290,625
10,000 Gartner Group, Inc.* 282,500
6,000 HBO & Co. 261,000
5,000 Radiant Systems 90,625
10,000 SPSS, Inc.* 225,000
10,000 Template Software, Inc.* 107,500
----------
1,626,250
----------
CONSUMER PRODUCTS (1.6%)
4,000 Newell Co. 153,500
----------
DENTAL (1.8%)
6,000 Dentsply International, Inc. 170,250
----------
DISTRIBUTION (2.5%)
5,906 Bergen Brunswig Corp., Class A 236,609
----------
DRUGS (8.8%)
4,000 Allergan, Inc. 131,750
3,800 Eli Lilly & Co. 254,125
8,000 Schering-Plough Corp. 448,500
----------
834,375
----------
ELECTRONICS (5.5%)
4,000 Intel Corp. 308,000
11,100 Woodhead Industries, Inc. 216,450
----------
524,450
----------
FINANCIAL (10.7%)
3,730 Banc One Corp. 194,426
4,500 Capital One Financial Corp. 205,312
5,500 Merrill Lynch & Co., Inc. 371,937
3,000 Silicon Valley Bancshares* 163,875
1,500 TCF Financial Corp. 85,313
----------
1,020,863
----------
FOOD-GRAIN & AGRICULTURE (3.4%)
10,758 Archer-Daniels-Midland Co. 239,365
5,500 Northland Cranberries Inc.,
Class A 84,906
----------
324,271
----------
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MACHINERY & CAPITAL GOODS (4.1%)
15,000 Sun Hydraulics Corp. $ 172,500
7,000 Zebra Technologies Corp.* 218,750
----------
391,250
----------
MEDICAL PRODUCTS AND SUPPLIES (5.2%)
5,000 Biomet, Inc. 124,687
5,000 Boston Scientific, Inc.* 227,500
13,000 Meridian Diagnostics, Inc. 143,000
----------
495,187
----------
MULTI-INDUSTRY (2.0%)
6,000 BMC Industries, Inc. 193,125
----------
OIL & GAS (5.1%)
1,300 Amoco Corp. 119,194
2,000 Royal Dutch Petroleum Co. 105,250
3,000 Schlumberger Ltd. 262,500
----------
486,944
----------
RETAIL (4.1%)
9,999 CUC International, Inc.* 294,970
5,000 Smart & Final, Inc. 100,938
----------
395,908
----------
TELECOMMUNICATIONS (12.2%)
9,333 360o Communications Co.* 197,160
9,100 Cincinnati Bell, Inc. 245,700
5,700 Commnet Cellular, Inc. 197,363
2,712 Lucent Technologies, Inc. 223,571
9,000 WorldCom, Inc.* 302,625
----------
1,166,419
----------
TOTAL COMMON STOCKS (cost $6,181,459) 9,235,914
----------
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (3.8%)
U.S.TREASURY BILLS
$ 365,000 4.77% through 5.06%,
11/13/97 through 12/11/97
(cost $363,798) 363,903
----------
TOTAL INVESTMENTS (cost $6,545,257) $9,599,817
==========
<FN>
- ----------
* Denotes a non-income producing security.
Cost also represents cost for federal income tax purposes.
Portfolio holding percentages represent market value as a percent of net assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 55
FINANCIAL HORIZONS INVESTMENT TRUST
MUNICIPAL BOND FUND
For the year ended October 31, 1997, the Bond Buyer 11 Index moved from a yield
of 5.60% to 5.28%. Municipal bonds underperformed Treasuries during the year.
The yield on the most current 30-year Treasury Bonds dropped from 6.65% to
6.15%. The Financial Horizons Municipal Bond Fund returned 8.37% without sales
charge, while the Lehman Brothers Municipal Bond Index returned 8.49%.
Net assets ended the year at $16.8 million. The Fund's average coupon was 5.83%
with average principal maturity of 18 years. The Fund seeks to maximize income
by having a long maturity schedule while investing in high-quality issues
averaging "AA" credit quality.
As the year began, a Democratic President and a Republican Majority were
returned to Washington and the economy was growing at a slow and manageable non
inflationary pace. The markets reacted favorably to these events with stable to
declining interest rates. However, during the first quarter of the calendar
year, economic statistics began to show signs of an economy that may be
overheating, and on March 25, in a preemptive move against inflationary
concerns, the Federal Reserve raised the Federal funds rate 0.25%. The move
appeared to be justified as, during the months that followed, inflationary
measures remained remarkably tame. In late April the announcement of a balanced
budget agreement also overshadowed concerns about the growth rate.
During the latter part of October, the Equity markets experienced a sell-off
that prompted investors to a flight to quality into U.S. Treasury Securities.
This movement helped to sustain the lower yields and higher prices in the bond
markets. This volatility in the worldwide financial markets, however, has
significantly reduced the threat of another preemptive rate hike from the
Federal Reserve to slow the growth in U.S. economy.
Municipal issuers continued to take advantage of the lower interest rates and
propelled municipal volume up 17% for the first 10 months of the calendar year.
This increased supply has kept municipal securities from fully participating in
the bond market rally. As a consequence, particularly in the long end,
municipals have cheapened when compared to treasury securities.
ALPHA L. BENSON, MBA - PORTFOLIO MANAGER
PORTFOLIO VALUE $16,641,375
FUND PERFORMANCE
<TABLE>
<CAPTION>
Municipal Bond Chart Data
Year.....MBF......LBMBI
<S> <C> <C>
1988.....10000....10000
1989.....10712....10909
1990.....11230....11719
1991.....12691....13145
1992.....13523....14249
1993.....15847....16254
1994.....14244....15546
1995.....16309....17854
1996.....17078....18872
1997.....18508....20475
</TABLE>
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Municipal Bond Fund since inception (12/19/88) and the Lehman Brothers
Municipal Bond Index* (LBMBI) over the period since inception ended 10/31/97.
* The LBMBI consists of investment grade tax-exempt bonds and includes
securities with at least one year to maturity and at least $100 million in
par value outstanding. Unlike the Municipal Bond Fund returns, the LBMBI does
not reflect any fees, expenses or sales charges.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<CAPTION>
1 YEAR 5 YEAR LIFE
<S> <C> <C> <C>
Without sales charge...........8.37%......6.48%.....7.19%
With sales charge..............3.37%......6.16%.....7.19%
</TABLE>
The "without sales charge" returns do not reflect the effects of sales charges.
The "with sales charge" assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals, which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 8.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
<PAGE> 56
<TABLE>
FINANCIAL HORIZONS INVESTMENT TRUST MUNICIPAL BOND FUND
- - STATEMENT OF INVESTMENTS - OCTOBER 31, 1997
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (98.9%)
ALABAMA (6.3%)
$1,000,000 Birmingham, Alabama General
Obligation Refunding Bonds,
Series 1992-B,
6.25%, 04/01/16 $ 1,061,250
-----------
FLORIDA (5.9%)
1,000,000 Orlando, Florida Utilities Commission
Water and Electric Subordinated
Revenue Refunding Bonds,
Series 1993-A, 5.25%, 10/01/14 986,250
-----------
ILLINOIS (18.4%)
1,000,000 Chicago, Illinois Park District General
Obligation Unlimited Bonds,
5.60%, 01/01/21 1,012,500
1,000,000 Illinois Housing Development Authority
Homeowner Mortgage Revenue
Bonds, Series 1994-A-1,
6.45%, 08/01/17 1,063,750
1,000,000 Illinois Regional Transportation Authority,
General Obligation Refunding Bonds,
Series 1996, 5.40%, 06/01/15 1,015,000
-----------
3,091,250
-----------
NEVADA (6.0%)
1,000,000 Nevada State General Obligation,
Nevada Municipal Bond Bank Project,
Numbers 49 & 50,
5.50%, 11/01/16 1,017,500
-----------
NEW JERSEY (6.6%)
1,000,000 New Jersey Turnpike Authority Turnpike
Revenue Bonds, Series 1991-C,
6.50%, 01/01/16 1,118,750
-----------
NEW YORK (6.5%)
1,000,000 New York Local Government Assistance
Corporation, Refunding Bonds,
Series 1993-E, 6.00%, 04/01/14 1,088,750
-----------
NORTH CAROLINA (6.3%)
1,000,000 Charlotte-Mecklenburg Hospital Authority,
North Carolina Health Care System
Revenue Bonds, Series 1992,
6.25%, 01/01/20 1,058,750
-----------
SOUTH CAROLINA (6.2%)
1,000,000 South Carolina State Housing Finance &
Development Authority Homeownership
Mortgage Purchase Bonds,
Series 1994-A,
6.375%, 07/01/16 1,048,750
-----------
TENNESSEE (1.3%)
200,000 Nashville & Davidson County, Tennessee
General Obligation Multi-Purpose
Improvement Bonds, Series 1994,
6.125%, 05/15/14 218,250
-----------
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
TEXAS (17.8%)
$1,000,000 Carrollton - Farmers Branch Independent
School District, Texas General Obligation
School Building Unlimited Tax Bonds,
Series 1995, 5.00%, 02/15/16 $ 971,250
1,000,000 Grand Prairie Independent School District,
Texas General Obligation Unlimited Tax
School Building and Refunding Bonds,
Series 1996, 5.20%, 02/15/17 988,750
1,000,000 Texas State Public Finance Authority
Building Revenue Refunding,
Series 1992-B, 5.75%, 02/01/12 1,027,500
-----------
2,987,500
-----------
UTAH (6.1%)
1,000,000 Utah Housing Finance Agency,
Multi-Family Housing Revenue
Refunding Bonds, (Cottonwood
Apartments Project), Issue 1995,
6.30%, 07/01/15 1,027,500
-----------
VIRGINIA (5.6%)
900,000 Virginia Housing Development Authority
Commonwealth Mortgage Bonds, Series
1992-C, Subseries C-7,
6.30%, 01/01/15 939,375
-----------
WASHINGTON (5.9%)
1,000,000 Seattle, Washington Limited Tax, General
Obligation Bonds, Series 1995,
5.125%, 07/01/15 997,500
-----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(cost $16,066,278) $16,641,375
===========
<FN>
- -----------
Cost also represents cost for federal income tax purposes. Portfolio holding
percentages represent market value as a percentage of net assets.
</TABLE>
See accompanying notes to financial statements.
Distribution of investments by industry, as a percentage of total investment in
securities at value, is as follows:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE PERCENT
<S> <C> <C>
County/City/School Districts $ 1,960,000 11.8%
Hospitals 1,058,750 6.4
Housing 4,079,375 24.5
Miscellaneous 3,128,750 18.8
Political Subdivisions - City/County 2,277,000 13.7
State Territories and Possessions 1,017,500 6.1
Transportation 2,133,750 12.8
Water, Sewer, and Combined Utilities 986,250 5.9
----------- -----
$16,641,375 100.0%
=========== =====
</TABLE>
<PAGE> 58
FINANCIAL HORIZONS INVESTMENT TRUST
GOVERNMENT BOND FUND
The Financial Horizons Investment Trust Government Bond Fund's total return for
the year ended October 31, 1997, was 8.84%, without sales charge and assuming
all distributions were reinvested, while the Merrill Lynch Government Master
Index returned 8.67%.
Shareholders who stayed in the Fund for the entire period were rewarded after a
difficult first six months when intermediate-term interest rates rose 0.4%-0.5%.
The second half of the period was more favorable as these interest rates
dropped 0.5%-0.9% and longer rates dropped by approximately 0.8%.
The higher prices for bonds in the second half were the result of several
factors. The most notable factor was the continued release of favorable
inflation reports in spite of low unemployment and significant growth in the
overall economy. Another important factor has been the perception that the
Federal Reserve will not act to raise rates until clear signs of inflationary
pressures are present. The Federal Reserve's stance combined with favorable
inflation reports has led to a significantly flatter yield curve. Finally, the
U.S. government market has been the beneficiary of a flight to quality as the
result of increased turmoil in world equity markets.
The Government Bond Fund benefited from its weighting in the Collateralized
Mortgage Obligation (CMO) market during the period and the shift out of callable
into non-callable Agency notes. Approximately 62% of portfolio assets are
invested in Treasury and Agency notes, and 35% of Fund assets are invested in
the CMO market. The remainder of portfolio assets are in repurchase agreements.
PORTFOLIO MANAGERS:
KIMBERLY A. BINGLE, CFA, FLMI
WAYNE T. FRISBEE, CFA
GARY R. HUNT, MBA
PORTFOLIO VALUE $48,642,767
FUND PERFORMANCE
<TABLE>
<CAPTION>
Government Bonds Chart Data
Year.....GBF......MLGMI
<S> <C> <C>
1988.....10000....10000
1989.....11181....11287
1990.....11955....11958
1991.....13897....13708
1992.....15416....15459
1993.....17074....17469
1994.....16263....16713
1995.....18976....19289
1996.....19926....20262
1997.....21687....22020
</TABLE>
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Government Bond Fund since inception (12/19/88) and the Merrill Lynch
Government Master Index* (MLGMI) over the period since inception ended 10/31/97.
*The MLGMI is comprised of U.S. Treasury notes and bonds with one or more
years remaining to final maturity and at least $1 billion in face value
outstanding, and U.S. agencies with one or more years remaining to final
maturity and at least $100 million in face value outstanding. Unlike the
Government Bond Fund returns, the MLGMI does not reflect any fees, expenses or
sales charges.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<CAPTION>
1 YEAR 5 YEAR LIFE
<S> <C> <C> <C>
Without sales charge...........8.84%......7.06%.....9.12%
With sales charge..............3.84%......6.76%.....9.12%
</TABLE>
The "without sales charge" returns do not reflect the effects of sales charges.
The "with sales charge" assumes the applicable contingent deferred sales charge
(CDSC) was paid on withdrawals, which has the most dramatic effect on the
one-year performance figures. The CDSC declines from 5% in the first year to 0%
after 6 years. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 8.8 years.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than the original investment. Past performance is no
guarantee of future results.
<PAGE> 59
<TABLE>
FINANCIAL HORIZONS INVESTMENT TRUST GOVERNMENT BOND FUND
- - STATEMENT OF INVESTMENTS - OCTOBER 31, 1997
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
MORTGAGE BACKED SECURITIES (35.2%)
$2,000,000 FHLMC (REMIC) Series 1313-G,
7.25%, 06/15/07 $ 2,052,398
3,000,000 FHLMC (REMIC) Series 1344-D,
6.00%, 8/15/07 2,925,540
1,289,219 FHLMC (REMIC) Series 31-E,
7.55%, 5/15/20 1,338,901
572,259 FHLMC (REMIC) Series 190-D,
9.20%, 10/15/21 609,924
3,828,569 FNMA (REMIC) Series 92-126,
8.00%, 07/25/02 3,986,038
338,324 FNMA (REMIC) Series 1989-86,
8.75%, 11/25/19 358,046
1,444,299 FNMA (REMIC) Series 90-7-B,
8.50%, 01/25/20 1,516,784
3,382,323 FNMA (REMIC) Series 1990-16D,
9.00%, 03/25/20 3,524,959
747,318 FNMA (REMIC) Series 1991-73A,
8.00%, 07/25/21 774,758
-----------
TOTAL MORTGAGE BACKED SECURITIES
(cost $16,425,777) 17,087,348
-----------
U.S. GOVERNMENT AND AGENCY
LONG-TERM OBLIGATIONS (62.3%)
4,000,000 Federal Home Loan Banks,
6.36%, 3/21/01 4,059,588
3,000,000 Federal National Mortgage Assoc.,
7.65%, 03/10/05 3,272,094
1,000,000 Federal National Mortgage Assoc.,
7.26%,10/05/05 1,005,379
15,000,000 Resolution Funding STRIPS,
0.00%, 04/15/06 9,038,835
10,000,000 Resolution Funding STRIPS,
0.00%, 07/15/13 3,717,590
3,000,000 U.S. Treasury Note,
5.625%, 11/30/00 2,991,561
6,000,000 U.S. Treasury Note,
6.625%, 07/31/01 6,174,372
-----------
TOTAL U.S. GOVERNMENT AND AGENCY LONG-TERM OBLIGATIONS
(cost $28,631,433) 30,259,419
-----------
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
REPURCHASE AGREEMENT (2.7%)
$1,296,000 UBS Securities, 5.63%, 11/03/97,
Collateralized by $1,279,000 U.S.
Treasury Note, 6.375%, 01/15/00,
market value $1,322,166
(cost $1,296,000) $ 1,296,000
------------
TOTAL INVESTMENTS (cost $46,353,210) $ 48,642,767
============
<FN>
- ---------
The abbreviations in the above statement stand for the following:
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
REMIC Real Estate Mortgage Investment Conduit
Cost also represents cost for federal income tax purposes. Portfolio holding
percentages represent market value as a percentage of net assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 61
FINANCIAL HORIZONS INVESTMENT TRUST
CASH RESERVE FUND
At October 31, 1997, the Financial Horizons Cash Reserve Fund had net assets of
$4.1 million with an average maturity of 20 days.
The Financial Horizons Cash Reserve Fund continued to invest in only first-tier
money market instruments. At October 31, 1997, commercial paper accounted for
94% of the portfolio, followed by U.S. Government/Agency securities at 6%. The
highest portfolio weightings were in those segments which have a favorable yield
advantage including banking, consumer sales/finance and the broker/dealer
industries. These segments accounted for 14%, 11%, and 11% of the portfolio,
respectively.
A credit review is completed on all issuers prior to investment. The yield on
the Fund remained competitive with its peer average for the fiscal-year
period. The seven-day effective yield at October 31, 1997, was 4.85%.
This year marked the seventh year of expansion for the U.S. economy. Growth for
the third quarter was 3.5% compared to a Federal Reserve (Fed) target of 2.5%.
Economists are surprised that inflationary pressures have not developed,
particularly with such a high growth rate coupled with low unemployment. The
Federal Open Market Committee raised interest rates in March 1997 by increasing
the Fed funds rate to 5.50% from 5.25%. This was the first increase since
January 1996.
KAREN G. MADER, MA - PORTFOLIO MANAGER
PORTFOLIO VALUE $4,053,700
<TABLE>
FUND PERFORMANCE
<CAPTION>
Cash Reserves Chart Data
Year.....CRF......CPI
<S> <C> <C>
1988.....10000....10000
1989.....10659....10389
1990.....11392....11051
1991.....11993....11365
1992.....12361....11738
1993.....12614....12061
1994.....12999....12384
1995.....13703....12723
1996.....14384....13104
1997.....15094....13377
<FN>
Comparative performance of $10,000 invested in the Financial Horizons Investment
Trust Cash Reserve Fund since inception (12/19/88) and the Consumer Price
Index* (CPI) over the period since inception ended 10/31/97.
* The CPI represents changes in prices of all goods and services purchased for
consumption by urban households. Unlike the Cash Reserve Fund returns, the
CPI does not reflect any fees or expenses.
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 10/31/97
<CAPTION>
1 YEAR 5 YEAR LIFE
<S> <C> <C> <C>
Without sales charge*..........4.93%......4.08%.....4.75%
<FN>
*There are no sales charges in the Financial Horizons Investment Trust Cash
Reserve Fund. These results include reinvestment of all dividends and capital
gains distributions. The life of the fund is 8.8 years.
An investment in the Cash Reserve Fund is neither insured nor guaranteed by
the U.S. government and there can be no assurance that it will be able to
maintain a stable net asset value of $1.00 a share. Past performance is no
guarantee of future results.
</TABLE>
<PAGE> 62
<TABLE>
FINANCIAL HORIZONS INVESTMENT TRUST CASH RESERVE FUND
- - STATEMENT OF INVESTMENTS - OCTOBER 31, 1997
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
COMMERCIAL PAPER (94.3%)
AGRICULTURE/FINANCE (2.9%)
$ 116,000 John Deere Capital Corp.,
5.48%, 11/26/97 $ 115,559
----------
AUTO/FINANCE (4.0%)
160,000 Ford Motor Credit Co., 5.49%, 11/07/97 159,854
----------
BANKS (14.1%)
132,000 Corestates Capital Corp., 5.51%, 11/03/97 131,959
122,000 J.P. Morgan & Co., 5.49%, 11/21/97 121,628
160,000 National City Credit Corp., 5.51%, 12/09/97 159,069
160,000 SunTrust Banks, Inc., 5.53%, 11/20/97 159,533
----------
572,189
----------
BROKER/DEALERS (10.9%)
140,000 Bear Stearns Company, 5.52%, 12/08/97 139,206
142,000 Goldman Sachs Group, 5.50%, 11/14/97 141,718
162,000 Merrill Lynch & Co. Inc., 5.50%, 11/03/97 161,951
----------
442,875
----------
CHEMICALS (3.2%)
130,000 PPG Industries Inc., 5.47%, 11/24/97 129,546
----------
CONSUMER SALES/FINANCE (10.6%)
156,000 American Express Credit Corp.,
5.49%, 12/01/97 155,286
160,000 Commercial Credit Co., 5.51%, 11/12/97 159,731
116,000 Norwest Financial Inc., 5.51%, 11/03/97 115,964
----------
430,981
----------
DATA SERVICES (4.0%)
162,000 First Data Corp., 5.51%, 12/09/97 161,058
----------
DIVERSIFIED FINANCE (3.5%)
144,000 GE Capital Corp., 5.50%, 12/03/97 143,296
----------
ENTERTAINMENT (3.7%)
150,000 Walt Disney Co., 5.50%, 11/04/97 149,931
----------
FINANCIAL SERVICES/UTILITIES (4.0%)
163,000 National Rural Utilities Cooperative,
5.50%, 11/18/97 162,577
----------
HEAVY EQUIPMENT/FINANCE (3.7%)
150,000 Caterpillar Financial Services Inc.,
5.50%, 11/18/97 149,610
----------
INSURANCE (2.4%)
100,000 MetLife Funding Inc., 5.49%, 12/09/97 99,420
----------
OFFICE EQUIPMENT & SUPPLIES (3.7%)
150,000 Pitney Bowes Credit Corp.,
5.54%, 12/02/97 149,284
----------
PACKAGING & CONTAINERS (3.7%)
150,000 Bemis Company, Inc., 5.52%, 11/17/97 149,632
----------
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
PRINCIPAL SECURITY VALUE
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
PAPER & FOREST PRODUCTS (3.7%)
$ 150,000 Sonoco Products Co., 5.48%, 11/18/97 $ 149,612
----------
PHARMACEUTICALS & PERSONAL CARE (9.3%)
140,000 Abbott Laboratories, 5.46%, 11/12/97 139,766
110,000 Becton Dickinson & Co., 5.52%, 11/07/97 109,899
126,000 Schering Corp., 5.50%, 11/05/97 125,923
----------
375,588
----------
PREMIUM FINANCE (3.9%)
160,000 A.I. Credit Corp., 5.53%, 01/13/98 158,206
----------
TELEPHONE SERVICES (3.0%)
120,000 Ameritech Corp., 5.50%, 11/17/97 119,707
----------
TOTAL COMMERCIAL PAPER (cost $3,818,925) 3,818,925
----------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (5.8%)
85,000 U.S. Treasury Bill, 4.77%, 11/13/97 84,865
150,000 Federal Home Loan Mortgage Corp.,
5.38%, 11/05/97 149,910
----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(cost $234,775) 234,775
----------
TOTAL INVESTMENTS (cost $4,053,700) $4,053,700
==========
<FN>
- -----------
Cost also represents cost for federal income tax purposes. Portfolio holding
percentages represent value as a percentage of net assets.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 64
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
AT OCTOBER 31, 1997
<CAPTION>
MUNICIPAL GOVERNMENT CASH
GROWTH BOND BOND RESERVE
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost $6,545,257, $16,066,278, $46,353,210
and $4,053,700, respectively) $ 9,599,817 $ 16,641,375 $ 48,642,767 $ 4,053,700
Cash -- -- 5,267 2,390
Receivable for Fund shares sold 22,411 200 -- --
Receivable for investment securities sold -- 222,493 13,778 --
Accrued interest and dividends receivable 3,104 261,276 343,800 --
------------ ------------ ------------ ------------
TOTAL ASSETS 9,625,332 17,125,344 49,005,612 4,056,090
LIABILITIES
Bank loan 69,957 210,307 -- --
Payable for Fund shares redeemed -- 42,339 270,849 134
Payable for investment securities purchased -- -- -- --
Accrued management fees 5,726 9,774 26,825 1,379
Accrued transfer agent fees 983 980 3,605 149
Dividends payable -- 30,222 123,965 1,206
Other accrued expenses 7,959 10,275 31,487 2,433
------------ ------------ ------------ ------------
TOTAL LIABILITIES 84,625 303,897 456,731 5,301
------------ ------------ ------------ ------------
NET ASSETS $ 9,540,707 $ 16,821,447 $ 48,548,881 $ 4,050,789
============ ============ ============ ============
NET ASSETS REPRESENTED BY:
Capital Shares, $1 par value, outstanding $ 417,133 $ 1,513,368 $ 4,338,857 $ 4,050,907
Capital paid in excess of par value 4,296,824 15,524,635 43,130,161 (113)
Net unrealized appreciation 3,054,560 575,097 2,289,557 --
Accumulated undistributed net realized gain (loss) 1,768,865 (791,653) (1,210,831) (5)
Accumulated undistributed net investment income 3,325 -- 1,137 --
------------ ------------ ------------ ------------
NET ASSETS $ 9,540,707 $ 16,821,447 $ 48,548,881 $ 4,050,789
============ ============ ============ ============
Shares outstanding (unlimited number of shares authorized) 417,133 1,513,368 4,338,857 4,050,907
============ ============ ============ ============
NET ASSET VALUE AND OFFERING PRICE PER SHARE* $ 22.87 $ 11.12 $ 11.19 $ 1.00
============ ============ ============ ============
<FN>
* For the Growth Fund, the Municipal Bond Fund, and the Government Bond Fund,
the redemption price per share varies by the length of time shares are held.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 65
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<CAPTION>
MUNICIPAL GOVERNMENT CASH
GROWTH BOND BOND RESERVE
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
INCOME:
Dividends $ 79,726 $ -- $ -- $ --
Interest 34,405 1,069,550 3,538,447 234,362
Other -- -- 102,078 --
----------- ----------- ----------- -----------
Total income 114,131 1,069,550 3,640,525 234,362
EXPENSES:
Distribution fees 73,712 139,464 396,061 --
Investment management fees 63,883 121,837 343,259 17,011
Transfer agent fees 11,300 11,000 41,500 1,001
Professional services 3,014 5,870 18,132 1,235
Registration fees 3,051 3,510 6,005 2,164
Shareholders' reports 5,900 5,000 18,100 811
Custodian fees 3,400 7,000 7,500 6,040
Trustee fees and expenses 1,601 3,323 9,530 705
Other 1,223 466 4,497 325
----------- ----------- ----------- -----------
Total expenses before waived expenses 167,084 297,470 844,584 29,292
Total waived expenses (72,700) (137,225) (396,061) --
----------- ----------- ----------- -----------
Net expenses 94,384 160,245 448,523 29,292
----------- ----------- ----------- -----------
NET INVESTMENT INCOME $ 19,747 $ 909,305 $ 3,192,002 $ 205,070
=========== =========== =========== ===========
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments $ 1,768,865 $ 159,282 $ 90,839 $ 1
Net change in unrealized appreciation of investments 366,366 416,404 1,031,295 --
----------- ----------- ----------- -----------
Net realized and unrealized gain on investments 2,135,231 575,686 1,122,134 1
----------- ----------- ----------- -----------
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $ 2,154,978 $ 1,484,991 $ 4,314,136 $ 205,071
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 66
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
GROWTH FUND MUNICIPAL BOND FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 19,747 $ 2,285 $ 909,305 $ 1,051,197
Net realized gain on investments 1,768,865 456,661 159,282 249,540
Net change in unrealized appreciation (depreciation)
of investments 366,366 995,019 416,404 (275,812)
---------------------------- ----------------------------
Net increase in net assets resulting from operations 2,154,978 1,453,965 1,484,991 1,024,925
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (14,409) -- (909,305) (1,051,197)
In excess of net investment income -- -- -- (301)
Net realized gain from investment transactions (455,746) (819,732) -- --
---------------------------- ----------------------------
Decrease in net assets from distributions to shareholders (470,155) (819,732) (909,305) (1,051,498)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 509,644 896,371 127,500 83,672
Net asset value of shares issued to shareholders from
reinvestment of dividends 464,389 806,112 531,645 617,827
Cost of shares redeemed (2,213,453) (835,073) (4,913,234) (5,980,992)
---------------------------- ----------------------------
Increase (decrease) in net assets derived from capital
share transactions (1,239,420) 867,410 (4,254,089) (5,279,493)
---------------------------- ----------------------------
NET INCREASE (DECREASE) IN NET ASSETS 445,403 1,501,643 (3,678,403) (5,306,066)
NET ASSETS - BEGINNING OF PERIOD 9,095,304 7,593,661 20,499,850 25,805,916
---------------------------- ----------------------------
NET ASSETS - END OF PERIOD $ 9,540,707 $ 9,095,304 $ 16,821,447 $ 20,499,850
============================ ============================
Undistributed net realized gain (loss) on investments
included in net assets at end of period $ 1,768,865 $ 458,096 $ (791,653) $ (950,935)
============================ ============================
Undistributed (distributions in excess of) net
investment income included in net assets at end of period $ 3,325 $ (4,363) $ -- $ (301)
---------------------------- ----------------------------
SHARE ACTIVITY:
Shares sold 24,523 48,331 11,782 7,850
Reinvestment of dividends 24,012 46,328 48,845 57,620
Shares redeemed (98,638) (45,321) (450,753) (559,944)
============================ ============================
Net increase (decrease) in number of shares (50,103) 49,338 (390,126) (494,474)
============================ ============================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 67
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
GOVERNMENT BOND FUND CASH RESERVE FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 3,192,002 $ 3,989,258 $ 205,070 $ 202,483
Net realized gain (loss) on investments 90,839 746,770 1 (3)
Net change in unrealized appreciation (depreciation)
of investments 1,031,295 (1,785,043) -- --
---------------------------- ----------------------------
Net increase in net assets resulting from operations 4,314,136 2,950,985 205,071 202,480
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,191,909) (3,988,214) (205,070) (202,483)
In excess of net investment income -- -- -- (8)
Paid in capital -- -- -- (105)
---------------------------- ----------------------------
Decrease in net assets from distributions to shareholders (3,191,909) (3,988,214) (205,070) (202,596)
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 362,854 452,449 162,276 280,277
Net asset value of shares issued to shareholders from
reinvestment of dividends 1,610,983 2,053,433 189,391 186,091
Cost of shares redeemed (13,283,912) (11,921,797) (543,630) (373,733)
---------------------------- ----------------------------
Increase (decrease) in net assets derived from capital
share transactions (11,310,075) (9,415,915) (191,963) 92,635
---------------------------- ----------------------------
NET INCREASE (DECREASE) IN NET ASSETS (10,187,848) (10,453,144) (191,962) 92,519
NET ASSETS - BEGINNING OF PERIOD 58,736,729 69,189,873 4,242,751 4,150,232
---------------------------- ----------------------------
NET ASSETS - END OF PERIOD $ 48,548,881 $ 58,736,729 $ 4,050,789 $ 4,242,751
============================ ============================
Undistributed net realized loss on investments
included in net assets at end of period $ (1,210,831) $ (1,301,670) $ (5) $ (6)
============================ ============================
Undistributed (distributions in excess of) net
investment income included in net assets at end of period $ 1,137 $ 1,044 $ -- $ (8)
============================ ============================
SHARE ACTIVITY:
Shares sold 33,267 40,874 162,276 280,277
Reinvestment of dividends 147,681 188,895 189,391 186,091
Shares redeemed (1,218,791) (1,101,948) (543,630) (373,733)
---------------------------- ----------------------------
Net increase (decrease) in number of shares (1,037,843) (872,179) (191,963) 92,635
============================ ============================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 68
<TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<CAPTION>
GROWTH FUND MUNICIPAL BOND FUND
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE--
BEGINNING OF PERIOD $19.47 $18.17 $15.11 $14.17 $12.46 $10.77 $10.76 $ 9.86 $11.75 $10.64
Net investment income (loss) 0.04 0.01 (0.01) 0.03 0.08 0.53 0.48 0.50 0.49 0.56
Net realized gain (loss) and
unrealized appreciation
(depreciation) 4.38 3.28 3.23 0.95 1.73 0.35 0.01 0.90 (1.62) 1.22
----------------------------------------- -----------------------------------------
Total from investment operations 4.42 3.29 3.22 0.98 1.81 0.88 0.49 1.40 (1.13) 1.78
Dividends from net
investment income (0.03) -- -- (0.04) (0.10) (0.53) (0.48) (0.50) (0.49) (0.56)
Distributions in excess of net
investment income -- -- (0.01) -- -- -- -- -- -- --
Distributions from net realized
gain on investment transactions (0.99) (1.99) (0.15) -- -- -- -- -- (0.27) (0.11)
----------------------------------------- -----------------------------------------
Total distributions (1.02) (1.99) (0.16) (0.04) (0.10) (0.53) (0.48) (0.50) (0.76) (0.67)
----------------------------------------- -----------------------------------------
Net increase (decrease) in net
asset value 3.40 1.30 3.06 0.94 1.71 0.35 0.01 0.90 (1.89) 1.11
----------------------------------------- -----------------------------------------
NET ASSET VALUE--
END OF PERIOD $22.87 $19.47 $18.17 $15.11 $14.17 $11.12 $10.77 $10.76 $ 9.86 $11.75
========================================= =========================================
Total return (excluding
sales charges) 23.66% 19.41% 21.57% 6.92% 14.59% 8.37% 4.72% 14.50% (10.11%) 17.18%
Net assets, end of period (000) $9,541 $9,095 $7,594 $6,787 $5,165 $16,821 $20,500 $25,806 $26,412 $25,828
Ratio of expenses to average
net assets 0.96% 1.44% 1.47% 1.59% 1.44% 0.85% 1.36% 1.35% 1.27% 1.01%
Ratio of expenses to average
net assets* 1.70% 1.69% 1.72% 1.90% 2.03% 1.59% 1.61% 1.60% 1.57% 1.61%
Ratio of net investment income
(loss) to average net assets 0.20% 0.03% (0.05%) 0.21% 0.63% 4.85% 4.53% 4.82% 4.58% 4.81%
Ratio of net investment income
(loss) to average net assets* (0.54%) (0.22%) (0.30%) (0.82%) 0.05% 4.11% 4.28% 4.57% 4.28% 4.11%
Portfolio turnover 40.69% 17.19% 29.19% 14.14% 12.98% 14.09% 38.80% 60.79% 69.67% 46.95%
Average commission rate paid** 5.8006(cent) 5.9080(cent) -- -- -- -- -- -- -- --
<FN>
- -----------
* Ratios calculated as if no expenses were waived.
** Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 69
<TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<CAPTION>
GOVERNMENT BOND FUND CASH RESERVE FUND
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE--
BEGINNING OF PERIOD $10.92 $11.07 $10.12 $11.31 $11.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.66 0.68 0.68 0.58 0.63 0.05 0.05 0.05 0.03 0.02
Net realized gain (loss) and
unrealized appreciation
(depreciation) 0.27 (0.15) 0.95 (1.10) 0.50 -- -- -- -- --
----------------------------------------- -----------------------------------------
Total from investment operations 0.93 0.53 1.63 (0.52) 1.13 0.05 0.05 0.05 0.03 0.02
Dividends from net
investment income (0.66) (0.68) (0.68) (0.58) (0.66) (0.05) (0.05) (0.05) (0.03) (0.02)
Distributions from net realized
gain from investment transactions -- -- -- (0.09) (0.16) -- -- -- -- --
----------------------------------------- -----------------------------------------
Total distributions (0.66) (0.68) (0.68) (0.67) (0.82) (0.05) (0.05) (0.05) (0.03) (0.02)
----------------------------------------- -----------------------------------------
Net increase (decrease) in net
asset value 0.27 (0.15) 0.95 (1.19) 0.31 -- -- -- -- --
----------------------------------------- -----------------------------------------
NET ASSET VALUE--
END OF PERIOD $11.19 $10.92 $11.07 $10.12 $11.31 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================= =========================================
Total return (excluding
sales charges) 8.84% 5.01% 16.68% (4.75%) 10.76% 4.93% 4.97% 5.41% 3.08% 2.05%
Net assets, end of period (000) $48,549 $58,737 $69,190 $70,218 $84,602 $4,051 $4,243 $4,150 $3,950 $2,788
Ratio of expenses to average
net assets 0.85% 0.84% 0.89% 1.28% 1.00% 0.69% 0.65% 0.65% 0.84% 1.17%
Ratio of expenses to average
net assets* 1.60% 1.59% 1.58% 1.58% 1.61% 0.69% 0.65% 0.65% 1.06% 2.20%
Ratio of net investment income
average net assets 6.04% 6.26% 6.42% 5.42% 5.55% 4.82% 4.86% 5.29% 3.14% 2.04%
Ratio of net investment income
to average net assets* 5.29% 5.51% 5.73% 5.12% 4.93% 4.82% 4.86% 5.29% 2.92% 0.79%
Portfolio turnover 52.10% 21.04% 140.55% 174.40% 143.63% -- -- -- -- --
<FN>
* Ratios calculated as if no expenses were waived.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Horizons Investment Trust (Trust), is a diversified, open-end
investment company organized under the laws of Massachusetts by a Declaration of
Trust dated May 9, 1988. The Trust offers shares in four separate mutual funds
which are registered under the Investment Company Act of 1940.
(A) SECURITY VALUATION
(1) Growth Fund, Municipal Bond Fund and Government Bond Fund:
Securities traded on a national securities exchange are valued at
the last quoted sale price, or if no sale, at the prior day's
valuation as provided by an independent pricing agent. Securities
traded in the over-the-counter (OTC) market are valued at the last
quoted sale price, or if no sale, the quoted bid price. U.S.
Government securities are valued at the quoted bid price. Bonds are
valued by a combination of daily quotes and matrix evaluations.
Securities for which reliable 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 the Fund's investment adviser, are valued at fair value
in accordance with procedures authorized by the Boards of Trustees.
(2) Cash Reserve Fund: Securities are valued at amortized cost, which
approximates market value, in accordance with Rule 2a-7 of the
Investment Company Act of 1940, as amended.
The value of a repurchase agreement generally equals the purchase
price paid by the Fund (cost) plus the interest accrued to date. The
seller, under the repurchase agreement, is required to maintain the
market value of the underlying collateral at not less than the value
of the repurchase agreement. Securities subject to repurchase
agreements are held by the Federal Reserve/Treasury book-entry
system or by the Fund's custodian or an approved sub-custodian.
(B) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date; interest income, including amortization
of premium and discount where applicable, is recorded on an accrual basis.
(C) FEDERAL INCOME TAXES
Each Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all its taxable income to shareholders. To the extent net
realized gains are offset through the application of a capital loss
carryover, they will not be distributed to shareholders but will be
retained by that Fund.
As of October 31, 1997, the Municipal and Government Bond funds had net
capital loss carry forwards of $791,653 and $1,210,831 respectively,
available to offset future capital gains, which will expire in 5 to 6
years.
(D) DIVIDENDS TO SHAREHOLDERS
(1) Growth Fund:
Dividends from net investment income are paid semi-annually and are
recorded on the ex-dividend date.
(2) Municipal Bond Fund, Government Bond Fund, and Cash Reserve Fund:
Dividends from net investment income are declared daily and paid
monthly from net investment income.
Distributable net realized capital gains are declared and distributed at
least annually for all funds.
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS
Dividends and distributions to shareholders are determined in accordance
with federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax" differences are
considered either permanent or temporary in nature. In accordance with
AICPA Statement of Position 93-2, permanent differences are reclassified
within the capital accounts based on their nature for federal income tax
purposes; temporary differences do not require reclassification. Dividends
and distributions that exceed net investment income and net realized gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income and net realized gains. To
the extent distributions exceed current and accumulated earnings and
profits, they are reported as distributions of paid-in-capital. These
reclassifications have no effect upon the net asset value of the
respective funds.
Accordingly, as of October 31, 1997, undistributed net investment income,
undistributed net realized gains and capital paid in excess of par value
have been adjusted. Negative amounts represent credits and positive
amounts represent debits. The adjustments are as follows:
<TABLE>
<CAPTION>
CAPITAL PAID IN
UNDISTRIBUTED NET UNDISTRIBUTED NET EXCESS OF
INVESTMENT INCOME REALIZEDGAINS PAR VALUE
<S> <C> <C> <C>
Growth Fund $(2,350) $2,350 $ --
Municipal Bond Fund (301) -- 301
Cash Reserve Fund (8) -- 8
</TABLE>
(E) EXPENSES
Direct expenses of a Fund are allocated to that Fund. General expenses of
the Trust are allocated to the funds based upon each Fund's relative
average net assets.
(F) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH AFFILIATES
As investment manager for the funds, Nationwide Advisory Services, Inc. (NAS),
(formerly Nationwide Financial Services, Inc.), an affiliated company, earns an
annual fee of .65% based on the average daily net assets of the Growth Fund,
Municipal Bond Fund and Government Bond Fund and .40% of the average daily net
assets of the Cash Reserve Fund.
NAS also receives fees for distribution pursuant to a Rule 12b-1 Distribution
Plan approved by the Board of Trustees. These fees are based on average daily
net assets of the Growth Fund, the Municipal Bond Fund, and the Government Bond
Fund at an annual rate of .75%. During the year ended October 31, 1997, NAS
waived distribution fees for the Growth, Municipal Bond and Government Bond
funds totaling $72,700, $137,225, and $396,061, respectively, or $.155, $.080
and $.082 per average share outstanding.
NAS also receives fees as principal underwriter from contingent deferred sales
charges (CDSC) ranging from 5% to 1%, imposed on redemptions which cause the
current value of an account to fall below the total purchase payments made
during the past six years. During the year ended October 31, 1997, NAS received
fees of $10,832, $41,532 and $23,417 on the Growth, Municipal Bond and
Government Bond funds, respectively. Additionally, the Government Bond Fund
retained fees (CDSC) of $102,078 pursuant to NASD guidelines which limit sales
charges payable to underwriters. These fees are reported as "other income."
A subsidiary of NAS (Nationwide Investors Services, Inc.) acts as transfer and
dividend disbursing agent for the funds.
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. BANK LOANS
The Trust has an unsecured bank line of credit of $6,000,000 for overdraft
protection and temporary emergency borrowing purposes. Borrowings under this
arrangement bear interest at the Federal funds rate plus .50%. These interest
costs are included in custodian fees in the statements of operations. No
compensating balances are required.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding U.S. Government and
short-term securities) and purchases and sales of U.S. Government Obligations
for the year ended October 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
U.S. GOVT.
SECURITIES OBLIGATIONS
PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C>
Growth Fund $3,705,184 $4,960,110 $ 2,083,554 $ 2,335,124
Municipal Bond Fund 2,611,428 6,686,252 -- --
Government Bond Fund -- 3,046,275 25,533,599 27,887,893
Cash Reserve Fund -- -- 1,629,665 1,596,000
</TABLE>
Realized gains and losses have been computed on the specific identification
basis. Included in net unrealized appreciation at October 31, 1997, are the
following components:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
<S> <C> <C> <C>
Growth Fund $3,250,075 $(195,515) $3,054,560
Municipal Bond Fund 590,417 (15,320) 575,097
Government Bond Fund 2,289,557 -- 2,289,557
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For corporate shareholders, 100% of the income dividends paid by the Growth Fund
in the fiscal year ended October 31, 1997, qualifies for the corporate dividend
received deduction.
All of the distributions paid by the Municipal Bond Fund during the fiscal year
are exempt from federal income taxes.
6. SUBSEQUENT EVENT
At a meeting of the Board of Trustees on November 7, 1997, the Board authorized
a Special Meeting of Shareholders to be held on February 16, 1998. At this
Special Meeting, shareholders are being asked to approve an Agreement and Plan
of Reorganization between Financial Horizons Investment Trust and Nationwide
Investing Foundation III ("New Trust"), at which time Nationwide Investing
Foundation and Nationwide Investing Foundation II will also reorganize into the
New Trust. The transactions contemplated thereby pending shareholder approval
include the following:
(a) The transfer of the net assets of the Financial Horizons Growth Fund to
the Nationwide Mid-Cap Growth Fund series of the New Trust in exchange
for Class D shares of the Mid-Cap Growth Fund, which will be
distributed to shareholders of the Growth Fund.
(b) The transfer of the net assets of the Financial Horizons Cash Reserve
Fund to the Nationwide Money Market Fund series of the New Trust in
exchange for shares of the Money Market Fund, which will be distributed
to shareholders of the Cash Reserve Fund.
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(c) The transfer of the net assets of the Financial Horizons Government
Bond Fund to the Nationwide Long-Term U.S. Government Bond Fund series
of the New Trust in exchange for Class D shares of the Long-Term U.S.
Government Bond Fund, which will be distributed to shareholders of the
Government Bond Fund.
(d) The transfer of the net assets of the Financial Horizons Municipal Bond
Fund to the Nationwide Tax-Free Income Fund series of the New Trust in
exchange for Class D shares of the Tax-Free Income Fund, which will be
distributed to shareholders of the Municipal Bond Fund.
The Board of Trustees of the Trust have fixed the close of business on December
18, 1997, as the record date for the determination of shareholders of the Trust
entitled to receive notice of and to vote at the meeting. The Combined
Prospectus/Proxy Statement contains further information regarding the meeting
and the proposals to be considered, including the revised fee structure, and
will be mailed to shareholders in early January 1998.
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Financial Horizons Investment Trust:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of The Financial Horizons Investment Trust --
Growth Fund, Municipal Bond Fund, Government Bond Fund, and Cash Reserve Fund,
as of October 31, 1997, and the related statements of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and the financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
October 31, 1997, by confirmation with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Financial Horizons Investment Trust
as of October 31, 1997, and the results of their operations, the changes in
their net assets and the financial highlights for each of the periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
DECEMBER 5, 1997
COLUMBUS, OHIO
<PAGE> 75
FINANCIAL HORIZONS INVESTMENT TRUST
P.O. BOX 1492
THREE NATIONWIDE PLAZA
COLUMBUS OH 43216-1492
October 31, 1997
Annual Report
FH-0012-N
BULK RATE
U.S. POSTAGE
PAID
BERWYN,IL
Permit No. 150
<PAGE> 1
Exhibit 17(h)
SUPPLEMENT DATED
DECEMBER 23, 1997
TO
PROSPECTUS DATED
FEBRUARY 28, 1997
NATIONWIDE INVESTING FOUNDATION
NATIONWIDE INVESTING FOUNDATION II
The following is added as a separate paragraph under the section entitled
"RETIREMENT PLANS" under INVESTOR SERVICES on page 23 of the prospectus:
Beginning January 1, 1998, Shares of the Funds may be purchased for Roth IRAs
and for Education IRAs, For more information, please call NAS at 1-800-848-0920.
Please keep this supplement with your prospectus for further reference.
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